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SECURITIES AND EXCHANGE COMMISSION
Exchange Act of 1934
Filed by a Party other than the Registrant o
Check the appropriate box:
þ Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
o | No fee required. | |
þ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1 | ) | Title of each class of securities to which transaction applies: | ||||
Common Stock, par value $0.01 per share, of Magnum Hunter Resources Corporation | ||||||
(2 | ) | Aggregate number of securities to which transaction applies: | ||||
42,804,675 shares of Magnum Hunter Resources Corporation common stock (including shares of Magnum Hunter Resources Corporation common stock issuable upon exchange of exchangeable shares of MHR Exchangeco Corporation) | ||||||
(3 | ) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): | ||||
The filing fee was calculated based on the value of the transaction, which was computed by multiplying the 42,804,675 shares of Magnum Hunter Resources Corporation common stock by $6.825 per share, that being the average of the high and low prices reported on the New York Stock Exchange for such shares on March 11, 2011. In accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended, the filing fee was determined at the rate of $116.10 per million. | ||||||
(4 | ) | Proposed maximum aggregate value of transaction: | ||||
$292,141,907 | ||||||
(5 | ) | Total fee paid: | ||||
$33,917.68 | ||||||
o | Fee paid previously with preliminary materials. | |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
(1) | Amount previously paid: | |
(2) | Form, schedule or registration statement no.: | |
(3) | Filing party: | |
(4) | Date filed: | |
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Attn: Corporate Secretary
777 Post Oak Boulevard, Suite 650
Houston, Texas 77056
Telephone:(832) 369-6986
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48 Wall Street
New York, NY 10005
Stockholders, call toll-free:(800) 967-4617
Banks and brokers, call collect:(212) 269-5550
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48 Wall Street
New York, NY 10005
Stockholders, call toll-free:(800) 967-4617
Banks and brokers, call collect:(212) 269-5550
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• | Magnum Hunter, the Company, MHR, we, our, ours and us are to Magnum Hunter Resources Corporation, a Delaware corporation; | |
• | all references to NuLoch are to NuLoch Resources Inc., a corporation existing under the laws of the Province of Alberta; | |
• | all references to Exchangeco are to MHR Exchangeco Corporation, a corporation existing under the laws of the Province of Alberta and an indirect wholly-owned subsidiary of Magnum Hunter; | |
• | all references to the arrangement agreement are to the Arrangement Agreement, dated as of January 19, 2011, as it may be amended from time to time, by and among Magnum Hunter, Exchangeco and NuLoch, a copy of which is attached as Annex A to this proxy statement; | |
• | all references to the plan of arrangement are to the form of plan of arrangement under the Business Corporations Act (Alberta) referred to in the arrangement agreement, a copy of which is attached as Exhibit B to the arrangement agreement; | |
• | all references to the arrangement are to the transactions contemplated by the arrangement agreement and the plan of arrangement, whereby, among other things, Magnum Hunter will acquire indirectly all of the issued and outstanding equity of NuLoch; | |
• | all references to the Meeting are to the annual and special meetings of Magnum Hunter stockholders to which this proxy statement relates; | |
• | all references to our preferred stock are to our Series C Cumulative Perpetual Preferred Stock and our Series D Cumulative Preferred Stock; | |
• | all references to our preferred stockholders are to the holders of our preferred stock; and | |
• | all dollar amounts are expressed in U.S. dollars. |
Q: | Why am I receiving this document? | |
A: | Magnum Hunter is holding the Meeting of Magnum Hunter stockholders in order to obtain the approval necessary to issue the shares of Magnum Hunter common stock (including shares of Magnum Hunter common stock issuable upon exchange of the exchangeable shares of Exchangeco) in connection with the arrangement, which we refer to throughout this proxy statement as the MHR Stock Issuance. At the Meeting, Magnum Hunter stockholders will also vote on certain other matters unrelated to the arrangement, which are described throughout this proxy statement. | |
Q: | When and where is the Meeting? | |
A: | The Meeting will be held on[April 29], 2011 at 9:00 a.m. Central Time at The Omni Hotels & Resorts, Grand Salon East, Four Riverway, Houston, Texas 77056. | |
Q: | Who can vote at the Meeting? | |
A: | We have fixed the close of business on March[15], 2011 as the record date for the Meeting, and only holders of record of Magnum Hunter stock as of the close of business on such date are entitled to notice of and to vote at the Meeting or any adjournment or postponement thereof. |
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Q: | What am I being asked to vote on at the Meeting? | |
A: | Common stockholders are being asked to vote on each of the proposals below, and our preferred stockholders are only being asked to vote on the proposal next to the fourth bullet point below: |
• | approve the MHR Stock Issuance in connection with the arrangement; | |
• | elect nine directors of Magnum Hunter to hold office until the 2012 annual meeting of stockholders of Magnum Hunter or until their respective successors are duly qualified and elected; | |
• | approve an amendment to Magnum Hunter’s certificate of incorporation, as amended, which we refer to as the certificate of incorporation, to increase the authorized number of shares of Magnum Hunter common stock to 250,000,000; | |
• | approve an amendment to Magnum Hunter’s certificate of incorporation to increase the authorized number of shares of Magnum Hunter preferred stock to 15,000,000; | |
• | approve an amendment to Magnum Hunter’s amended and restated stock incentive plan, which we refer to as the Incentive Plan, to increase the aggregate number of shares of Magnum Hunter common stock that may be issued under the plan to 20,000,000; | |
• | ratify the appointment of Hein & Associates LLP, whom we refer to as Hein, as Magnum Hunter’s independent registered public accounting firm for the fiscal year ending December 31, 2011; | |
• | cast advisory votes on executive compensation and on the frequency of future advisory votes on executive compensation; | |
• | approve an adjournment of the Meeting, if necessary, to solicit additional proxies in favor of the foregoing proposals; and | |
• | transact such other business as may properly come before the Meeting or any adjournment or postponement thereof. |
Q: | What is Magnum Hunter proposing with respect to the arrangement? | |
A: | Magnum Hunter is proposing to indirectly acquire all of the issued and outstanding equity of NuLoch. The transaction will be carried out pursuant to the arrangement agreement and plan of arrangement, which is the Canadian equivalent to a plan of merger. Pursuant to the plan of arrangement, Exchangeco will acquire all of the outstanding NuLoch Class A shares in exchange for shares of Magnum Hunter common stock and/or exchangeable shares of Exchangeco, as described in more detail below. | |
Q: | When do you expect the arrangement to be completed? | |
A: | It is currently anticipated that the arrangement will be completed on or about[April 29], 2011. | |
Q: | Is completion of the arrangement subject to any other conditions? | |
A: | Yes. In addition to the approval of the MHR Stock Issuance in connection with the arrangement, completion of the arrangement requires the approval of the arrangement by NuLoch securityholders, approval by the Court of Queen’s Bench of Alberta and the satisfaction or waiver of the other conditions specified in the arrangement agreement. | |
Q: | Why are exchangeable shares being offered to Canadian residents in the arrangement? | |
A: | The exchangeable shares are being offered to provide an opportunity for NuLoch securityholders who are residents of Canada to make a tax election to defer certain capital gain taxes, which would otherwise arise upon the exchange of their NuLoch shares for shares of Magnum Hunter common stock. Each exchangeable share is substantially the economic equivalent of a share of Magnum Hunter common stock and |
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generally is exchangeable on aone-for-one basis for a share of Magnum Hunter common stock. In addition, each holder of an exchangeable share will, through a trust agreement and Magnum Hunter’s special voting preferred stock, effectively have the ability to cast votes along with holders of Magnum Hunter common stock. Any exchangeable shares not previously exchanged will, upon the direction of Exchangeco’s board of directors, be exchanged for shares of Magnum Hunter common stock on the date that is the one year anniversary of the closing date of the arrangement, subject to applicable law, unless Magnum Hunter exchanges them earlier upon the occurrence of certain events. | ||
Magnum Hunter has agreed to use reasonable best efforts to file a registration statement onForm S-3 (or such other applicable form) with the Securities and Exchange Commission, which we refer to as the SEC, in order to register under the Securities Act of 1933, as amended, which we refer to as the Securities Act, the issuance from time to time of the shares of Magnum Hunter common stock in exchange for the exchangeable shares. If such registration statement has not been declared effective by the SEC by the effective time of the arrangement, then all NuLoch securityholders shall be deemed to have elected to receive only shares of Magnum Hunter common stock pursuant to the arrangement. | ||
Q: | What percentage of the combined company will the securityholders of NuLoch own? | |
A: | Upon completion of the arrangement, we estimate that NuLoch’s former securityholders will own approximately[ • ]% of the outstanding common stock of the combined company on a fully diluted basis, including the exchange of the exchangeable shares for shares of Magnum Hunter common stock (assuming the completion of Magnum Hunter’s contemplated purchase of NGAS Resources, Inc., or NGAS, which was announced on December 27, 2010). If Magnum Hunter’s acquisition of NGAS is not completed prior to the time of the completion of the NuLoch arrangement, we estimate that NuLoch’s former securityholders will own, upon completion of the arrangement, approximately[ • ]% of the outstanding common stock of the combined company on a fully diluted basis, including the exchange of the exchangeable shares for shares of Magnum Hunter common stock. These percentages are based on the number of shares of Magnum Hunter common stock outstanding on[ • ], 2011, the most recent practicable date prior to the date of this proxy statement. | |
Q: | Does the arrangement require the approval of NuLoch securityholders and are any NuLoch securityholders already committed to vote in favor of the arrangement? | |
A: | Yes. The arrangement must be approved by NuLoch securityholders at a special meeting called for that purpose. Certain NuLoch securityholders have entered into support agreements with us pursuant to which such securityholders have agreed to, among other things, vote all securities of NuLoch beneficially owned by them, as well as any additional securities of NuLoch which they may acquire or own, in favor of the arrangement, subject to limited exceptions. Support agreements were signed by all directors, executive officers and certain employees of NuLoch as well as certain institutional shareholders of NuLoch. | |
The support agreements with NuLoch securityholders represent approximately 37% of the outstanding securities of NuLoch entitled to vote on the arrangement. The form of such voting agreements is attached as Exhibit A to the arrangement agreement;provided,thatthe support agreements signed by NuLoch’s institutional shareholders differ from such form in that the agreements are also terminable by such shareholders in the event NuLoch receives a superior proposal that is not matched by Magnum Hunter. | ||
Q: | How does Magnum Hunter’s proposed acquisition of NGAS impact Magnum Hunter’s proposed arrangement with NuLoch? | |
A: | As announced on December 27, 2010, Magnum Hunter and NGAS entered into an arrangement agreement pursuant to which Magnum Hunter will acquire NGAS in astock-for-stock transaction with NGAS becoming a wholly-owned subsidiary of Magnum Hunter, which we refer to as the NGAS acquisition. If the NGAS acquisition is completed, each share of NGAS common stock will be transferred to Magnum Hunter and converted automatically into the right to receive 0.0846 of a share of Magnum Hunter common stock. Magnum Hunter currently expects to complete the NGAS acquisition not later than April 15, 2011, subject to approval of NGAS’ shareholders, approval from the Supreme Court of British Columbia and satisfaction of the other closing conditions specified in the arrangement agreement with respect to the NGAS |
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acquisition. Although we are confident that the NGAS acquisition will be completed, no assurance can be given as to when, or if, such acquisition will occur. Our agreement to acquire NuLoch is separate from and independent of the NGAS acquisition and any delay or failure to complete the NGAS acquisition will not, in and of itself, impact the recommendation of our board of directors that Magnum Hunter stockholders vote to approve the MHR Stock Issuance. In addition, the NuLoch arrangement agreement provides that if the NGAS acquisition closes on or prior to the closing date of the NuLoch arrangement, the representations and warranties of Magnum Hunter in that agreement will not be deemed to include any matters relating to NGAS, its subsidiaries, affiliates or their respective assets, businesses, operations or liabilities or other attributes. | ||
Q: | Are there risks I should consider in deciding whether to vote for the MHR Stock Issuance? | |
A: | Yes. A number of risk factors that you should consider in connection with the arrangement are described in the section of this proxy statement entitled “Risk Factors” beginning on page 14. | |
Q: | Why am I being asked to consider and vote on other proposals unrelated to the arrangement? | |
The timing of a special meeting to consider and vote on the MHR Stock Issuance in connection with the arrangement would have occurred around the time we would like to hold our 2011 annual meeting of common stockholders. We determined to combine the two meetings in an effort to significantly reduce proxy statement printing and other meeting costs and administrative burdens on us and to reduce the burden on our common stockholders who would otherwise receive two sets of proxy materials around the same time to consider and vote on proposals at two separate meetings. | ||
If you are a preferred stockholder, you are receiving this proxy statement only to consider and vote on the proposal to approve an amendment to Magnum Hunter’s certificate of incorporation to increase the authorized number of shares of preferred stock. | ||
Q: | How does Magnum Hunter’s board of directors recommend that I vote? | |
A: | With respect to the proposals to be considered and voted on at the Meeting, Magnum Hunter’s board of directors recommends that Magnum Hunter stockholders vote: |
• | “FOR”the MHR Stock Issuance in connection with the arrangement; | |
• | “FOR”the election of each of the director nominees; | |
• | “FOR”the amendment to our certificate of incorporation to increase the authorized number of shares of our common stock; | |
• | “FOR”the amendment to our certificate of incorporation to increase the authorized number of shares of our preferred stock; | |
• | “FOR”the approval of the amendment to our Incentive Plan to increase the aggregate number of shares of our common stock that may be issued under the plan; | |
• | “FOR”the ratification of the appointment of Hein as Magnum Hunter’s independent registered public accounting firm for the fiscal year ending December 31, 2011; | |
• | “FOR”the approval, on an advisory basis, of Magnum Hunter’s executive compensation; | |
• | “FOR”the approval, on an advisory basis, of holding future advisory votes on Magnum Hunter’s executive compensation every three years; and | |
• | “FOR”the adjournment of the Meeting, if necessary, to solicit additional proxies in favor of such proposals. |
Q: | What vote is required for Magnum Hunter’s stockholders to approve each proposal? | |
A: | Assuming the presence of a quorum, the following vote is required for each proposal: |
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• | The approval of the MHR Stock Issuance in connection with the arrangement requires the affirmative vote of the holders of a majority of the shares of Magnum Hunter common stock voting thereon,providedthe total number of votes cast on the proposal represents at least a majority of shares of Magnum Hunter common stock entitled to vote on the proposal, in accordance with the rules of the NYSE. Under applicable NYSE rules, (i) abstentions will be treated as votes cast on this proposal, and thus, will have the effect of a vote“AGAINST”this proposal, and (ii) broker non-votes (as described below) will not be treated as votes cast on this proposal, and thus, will have no effect on the outcome of this proposal,provided,however,thatif a majority of shares of Magnum Hunter common stock entitled to vote are not cast on this proposal (whether “for” or “against”), broker non-votes will have the effect of a vote“AGAINST” this proposal. | |
• | The election of each of the nine directors requires the affirmative vote of a plurality of the shares of Magnum Hunter common stock cast at the Meeting. You may only vote“FOR”or“WITHHELD”with respect to election of directors, and as a result, there will not be any abstentions on this proposal. Broker non-votes will have no effect on the outcome of this proposal. | |
• | The approval of the amendment to our certificate of incorporation to increase the authorized number of shares of common stock requires the affirmative vote of the holders of a majority of the outstanding shares of Magnum Hunter common stock as of the record date. Accordingly, abstentions and broker non-votes will have the effect of a vote“AGAINST”this proposal. | |
• | The approval of the amendment to our certificate of incorporation to increase the authorized number of shares of preferred stock requires the affirmative vote of both (i) the holders of a majority of the outstanding shares of Magnum Hunter common stock as of the record date and (ii) the holders of a majority of the outstanding shares of Magnum Hunter preferred stock, voting together as a single class, as of the record date. Accordingly, abstentions and broker non-votes will have the effect of a vote“AGAINST”this proposal. | |
• | The approval of the amendment to our Incentive Plan to increase the aggregate number of shares of Magnum Hunter common stock that may be issued under the plan requires the affirmative vote of a majority of the votes cast by our common stockholders at the Meeting, in accordance with the rules of the NYSE. Under applicable NYSE rules, (i) abstentions will be treated as votes cast on this proposal, and thus, will have the effect of a vote“AGAINST”this proposal, and (ii) broker non-votes will not be treated as votes cast on this proposal, and thus, will have no effect on the outcome of this proposal. | |
• | The ratification of the appointment of Hein, the approval, on an advisory basis, of the proposals pertaining to executive compensation, and any proposal to adjourn the Meeting, if necessary, to solicit additional proxies, each requires the affirmative vote of a majority of the shares of Magnum Hunter common stock present in person or represented by proxy and entitled to vote at the Meeting; provided, that any proposal to adjourn the Meeting does not require a quorum. Under Delaware law, (i) abstentions are considered to be “present” and “entitled to vote” at the Meeting, and as a result, abstentions will have the have the effect of a vote“AGAINST”these proposals, and (ii) shares underlying broker non-votes are not considered to be “entitled to vote” at the Meeting, and as a result, broker non-votes will generally have no effect on the outcome of these proposals. As discussed below, under applicable NYSE rules brokers may use their discretion to vote shares for which voting instructions are not submitted with respect to the ratification of Hein so no broker non-votes are expected for this proposal. |
Q: | What is the difference between holding shares of our stock as a “stockholder of record” and as a “beneficial owner”? | |
A: | Most of our stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between holding shares as a stockholder of record and holding shares as a beneficial owner in street name: |
• | Stockholder of Record — If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, you are the stockholder of record of such shares. |
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• | Beneficial Owner — If your shares are held in a brokerage account, bank or by another nominee, you are the “beneficial owner” of such shares held in street name. |
Q: | If I am a “stockholder of record,” how do I vote? | |
A: | If you are a stockholder of record and entitled to vote at the Meeting, you can submit a proxy or vote in person by completing a ballot at the Meeting. However, even if you plan to attend the Meeting, Magnum Hunter encourages you to submit a proxy before the Meeting to ensure that your shares are voted. A proxy is a legal designation of another person to vote your shares of Magnum Hunter stock on your behalf. If you are a stockholder of record, you may submit a proxy for your shares by: |
• | calling the toll-free number specified on the enclosed proxy card and following the instructions when prompted; | |
• | accessing the Internet web site specified on the enclosed proxy card and following the instructions provided to you; or | |
• | filling out, signing and dating the enclosed proxy card and mailing it in the prepaid envelope included with these proxy materials. |
Q: | If I am a “beneficial owner” of shares, how do I vote? | |
If you are a beneficial owner of shares, you must instruct the broker, bank or other nominee on how to vote your shares by following the instructions that the broker, bank or other nominee provides to you with these proxy materials. Most brokers offer stockholders the ability to submit voting instructions by mail by completing a voting instruction card, by telephone and via the Internet. | ||
If you are a beneficial owner of shares and desire to vote your shares in person at the Meeting, you must obtain a proxy from your broker, bank or other nominee and present it to the inspector of election with your ballot when you vote at the Meeting. | ||
Q: | How will my proxy be voted? | |
A: | All shares represented by each properly executed and valid proxy received before the Meeting will be voted in accordance with the instructions given on the proxy. |
• | “FOR”the proposal to authorize the MHR Stock Issuance in connection with the arrangement; | |
• | “FOR”the election of each of the director nominees; | |
• | “FOR”the approval of the amendment to our certificate of incorporation to increase the authorized number of shares of our common stock; | |
• | “FOR”the approval of the amendment to our certificate of incorporation to increase the authorized number of shares of our preferred stock; | |
• | “FOR”the approval of the amendment to our Incentive Plan to increase the aggregate number of shares of our common stock that may be issued under the plan; | |
• | “FOR”the ratification of the appointment of Hein as Magnum Hunter’s independent registered public accounting firm for the fiscal year ending December 31, 2011; | |
• | “FOR”the approval, on an advisory basis, of Magnum Hunter’s executive compensation; |
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• | “FOR”the approval, on an advisory basis, of holding future advisory votes on Magnum Hunter’s executive compensation every three years; and | |
• | otherwise in accordance with the judgment of the person voting the proxy on any other matter properly brought before the Meeting and any adjournment or postponement thereof, including any proposal to adjourn the Meeting, if necessary, to solicit additional proxies in favor of the foregoing proposals. |
Q: | If I am a beneficial owner of shares, will such broker, bank or other nominee automatically vote my shares for me? | |
A: | If you are the beneficial owner of shares held in street name and do not submit voting instructions to your broker, bank or other nominee, the nominee that holds your shares may use their discretion in voting your shares with respect to “routine items,” but not with respect to “non-routine items,” under the rules of the NYSE. On non-routine items for which you do not submit voting instructions to your broker, bank or other nominee, these shares will not be voted and will be treated as “broker non-votes.” The proposal to ratify the appointment of Hein as our independent registered public accounting firm for the fiscal year ending December 31, 2011 is considered a routine item and therefore may be voted upon by your broker, bank or other nominee if you do not provide voting instructions on this proposal. The proposal to authorize the MHR Stock Issuance, the election of directors, the proposals to amend our certificate of incorporation, the proposal to amend our Incentive Plan, and the advisory votes on executive compensation are considered non-routine items and therefore may not be voted upon by your broker, bank or other nominee if you do not provide voting instructions on these specific proposals. | |
Q: | How can I change or revoke my vote? | |
A: | You may revoke your proxy and/or change your vote at any time before your proxy is voted at the Meeting. |
• | sending a written notice stating that you revoke your proxy to Magnum Hunter at 777 Post Oak Blvd, Suite 650, Houston, Texas 77056, Attn: Corporate Secretary, as long as the notice bears a date subsequent to the date of the proxy and is received no later than two business days prior to the Meeting and states that you revoke your proxy; | |
• | submitting a valid, later-dated proxy by mail, telephone or through the Internet that is received prior to the Meeting; or | |
• | attending the Meeting and voting by ballot in person (your attendance at the Meeting will not, by itself, revoke any proxy that you have previously given). |
Q: | How many votes do I have? | |
A: | Each holder of Magnum Hunter common stock is entitled to one vote for each share of Magnum Hunter common stock held as of the close of business on the record date. Each holder of Magnum Hunter preferred stock is entitled to one vote for each share of Magnum Hunter preferred stock held as of the close of business on the record date. |
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Q: | What constitutes a quorum for the Meeting? | |
A: | In order to carry on the business of the Meeting, we must have a quorum. This means at least a majority of the shares of Magnum Hunter common stock and, with respect to the proposal to amend our certificate of incorporation to increase the authorized number of shares of preferred stock only, a majority of the shares of Magnum Hunter preferred stock, outstanding as of the record date must be represented at the Meeting, either by proxy or in person. Abstentions and broker non-votes, which are described in more detail above, will be counted as shares present at the Meeting for purposes of determining whether a quorum exists. | |
Q: | Who may attend the Meeting? | |
A: | Magnum Hunter stockholders (or their authorized representatives) may attend the Meeting. Proof of identification and proof of ownership of Magnum Hunter stock are needed for you to be admitted to the Meeting. If you plan to attend the Meeting and your shares are held in “street name” through a broker, bank or other nominee, you will need to provide proof of ownership of your shares of Magnum Hunter stock. Examples of proof of ownership include a recent brokerage statement or letter from your broker, bank or other nominee. | |
Q: | Where can I find the voting results of the Meeting? | |
A: | The preliminary voting results are expected to be announced at the Meeting. Magnum Hunter will report the final voting results, or the preliminary voting results if the final voting results are unavailable, in a Current Report onForm 8-K to be filed with the SEC within four business days following the Meeting. | |
Q: | Who is soliciting this proxy? | |
A: | The board of directors of Magnum Hunter is soliciting this proxy and we will bear the cost of the solicitation. Magnum Hunter has also engaged D.F. King & Co., Inc. to assist in the solicitation of proxies for the Meeting and provide related advice and informational support for a services fee of approximately $10,000, plus the reimbursement of customary disbursements. We may also make arrangements with brokerage firms and other custodians, nominees and fiduciaries for the forwarding of soliciting material to the beneficial owners of Magnum Hunter common stock and preferred stock held of record by those owners. We will reimburse those brokers, custodians, nominees and fiduciaries for their reasonableout-of-pocket expenses incurred in connection with that service. In addition to the use of mail, our directors, officers and employees, without additional compensation, may solicit proxies by personal interview, telephone, electronic mail or otherwise. | |
Q: | What do I do if I receive more than one proxy or set of voting instructions? | |
A: | If you receive more than one proxy and/or set of voting instructions relating to the Meeting, which means you own shares in more than one account or you are a holder of our common stock and a holder of our preferred stock, each should be voted and/or returned separately as described elsewhere in this proxy statement in order to ensure that all of your shares are voted. | |
Q: | What do I need to do now? | |
A: | After carefully reading and considering the information contained in this proxy statement and the attached annexes, please submit your proxy by telephone or through the Internet in accordance with the instructions set forth in the enclosed proxy card, or fill out, sign and date the proxy card, and then mail your signed proxy card in the enclosed prepaid envelope as soon as possible so that your shares will be represented at the Meeting. | |
Q: | Who can help answer my questions? | |
A: | If you have any questions about the arrangement, the MHR Stock Issuance, the arrangement agreement, the Meeting or the other matters described in this proxy statement or need assistance in voting your shares of Magnum Hunter stock, or additional copies of this proxy statement or the enclosed proxy card, you should call, D.F. King &. Co., Inc., Magnum Hunter’s proxy solicitor, toll-free at(800) 967-4617 (banks and brokers call collect at(212) 269-5550). |
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• | Substantially expand Magnum Hunter’s existing operations; | |
• | Establish a new core area with a large undeveloped acreage position and a multi-year inventory of drilling locations in new unconventional resource area; | |
• | Diversify Magnum Hunter’s existing asset base; | |
• | Expand and augment Magnum Hunter’s management team; |
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• | Improve Magnum Hunter’s capitalization; and | |
• | Increase Magnum Hunter’s exposure to oil. |
• | a number of exchangeable shares of Exchangeco, which we refer to in this proxy statement as the exchangeable shares, equal to the number of NuLoch shares so exchanged multiplied by 0.3304, or the exchange ratio; | |
• | a number of shares of Magnum Hunter common stock equal to the number of NuLoch shares so exchanged multiplied by the exchange ratio; or | |
• | a combination of exchangeable shares and shares of Magnum Hunter common stock as described above. |
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Implied per Share | ||||||
Closing Price of | Closing Price of | Value of | ||||
Magnum Hunter | NuLoch Class A | Arrangement | ||||
Common Stock | Shares | Consideration | ||||
January 18, 2011 | $7.92 | CAD $2.10 | $2.62 | |||
[ • ], 2011 | $[ • ] | CAD $[ • ] | $[ • ] |
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• | a governmental entity denies granting a requisite regulatory approval or takes action prohibiting the arrangement, | |
• | the arrangement has not been completed on or prior to May 31, 2011, or | |
• | either the Magnum Hunter common stockholders or the NuLoch securityholders fail to give the necessary approvals at their respective meetings. |
• | NuLoch’s board of directors changes its recommendation that the NuLoch securityholders approve the arrangement, which could result from an intervening event or superior proposal (both as defined below under “The Arrangement Agreement — Non-Solicitation; Acquisition Proposals”), | |
• | an acquisition proposal is made to NuLoch or its shareholders and the necessary approval of the NuLoch securityholders is not obtained, | |
• | NuLoch recommends or enters into a superior proposal, or | |
• | NuLoch breaches its non-solicitation covenant. |
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• | NuLoch recommends or accepts a superior proposal, | |
• | NuLoch’s board of directors changes its recommendation that the NuLoch securityholders approve the arrangement, | |
• | an acquisition proposal is made to NuLoch or its shareholders, the necessary approval of the NuLoch securityholders is not obtained, and either (1) such acquisition proposal, or any other acquisition proposal that is announced prior to termination, is consummated within 12 months of the date of the first acquisition proposal, or (2) any other acquisition proposal that is announced after termination of the arrangement agreement is consummated by September 30, 2011, or | |
• | NuLoch breaches and fails to cure its non-solicitation covenant. |
• | be exercised by the holder for NuLoch shares in accordance with the terms of the NuLoch stock options and any NuLoch stock option that is not so exercised will be deemed to be surrendered and transferred to NuLoch for no additional consideration, or | |
• | be treated as follows: (1) each NuLoch stock option with an exercise price less than or equal to the Weighted Average Trading Price (as such term is defined in the plan of arrangement) of the NuLoch shares will be surrendered and transferred to NuLoch for a number of NuLoch shares equal to the NuLoch Share Settlement Amount (as such term is defined in the plan of arrangement, but generally being a number of NuLoch shares having a value equal to the“in-the-money” amount of such NuLoch stock options); and (2) each NuLoch stock option with an exercise price that is greater than the Weighted Average Trading Price of the NuLoch shares will be deemed to be surrendered and transferred to NuLoch for no additional consideration. A holder of NuLoch shares so acquired will receive shares of Magnum Hunter common stockand/or exchangeable shares on the same basis as described above. |
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• | approve the MHR Stock Issuance in connection with the arrangement; | |
• | elect J. Raleigh Bailes, Sr., Brad Bynum, Victor G. Carrillo, Gary C. Evans, Gary L. Hall, Joe L. McClaugherty, Ronald D. Ormand, Steven A. Pfeifer and Jeff Swanson, each of whom is presently a member of our board of directors, to serve as a director of Magnum Hunter until the 2012 annual meeting of stockholders of Magnum Hunter or until their respective successors are duly qualified and elected; | |
• | approve an amendment to Magnum Hunter’s certificate of incorporation to increase the authorized number of shares of Magnum Hunter common stock to 250,000,000; | |
• | approve an amendment to Magnum Hunter’s certificate of incorporation to increase the authorized number of shares of Magnum Hunter preferred stock to 15,000,000; | |
• | approve an amendment to Magnum Hunter’s Incentive Plan to increase the aggregate number of shares of Magnum Hunter common stock that may be issued under the plan to 20,000,000; | |
• | ratify the appointment of Hein as Magnum Hunter’s independent registered public accounting firm for the fiscal year ending December 31, 2011; | |
• | cast an advisory vote on executive compensation; | |
• | cast an advisory vote on the frequency of future advisory votes on executive compensation; | |
• | approve an adjournment of the Meeting, if necessary, to solicit additional proxies in favor of the foregoing proposals; and | |
• | transact such other business as may properly come before the Meeting or any adjournment or postponement thereof. |
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• | The approval of the MHR Stock Issuance in connection with the arrangement requires the affirmative vote of the holders of a majority of the shares of Magnum Hunter common stock voting thereon,providedthe total number of votes cast on the proposal (whether “for” or “against”) represents at least a majority of shares of Magnum Hunter common stock entitled to vote on the proposal, in accordance with the rules of the NYSE. Under applicable NYSE rules, (i) abstentions will be treated as votes cast on this proposal, and thus, will have the effect of a vote“AGAINST”this proposal, and (ii) broker non-votes will not be treated as votes cast on this proposal, and thus, will have no effect on the outcome of this proposal,provided,however,thatif a majority of shares of Magnum Hunter common stock entitled to vote are not cast on this proposal (whether “for” or “against”), broker non-votes will have the effect of a vote“AGAINST” this proposal. | |
• | The election of each of the nine directors requires the affirmative vote of a plurality of the shares of Magnum Hunter common stock cast at the Meeting. You may only vote“FOR”or“WITHHELD”with respect to election of directors, and thus, there will not be any abstentions on this proposal. Broker non-votes will have no effect on the outcome of this proposal. | |
• | The approval of the amendment to our certificate of incorporation to increase the authorized number of shares of common stock requires the affirmative vote of the holders of a majority of the outstanding shares of Magnum Hunter common stock as of the record date. Accordingly, abstentions and broker non-votes will have the effect of a vote“AGAINST”this proposal. | |
• | The approval of the amendment to our certificate of incorporation to increase the authorized number of shares of preferred stock requires the affirmative vote of both (i) the holders of a majority of the outstanding shares of Magnum Hunter common stock as of the record date and (ii) the holders of a majority of the outstanding shares of Magnum Hunter preferred stock, voting together as a single class, as of the record date. Accordingly, abstentions and broker non-votes will have the effect of a vote“AGAINST”this proposal. | |
• | The approval of the amendment to our Incentive Plan to increase the aggregate number of shares of Magnum Hunter common stock that may be issued under the plan requires the affirmative vote of a majority of the votes cast by our common stockholders at the Meeting, in accordance with the rules of the NYSE. Under applicable NYSE rules, (i) abstentions will be treated as votes cast on this proposal, |
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and thus, will have the effect of a vote“AGAINST”this proposal, and (ii) broker non-votes will not be treated as votes cast on this proposal, and thus, will have no effect on the outcome of this proposal. |
• | The ratification of the appointment of Hein, the approval, on an advisory basis, of the proposals pertaining to executive compensation, and any proposal to adjourn the Meeting, if necessary, to solicit additional proxies each requires the affirmative vote of a majority of the shares of Magnum Hunter common stock present in person or represented by proxy and entitled to vote at the Meeting; provided that any proposal to adjourn the Meeting does not require a quorum. Under Delaware law, (i) abstentions are considered to be “present” and “entitled to vote” at the Meeting, and as a result, abstentions and broker non-votes will have the effect of a vote“AGAINST”these proposals, and (ii) shares underlying broker non-votes are not considered to be “entitled to vote” at the Meeting, and as a result, broker non-votes will have no effect on the outcome of these proposals. Under applicable NYSE rules, brokers may use their discretion to vote shares for which voting instructions are not submitted with respect to the ratification of Hein so no broker non-votes are expected for this proposal. |
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Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(In thousands, except per share data and operating data) | ||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||
Revenues | $ | 32,724 | $ | 6,844 | $ | 11,590 | $ | 6,638 | $ | 1,516 | ||||||||||
Net income (loss) | (13,800 | ) | (15,124 | ) | (6,886 | ) | (5,539 | ) | (3,899 | ) | ||||||||||
Earnings (loss) per share: basic and diluted | (0.25 | ) | (0.39 | ) | (0.21 | ) | (0.28 | ) | (0.20 | ) | ||||||||||
Cash dividends declared per common share | — | — | — | — | — | |||||||||||||||
Statement of Cash Flows Data | ||||||||||||||||||||
Net cash provided by (used in) | ||||||||||||||||||||
Operating activities | $ | (1,167 | ) | $ | 3,372 | $ | 3,437 | $ | 854 | $ | (755 | ) | ||||||||
Investing activities | (118,281 | ) | (16,624 | ) | (10,379 | ) | (29,964 | ) | (6,590 | |||||||||||
Financing activities | 117,720 | ) | 9,413 | (2,338 | ) | 40,225 | 8,212 | |||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Property, equipment, net, successful efforts method | $ | 232,261 | $ | 46,410 | $ | 39,134 | $ | 42,482 | $ | 3,974 | ||||||||||
Total assets | 248,967 | 66,584 | 61,665 | 66,363 | 10,948 | |||||||||||||||
Total debt | 33,151 | 13,044 | 21,520 | 11,344 | — | |||||||||||||||
Redeemable preferred stock | 70,236 | 5,374 | — | 7,232 | — | |||||||||||||||
Shareholders’ equity | 103,322 | 39,318 | 35,078 | 42,750 | 10,699 | |||||||||||||||
Operating Data | ||||||||||||||||||||
Production Data | ||||||||||||||||||||
Crude oil (MBbls) | 316 | 115 | 111 | 97 | — | |||||||||||||||
Natural gas (MMcfs) | 952 | 191 | 130 | 138 | 19 | |||||||||||||||
Total production in barrels of oil equivalent | ||||||||||||||||||||
Total (MBoe) | 475 | 146 | 132 | 120 | 3 | |||||||||||||||
Average realized sales prices | ||||||||||||||||||||
Crude oil (per Bbl) | $ | 72.41 | $ | 53.56 | $ | 86.92 | $ | 62.88 | $ | 51.62 | ||||||||||
Natural gas (per Mcf) | 5.07 | 2.46 | 4.36 | 3.27 | 5.95 | |||||||||||||||
Total average price (per Boe) | $ | 58.37 | $ | 45.11 | $ | 76.96 | $ | 54.59 | $ | 38.46 | ||||||||||
Lifting costs (per Boe) | $ | 26.75 | $ | 29.89 | $ | 35.78 | $ | 29.07 | $ | 14.89 | ||||||||||
Proved oil and natural gas reserves(1) | ||||||||||||||||||||
Crude oil (MBbls) | 6,824 | 3,822 | 1,862 | 2,370 | 8 | |||||||||||||||
Natural gas (MMcf) | 39,452 | 9,364 | 4,253 | 2,082 | 116 | |||||||||||||||
Natural gas liquids (MBbl) | — | 787 | 547 | — | — | |||||||||||||||
Total per barrel of oil equivalent (MBoe) | 13,399 | 6,170 | 3,118 | 2,717 | 27 |
(1) | Proved oil and natural gas reserves have not been adjusted for the effect of discontinued operations. |
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Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Canadian | Canadian | Canadian | Canadian | Canadian | ||||||||||||||||
GAAP | GAAP | GAAP | GAAP | GAAP | ||||||||||||||||
(In thousands of Canadian dollars, except per-share data and operating data) | ||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||
Petroleum and natural gas revenues CWI basis(1) | $ | 19,383 | 8,888 | 12,959 | 4,851 | 3,955 | ||||||||||||||
Petroleum and natural gas revenues NRI basis(1) | 14,432 | 6,721 | 9,590 | 4,085 | 3,257 | |||||||||||||||
Net income (loss) | (2,563 | ) | 1,884 | 1,373 | (110 | ) | (225 | ) | ||||||||||||
Earnings (loss) per share: basic and diluted | (0.03 | ) | 0.04 | 0.04 | — | (0.01 | ) | |||||||||||||
Statement of Cash Flows Data | ||||||||||||||||||||
Net cash provided by (used in) | ||||||||||||||||||||
Operating activities | $ | 6,003 | $ | 1,819 | $ | 6,266 | $ | 1,864 | $ | 1,368 | ||||||||||
Investing activities | (48,416 | ) | (17,768 | ) | (17,480 | ) | (5,267 | ) | (17,718 | ) | ||||||||||
Financing activities | 48,661 | 19,426 | 11,214 | 3,403 | 13,645 | |||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Property, equipment, net, full cost method | $ | 101,479 | $ | 53,549 | $ | 36,938 | $ | 25,225 | $ | 19,895 | ||||||||||
Total assets | 123,239 | 66,065 | 37,954 | 26,350 | 20,925 | |||||||||||||||
Total debt | — | — | 3,650 | 1,689 | 2,321 | |||||||||||||||
Shareholders’ equity | 104,430 | 59,200 | 28,290 | 17,895 | 15,975 | |||||||||||||||
Operating Data | ||||||||||||||||||||
Production data CWI basis(1) | ||||||||||||||||||||
Crude oil and NGL (MBbls) | 226 | 87 | 72 | 17 | 2 | |||||||||||||||
Natural gas (MMcfs) | 593 | 737 | 717 | 564 | 610 | |||||||||||||||
Total production in barrels of oil equivalent | ||||||||||||||||||||
Total (MBoe) | 325 | 210 | 191 | 111 | 104 | |||||||||||||||
Production data NRI basis(1) | ||||||||||||||||||||
Crude oil and NGL (MBbls) | 156 | 53 | 51 | 16 | 2 | |||||||||||||||
Natural gas (MMcfs) | 470 | 578 | 519 | 501 | 449 | |||||||||||||||
Total production in barrels of oil equivalent | ||||||||||||||||||||
Total (MBoe) | 235 | 150 | 137 | 100 | 77 | |||||||||||||||
Average realized sales prices | ||||||||||||||||||||
Crude oil and NGL (per Bbl) | $ | 75.04 | $ | 65.43 | $ | 97.42 | $ | 75.72 | $ | 58.38 | ||||||||||
Natural gas (per Mcf) | 4.06 | 4.31 | 8.36 | 6.30 | 6.29 | |||||||||||||||
Total average price (per Boe) | $ | 59.63 | $ | 42.31 | $ | 67.84 | $ | 43.65 | $ | 38.14 | ||||||||||
Operating costs (per Boe) CWI basis(1) | $ | 13.13 | $ | 11.15 | $ | 10.03 | $ | 13.72 | $ | 9.18 | ||||||||||
Operating costs (per Boe) NRI basis(1) | $ | 18.17 | $ | 15.62 | $ | 13.98 | $ | 15.25 | $ | 12.36 |
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Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Canadian | Canadian | Canadian | Canadian | Canadian | ||||||||||||||||
GAAP | GAAP | GAAP | GAAP | GAAP | ||||||||||||||||
(In thousands of Canadian dollars, except per-share data and operating data) | ||||||||||||||||||||
Proved oil and natural gas reserves CWI basis(1) | ||||||||||||||||||||
Crude oil (MBbls) | 5,102 | 822 | 159 | 153 | 87 | |||||||||||||||
Natural gas (MMcf) | 7,124 | 8,307 | 8,370 | 8,902 | 8,116 | |||||||||||||||
Natural gas liquids (MBbl) | 4 | 20 | 17 | 21 | 11 | |||||||||||||||
Total barrels of oil equivalent (MBoe) | 6,293 | 2,226 | 1,571 | 1,657 | 1,450 | |||||||||||||||
Proved oil and natural gas reserves NRI basis(1) | ||||||||||||||||||||
Crude oil (MBbls) | 4,231 | 585 | 96 | 114 | 69 | |||||||||||||||
Natural gas (MMcf) | 5,688 | 6,494 | 6,501 | 6,720 | 6,428 | |||||||||||||||
Natural gas liquids (MBbl) | 3 | 12 | 11 | 12 | 7 | |||||||||||||||
Total barrels of oil equivalent (MBoe) | 5,181 | 1,680 | 1,191 | 1,246 | 1,147 |
(1) | In NuLoch’s Canadian historical record, presentation of revenue, petroleum and natural gas volumes and operating statistics are typically made based on company working interest (CWI) share of volumes whereas presentation in the U.S. is typically made based on net revenue interest (NRI) volumes. In this table, where presentation varies by country, both measures have been presented. |
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
U.S. GAAP | U.S. GAAP | |||||||
(In thousands of Canadian dollars, except per-share data) | ||||||||
Income Statement Data | ||||||||
Net income (loss) | $ | (2,945 | ) | $ | (3,951 | ) | ||
Earnings (loss) per share: basic and diluted | (0.03 | ) | (0.08 | ) | ||||
Balance Sheet Data | ||||||||
Property, equipment, net, full cost method | $ | 69,734 | $ | 20,402 | ||||
Total assets | 100,409 | 42,369 | ||||||
Shareholders’ equity | 80,250 | 34,494 |
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Year Ended | ||||
December 31, 2010 | ||||
Magnum Hunter | ||||
Per common share data | ||||
Earnings (loss) | ||||
Historical | $ | (0.25 | ) | |
Combined Pro Forma | $ | (0.27 | ) | |
Book value | ||||
Historical | $ | 1.38 | ||
Combined Pro Forma | $ | 3.81 | ||
NuLoch | ||||
Per common share data | ||||
Earnings (loss) | ||||
Historical(1) | $ | (0.03 | ) | |
Combined Pro Forma | $ | (0.09 | ) | |
Book value | ||||
Historical(1) | $ | 0.88 | ||
Combined Pro Forma | $ | 1.26 |
(1) | Historical data for NuLoch is shown in Canadian dollars, and has been prepared on the basis of U.S. GAAP. |
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• | integrating the companies’ oil and natural gas exploration and production operations; | |
• | applying each company’s best practices to the combined oil and natural gas portfolio; | |
• | combining the companies’ oil and natural gas processing, marketing and transportation operations; | |
• | harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes; | |
• | integrating the companies’ corporate, administrative and information technology infrastructures; | |
• | coordinating geographically separated organizations; | |
• | addressing possible differences in corporate cultures and management philosophies; and | |
• | identifying and eliminating redundant and underperforming operations and assets. |
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• | negative reactions from the financial markets and from persons who have or may be considering business dealings with us; | |
• | We will be required to pay certain costs relating to the arrangement, whether or not the arrangement is completed; and | |
• | matters relating to the arrangement (including integration planning) will require substantial commitments of time and resources by our management, which would otherwise have been devoted today-to-day operations, or could have been devoted to other opportunities that may have been beneficial to us. |
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• | the requisite Magnum Hunter common stockholder approval may not be obtained in a timely manner, or at all; | |
• | the requisite NuLoch securityholder approval may not be obtained in a timely manner, or at all; | |
• | the approval of the Court of Queen’s Bench of Alberta required for the arrangement may not be obtained on the proposed terms, on the anticipated schedule or at all; | |
• | the arrangement may not close due to the failure to satisfy any of the closing conditions; | |
• | expected synergies and value creation from the arrangement may not be realized; | |
• | key employees of NuLoch may not be retained; | |
• | the businesses may not be harmonized successfully; | |
• | management time may be diverted on arrangement-related matters; | |
• | risks that the proposed arrangement disrupts current plans; | |
• | the effect of the announcement of the arrangement on our business relationships, operating results and business generally; | |
• | the amount of the costs, fees, expenses and charges related to the arrangement; | |
• | failure or delay in closing the NGAS acquisition, the failure to realize the expected synergies and value creation from the NGAS acquisition, or other related matters regarding the NGAS acquisition; and | |
• | general competitive, economic, political and market conditions and fluctuations. |
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• | “FOR”the MHR Stock Issuance in connection with the arrangement; | |
• | “FOR”the election of each of the director nominees; | |
• | “FOR”the amendment to our certificate of incorporation to increase the authorized number of shares of our common stock to 250,000,000; | |
• | “FOR”the amendment to our certificate of incorporation to increase the authorized number of shares of our preferred stock to 15,000,000; | |
• | “FOR”the approval of an amendment to our Incentive Plan to increase the aggregate number of shares of our common stock that may be issued under the plan to 20,000,000; | |
• | “FOR”the ratification of the appointment of Hein as Magnum Hunter’s independent registered public accounting firm for the fiscal year ending December 31, 2011; | |
• | “FOR”the approval, on an advisory basis, of Magnum Hunter’s executive compensation; | |
• | “FOR”the approval, on an advisory basis, of holding future advisory votes on Magnum Hunter’s executive compensation every three years; and | |
• | “FOR”the adjournment of the Meeting, if necessary, to solicit additional proxies in favor of such proposals. |
• | The approval of the MHR Stock Issuance in connection with the arrangement requires the affirmative vote of the holders of a majority of the shares of Magnum Hunter common stock voting thereon,providedthe total number of votes cast on the proposal represents at least a majority of shares of Magnum Hunter common stock entitled to be voted on the proposal, in accordance with the rules of the NYSE. Under applicable NYSE rules, (i) abstentions will be treated as votes cast on this proposal, and thus, will have the effect of a vote“AGAINST”this proposal, and (ii) broker non-votes (as described below) will not be treated as votes cast on this proposal, and thus, will have no effect on the outcome of this proposal,provided,however,thatif a majority of shares of Magnum Hunter common stock entitled to vote are not cast on this proposal, broker non-votes will have the effect of a vote“AGAINST”this proposal. |
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• | The election of each of the nine directors requires the affirmative vote of a plurality of the shares of Magnum Hunter common stock cast at the Meeting. You may only vote“FOR”or“WITHHELD”with respect to election of directors, and thus, there will not be any abstentions on this proposal. Broker non-votes will have no effect on the outcome of this proposal. | |
• | The approval of the amendment to Magnum Hunter’s certificate of incorporation to increase the authorized number of shares of common stock to 250,000,000 requires the affirmative vote of the holders of a majority of the outstanding shares of Magnum Hunter common stock as of the record date. Accordingly, abstentions and broker non-votes will have the effect of a vote“AGAINST”this proposal. | |
• | The approval of the amendment to Magnum Hunter’s certificate of incorporation to increase the authorized number of shares of preferred stock to 15,000,000 requires the affirmative vote of both (i) the holders of a majority of the outstanding shares of Magnum Hunter common stock as of the record date and (ii) the holders of a majority of the outstanding shares of our preferred stock, voting together as a single class, as of the record date. Accordingly, abstentions and broker non-votes will have the effect of a vote“AGAINST”this proposal. | |
• | The approval of the amendment to Magnum Hunter’s Incentive Plan to increase the aggregate number of shares of Magnum Hunter common stock that may be issued under the plan requires the affirmative vote of a majority of the votes cast by our common stockholders at the Meeting, in accordance with the rules of the NYSE. Under applicable NYSE rules, (i) abstentions will be treated as votes cast on this proposal, and thus, will have the effect of a vote“AGAINST”this proposal, and (ii) broker non-votes will not be treated as votes cast on this proposal, and thus, will have no effect on the outcome of this proposal. | |
• | The ratification of the appointment of Hein, the approval, on an advisory basis, of the proposals pertaining to executive compensation, and any proposal to adjourn the Meeting, if necessary, to solicit additional proxies, each requires the affirmative vote of a majority of the shares of Magnum Hunter common stock present in person or represented by proxy and entitled to vote at the Meeting; provided, that any proposal to adjourn the Meeting will not require a quorum. Under Delaware law, (i) abstentions are considered to be “present” and “entitled to vote” at the Meeting, and as a result, abstentions will have the effect of a vote“AGAINST”these proposals, and (ii) shares underlying broker non-votes are not considered to be “entitled to vote” at the Meeting, and as a result, broker non-votes will have no effect on the outcome of these proposals. As discussed below, under applicable NYSE rules brokers may use their discretion to vote shares for which voting instructions are not submitted with respect to the ratification of Hein, so no broker non-votes are expected for this proposal. |
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• | calling the toll-free number specified on the enclosed proxy card and following the instructions when prompted; | |
• | accessing the Internet web site specified on the enclosed proxy card and following the instructions provided to you; or | |
• | filling out, signing and dating the enclosed proxy card and mailing it in the prepaid envelope included with these proxy materials. |
• | “FOR”the proposal to authorize the MHR Stock Issuance in connection with the arrangement; | |
• | “FOR”the election of each of the director nominees; | |
• | “FOR”the proposal to amend our certificate of incorporation to increase the authorized number of shares of our common stock to 250,000,000; | |
• | “FOR”the proposal to amend our certificate of incorporation to increase the authorized number of shares of our preferred stock to 15,000,000; | |
• | “FOR”the proposal to amend our Incentive Plan to increase the aggregate number of shares of our common stock that may be issued under the plan to 20,000,000; | |
• | “FOR”the ratification of the appointment of Hein as Magnum Hunter’s independent registered public accounting firm for the fiscal year ending December 31, 2011; | |
• | “FOR”the approval, on an advisory basis, of Magnum Hunter’s executive compensation; | |
• | “FOR”the approval, on an advisory basis, of holding future advisory votes on Magnum Hunter’s executive compensation every three years; and | |
• | otherwise in accordance with the judgment of the person voting the proxy on any other matter properly brought before the Meeting and any adjournment or postponement thereof, including any proposal to adjourn the Meeting, if necessary, to solicit additional proxies in favor of the foregoing proposals. |
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• | sending a written notice stating that you revoke your proxy to Magnum Hunter at 777 Post Oak Blvd, Suite 650, Houston, Texas 77056, Attn: Corporate Secretary, as long as the notice bears a date subsequent to the date of the proxy and is received no later than two business days prior to the Meeting and states that you revoke your proxy; | |
• | submitting a valid, later-dated proxy by mail, telephone or through the Internet that is received prior to the Meeting; or | |
• | attending the Meeting and voting by ballot in person (your attendance at the Meeting will not, by itself, revoke any proxy that you have previously given). |
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• | Substantially expand our existing operations. The combined enterprise will be significantly larger than Magnum Hunter prior to completion of the transaction. As a result of its larger size, Magnum Hunter will have expanded economies of scale in its exploration, production and marketing areas, including increased posture with service providers, enhanced access to capital and liquidity and an increased ability to consider larger strategic transactions in the future that might not otherwise be possible. | |
• | Establish a new core area with a large undeveloped acreage position and a multi-year inventory of drilling locations in new unconventional resource area. The combined enterprise will own approximately 78,000 net acres in the Williston Basin of North Dakota and Saskatchewan. Magnum Hunter believes the acquisition will add approximately 267 net identified Williston Basin drilling locations targeting the Bakken/Three Forks and Sanish formations, which offer substantial development upside and highly attractive rates of return in the current commodity price environment. |
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• | Diversify our existing asset base. The addition of NuLoch’s Williston Basin assets will provide an additional resource play in the Bakken/Three Forks and Sanish, which will compliment Magnum Hunter’s existing assets in Eagle Ford and Marcellus plays. | |
• | Expand and augment our management team. NuLoch possesses a highly skilled management and technical team. The arrangement will give Magnum Hunter access to NuLoch’s technical capabilities, operating expertise and long-established operating history in the Williston Basin. NuLoch’s employees and operating team, including the land, geology, and engineering professionals, will allow Magnum Hunter to better implement future growth plans for the combined enterprise in the Williston Basin. | |
• | Improve our capitalization. Magnum Hunter expects to have significantly improved financial leverage ratios following the acquisition. As a result, Magnum Hunter expects to be better positioned to access capital and fund its capital expenditure programs. | |
• | Increase our exposure to oil. The addition of NuLoch’s reserves, production and acreage will increase Magnum Hunter’s exposure to oil. |
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• | comparable company trading analysis, and | |
• | net asset value analysis. |
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• | Brigham Exploration Company | |
• | Kodiak Oil & Gas Corporation | |
• | Legacy Oil + Gas Inc. | |
• | Midway Energy Ltd. | |
• | Northern Oil & Gas, Inc. | |
• | Oasis Petroleum Inc. | |
• | Painted Pony Petroleum Ltd. | |
• | Renegade Petroleum Ltd. | |
• | Second Wave Petroleum Inc. | |
• | WestFire Energy Ltd. | |
• | Wild Stream Exploration Inc. |
Multiple Range of Comparable | ||||||||||||
Companies of NuLoch: | ||||||||||||
Low | Median | High | ||||||||||
Enterprise Value as a Multiple of: | ||||||||||||
2011 Estimated EBITDAX | 4.1 | x | 9.2 | x | 13.4 | x | ||||||
Proved Reserves ($/Boe) | $ | 50.52 | $ | 84.49 | $ | 251.07 | ||||||
Current Daily Production ($/Boe/d) | $ | 82,230 | $ | 197,981 | $ | 426,062 | ||||||
Equity Value as a Multiple of: | ||||||||||||
2011 Estimated Discretionary Cash Flow | 5.3 | x | 8.9 | x | 13.1x |
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NuLoch @ C$2.50 Consideration | ||||||||
Management | Analyst | |||||||
Estimates | Estimates | |||||||
Enterprise Value as a Multiple of: | ||||||||
2011 Estimated EBITDAX | 7.9 | x | 8.8 | x | ||||
9/30/2010 Proved Reserves ($/Boe) | $ | 74.83 | $ | 74.83 | ||||
12/31/2010 Estimated Proved Reserves ($/Boe) | $ | 52.27 | $ | 52.27 | ||||
Current Daily Production ($/Boe/d) | $ | 200,441 | $ | 200,441 | ||||
Enterprise Value as a Multiple of: | ||||||||
2011 Estimated Discretionary Cash Flow | 8.5 | x | 9.9x |
• | Brigham Exploration Company | |
• | GeoResources, Inc. | |
• | Gulfport Energy Corporation | |
• | Kodiak Oil & Gas Corporation | |
• | Northern Oil & Gas, Inc. | |
• | Oasis Petroleum Inc. | |
• | Resolute Energy Corporation | |
• | Rex Energy Corporation | |
• | Rosetta Resources Inc. | |
• | SM Energy Company | |
• | Warren Resources, Inc. |
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Multiple Range of Comparable | ||||||||||||
Companies of Magnum Hunter: | ||||||||||||
Low | Median | High | ||||||||||
Enterprise Value as a Multiple of: | ||||||||||||
2011 Estimated EBITDAX | 6.8 | x | 9.1 | x | 13.4 | x | ||||||
Proved Reserves ($/Boe) | $ | 18.96 | $ | 38.99 | $ | 251.07 | ||||||
Current Daily Production ($/Boe/d) | $ | 51,103 | $ | 167,131 | $ | 415,445 | ||||||
Equity Value as a Multiple of: | ||||||||||||
2011 Estimated Discretionary Cash Flow | 6.3 | x | 9.6 | x | 13.1x |
Magnum Hunter as of January 18, 2011 | ||||||||||||||||
Management Estimates | Analyst Estimates | |||||||||||||||
Pro | Pro | |||||||||||||||
Forma | Forma | |||||||||||||||
Standalone | for NGAS | Standalone | for NGAS | |||||||||||||
Enterprise Value as a Multiple of: | ||||||||||||||||
2011 Estimated EBITDAX | 10.3 | x | 10.3 | x | 19.6 | x | 17.7 | x | ||||||||
12/31/2010 Proved Reserves ($/Boe) | $ | 58.53 | $ | 34.24 | $ | 58.53 | $ | 34.24 | ||||||||
Current Daily Production ($/Boe/d) | $ | 287,067 | $ | 212,510 | $ | 287,067 | $ | 212,510 | ||||||||
Enterprise Value as a Multiple of: | ||||||||||||||||
2011 Estimated Discretionary Cash Flow | 9.1 | x | 8.6 | x | 19.1 | x | 15.8x |
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Range of Implied Exchange Ratio | ||||
Magnum Hunter Standalone | Pro Forma for NGAS | |||
Enterprise Value as a Multiple of: | ||||
First Call 2011 Estimated EBITDAX | 0.5594x − 0.8700x | 0.5141x − 0.8185x | ||
Management 2011 Estimated EBITDAX | 0.2799x − 0.4174x | 0.2817x − 0.4262x | ||
Equity Value as a Multiple of: | ||||
First Call 2011 Estimated Discretionary Cash Flow | 0.4150x − 0.5980x | 0.3474x − 0.5012x | ||
Management 2011 Estimated Discretionary Cash Flow | 0.2346x − 0.3398x | 0.2230x − 0.3233x | ||
Enterprise Value as a Multiple of: | ||||
Proved Reserves | 0.2766x − 0.5708x | 0.1484x − 0.3007x | ||
Management Projected Proved Reserves | 0.4054x − 0.8324x | 0.2175x − 0.4385x | ||
Current Production | 0.3308x − 0.7105x | 0.2316x − 0.4975x |
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1/1/11 to | ||||||||||||||||||||||||
1/18/11 | 1/19/11 to | |||||||||||||||||||||||
Actual | 12/31/11 | 2012E | 2013E | 2014E | Thereafter | |||||||||||||||||||
Oil — West Texas Intermediate ($/Bbl) | ||||||||||||||||||||||||
Case I | $ | 90.48 | $ | 80.00 | $ | 80.00 | $ | 80.00 | $ | 80.00 | $ | 80.00 | ||||||||||||
Case II | $ | 90.48 | $ | 110.00 | $ | 110.00 | $ | 110.00 | $ | 110.00 | $ | 110.00 | ||||||||||||
Case III | $ | 90.48 | $ | 94.59 | $ | 96.11 | $ | 95.29 | $ | 94.80 | $ | 94.80 | ||||||||||||
Gas — Henry Hub ($/MMBtu) | ||||||||||||||||||||||||
Case I | $ | 4.48 | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | $ | 5.00 | ||||||||||||
Case II | $ | 4.48 | $ | 7.00 | $ | 7.00 | $ | 7.00 | $ | 7.00 | $ | 7.00 | ||||||||||||
Case III | $ | 4.48 | $ | 4.61 | $ | 5.05 | $ | 5.28 | $ | 5.47 | $ | 5.47 |
Range of Implied Exchange Ratio | ||||
Magnum Hunter Standalone | Pro Forma for NGAS | |||
Case I | 0.1400x − 0.5995x | 0.1333x − 0.5741x | ||
Case II | 0.1637x − 0.5835x | 0.1526x − 0.5389x | ||
Case III | 0.1526x − 0.6051x | 0.1447x − 0.5751x |
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Month and Year | ||||
Announced | Target | Acquiror | ||
December 2010 | Anschutz Exploration Corporation | Occidental Petroleum Corporation | ||
November 2010 | TRZ Energy, LLC | Hess Corporation | ||
November 2010 | Private Company | Williams Companies, Inc. | ||
September 2010 | Peak Energy Resources LLC | Enerplus Resources Fund | ||
June 2010 | Ryland Oil Corporation | Crescent Point Energy Corporation | ||
October 2009 | S.E. Saskatchewan Assets | Legacy Reserves LP | ||
August 2009 | Wave Energy | Crescent Point Energy Corporation | ||
August 2009 | TriStar Oil and Gas Ltd. | PetroBakken Energy Ltd. | ||
July 2009 | S.E. Saskatchewan Assets | Legacy Reserves LP | ||
March 2009 | Crescent Point Energy Corporation/Tristar Oil and Gas Ltd. | Shelter Bay | ||
July 2008 | Undisclosed | XTO Energy Inc. | ||
May 2008 | Headington Oil Company | XTO Energy Inc. |
Multiple Range of Comparable Transactions | ||||||||||||
Low | Median | High | ||||||||||
Enterprise Value as a Multiple of: | ||||||||||||
Proved Reserves ($/Boe) | $ | 27.02 | $ | 49.87 | $ | 184.82 | ||||||
Current Daily Production ($/Boe/d) | $ | 125,512 | $ | 220,569 | $ | 1,001,124 |
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Month and Year | ||||
Announced | Target | Acquiror | ||
November 2010 | Encore Energy Partners LP | Vanguard Natural Resources, LLC | ||
November 2010 | Atlas Energy, Inc. | Chevron Corporation | ||
September 2010 | Great Plains Exploration Inc. | Avenir Diversified Income Trust | ||
September 2010 | Excelsior Energy Ltd. | Athabasca Oil Sands Corporation | ||
July 2010 | American Oil & Gas Inc. | Hess Corporation | ||
July 2010 | Monterey Exploration Ltd. | Pengrowth Energy Corporation | ||
June 2010 | Ryland Oil Corporation | Crescent Point Energy Corporation | ||
June 2010 | Storm Exploration Inc. | ARC Energy Trust | ||
May 2010 | Redcliffe Exploration Inc. | Paramount Resources Ltd. | ||
May 2010 | Iteration Energy Ltd. | Storm Ventures International Inc. | ||
April 2010 | Mariner Energy, Inc. | Apache Corporation | ||
April 2010 | Arena Resources, Inc. | SandRidge Energy, Inc. | ||
March 2010 | West Energy Ltd. | Daylight Resources Trust | ||
February 2010 | Canext Energy Ltd. | One Exploration Inc. | ||
January 2010 | Result Energy Inc. | PetroBakken Energy Ltd. | ||
January 2010 | Berens Energy Ltd. | PetroBakken Energy Ltd. | ||
December 2009 | XTO Energy, Inc. | Exxon Mobil Corporation | ||
November 2009 | Stonefire Energy Corporation | Angle Energy Inc. | ||
November 2009 | Encore Acquisition Company | Denbury Resources, Inc. | ||
October 2009 | Harvest Energy Trust | Korea National Oil Corporation | ||
October 2009 | Breaker Energy Ltd. | NAL Oil & Gas Trust | ||
September 2009 | Parallel Petroleum Corporation | Apollo Group, Inc. | ||
August 2009 | Highpine Oil & Gas Ltd. | Daylight Resources Trust | ||
August 2009 | Buffalo Resources Corporation | Twin Butte Energy Ltd. | ||
August 2009 | TriStar Oil & Gas Ltd. | PetroBakken Energy Ltd. | ||
June 2009 | Grey Wolf Exploration Inc. | Insignia Energy Ltd. | ||
March 2009 | Profound Energy, Inc. | Paramount Trust Trust | ||
March 2009 | Alberta Clipper Energy Inc. | NAL Oil & Gas Trust | ||
March 2009 | Reece Exploration Corporation | Penn West Energy Trust | ||
March 2009 | Masters Energy Inc. | Zargon Energy Trust | ||
February 2009 | TUSK Energy Corporation | TIAA-CREF |
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Percentage Premium/(Discount) to the Closing Price Prior to Transaction Announcement | ||||||||||||
1 Day | 5 Days | 30 Days | ||||||||||
Selected North American E&P Transactions Greater than $25 million Since January 1, 2009 | ||||||||||||
75th Quartile | 35.8 | % | 45.4 | % | 46.4 | % | ||||||
Mean | 30.1 | % | 36.9 | % | 37.1 | % | ||||||
Median | 25.1 | % | 30.1 | % | 36.1 | % | ||||||
25th Quartile | 9.6 | % | 16.8 | % | 19.0 | % | ||||||
Implied Premium Based on the C$2.50 per Share Consideration Implied by the Exchange Ratio in the Proposed Transaction (as of January 18, 2011) | 22.5 | % | 22.1 | % | 25.6 | % |
• | 2011 EBITDAX based on (i) estimates provided by Magnum Hunter and NuLoch management and (ii) estimates published by First Call of independent equity research analysts, | |
• | 2011 discretionary cash flow based on (i) estimates provided by Magnum Hunter and NuLoch management and (ii) estimates published by First Call of independent equity research analysts, | |
• | estimated proved reserves as of December 31, 2010 for Magnum Hunter, and as of September 30, 2010 for NuLoch, | |
• | management projected estimated proved reserves as of December 31, 2010 for NuLoch, and | |
• | current daily production as of December 31, 2010 for Magnum Hunter and January 18, 2011 for NuLoch. |
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Contribution % | ||||||||||||
Magnum | Implied | |||||||||||
Hunter | Exchange | |||||||||||
Standalone | NuLoch | Ratio | ||||||||||
2011 Estimated EBITDAX | ||||||||||||
Management Estimates | 66 | % | 34 | % | 0.4248 | x | ||||||
First Call Analyst Estimates | 53 | % | 47 | % | 0.7627 | x | ||||||
2011 Estimated Discretionary Cash Flow | ||||||||||||
Management Estimates | 65 | % | 35 | % | 0.3433 | x | ||||||
First Call Analyst Estimates | 51 | % | 49 | % | 0.6183 | x | ||||||
Proved Reserves(a) | ||||||||||||
NuLoch Proved Reserves as of September 30, 2010 | 76 | % | 24 | % | 0.2536 | x | ||||||
NuLoch Estimated Proved Reserves as of December 31, 2010 | 69 | % | 31 | % | 0.3648 | x | ||||||
Current Production | 64 | % | 36 | % | 0.4716 | x |
(a) | Percentages based on estimated proved reserves of Magnum Hunter as of December 31, 2010 |
Contribution % | ||||||||||||
Magnum | ||||||||||||
Hunter | Implied | |||||||||||
Pro Forma | Exchange | |||||||||||
for NGAS | NuLoch | Ratio | ||||||||||
2011 Estimated EBITDAX | ||||||||||||
Management Estimates | 69 | % | 31 | % | 0.4310 | x | ||||||
First Call Analyst Estimates | 59 | % | 41 | % | 0.6919 | x | ||||||
2011 Estimated Discretionary Cash Flow | ||||||||||||
Management Estimates | 69 | % | 31 | % | 0.3262 | x | ||||||
First Call Analyst Estimates | 58 | % | 42 | % | 0.5130 | x | ||||||
Proved Reserves(a)(b) | ||||||||||||
NuLoch Proved Reserves as of September 30, 2010 | 86 | % | 14 | % | 0.1501 | x | ||||||
NuLoch Estimated Proved Reserves as of December 31, 2010 | 82 | % | 18 | % | 0.2125 | x | ||||||
Current Production | 73 | % | 27 | % | 0.3458 | x |
(a) | Based on estimated proved reserves of Magnum Hunter as of December 31, 2010 | |
(b) | Based on estimated proved reserves of NGAS as of December 31, 2009 |
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• | a number of exchangeable shares of Exchangeco equal to the number of NuLoch shares so exchanged multiplied by the exchange ratio, | |
• | a number of shares of Magnum Hunter common stock equal to the number of NuLoch shares so exchanged multiplied by the exchange ratio, or | |
• | a combination of exchangeable shares and shares of Magnum Hunter common stock as described above. |
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• | articles of arrangement for NuLoch will be filed with the Registrar under theBusiness Corporations Act(Alberta) and a proof of filing will be issued to give effect to the arrangement; | |
• | the voting and exchange trust agreement and the exchangeable share support agreement (as described under “Description of Exchangeable Shares and Related Agreements”) will be executed and delivered; | |
• | the certificate of designation, preferences and rights of the special voting preferred stock of Magnum Hunter (as described under “Description of Magnum Hunter Capital Stock”) will be filed with the Secretary of State of the State of Delaware; and | |
• | the various other documents necessary to consummate the arrangement will be executed and delivered. |
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• | corporate existence, good standing and qualification to conduct business; | |
• | due authorization, execution, delivery and validity of the arrangement agreement; | |
• | governmental and third-party consents necessary to complete the arrangement; | |
• | absence of any conflict with organizational documents or any violation of agreements, laws or regulations as a result of the execution, delivery or performance of the arrangement agreement and completion of the arrangement; |
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• | capital structure; | |
• | subsidiaries; | |
• | securities filings and the absence of material misstatements or omissions from such filings; | |
• | absence of certain changes since September 30, 2010 through the date of the arrangement agreement, including changes that have had or would, individually or in the aggregate, reasonably be expected to have a material adverse effect; | |
• | compliance with laws and court orders; | |
• | litigation; | |
• | financial statements; | |
• | taxes; | |
• | properties; | |
• | environmental matters; | |
• | oil and gas operations; | |
• | title to oil and gas interests; | |
• | reserve reports; | |
• | lease and royalty obligations; | |
• | operating limitations; | |
• | production allowables and production penalties; | |
• | net profits and other interests; | |
• | expenses owed or delinquent; | |
• | revenues; | |
• | board of directors and shareholder approval; and | |
• | fees payable to financial advisors in connection with the arrangement. |
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• | amending its organizational documents; | |
• | splitting, combining or reclassifying its capital stock, declaring, setting aside or paying any dividend or repurchasing any shares of NuLoch’s capital stock; | |
• | other than the issuance of NuLoch shares upon the exercise of NuLoch stock options or compensation options outstanding on the date of the arrangement agreement, issuing or selling any shares of its capital stock; | |
• | incurring capital expenditures, except for those capital expenditures made in accordance with and not in excess of the amounts contemplated by the arrangement agreement; | |
• | acquiring assets, securities, properties, interests or businesses; | |
• | selling, leasing, transferring or creating a lien on NuLoch’s assets, rights, securities, properties, interests or businesses, subject to certain exceptions, including sales pursuant to existing contracts or sales of hydrocarbon production in the ordinary course of business; | |
• | making, modifying or terminating any derivative agreement; | |
• | entering into, amending, modifying or terminating material contracts, or waiving, releasing or assigning material rights thereunder; | |
• | incurring indebtedness, subject to certain exceptions, including indebtedness expressly contemplated by the arrangement agreement and only to the extent consistent with the terms and conditions set forth therein, indebtedness of a subsidiary to NuLoch, or in connection with expenditures permitted under the arrangement agreement; | |
• | other than pursuant to an internal reorganization, adopting a plan of complete or partial liquidation or resolutions providing for or authorizing such a liquidation or a dissolution, restructuring, recapitalization or reorganization; | |
• | entering into agreements or arrangements that would materially restrict the ability of NuLoch to conduct its business as it is presently being conducted or to engage in any type of activity or business; | |
• | except as required by applicable law or as expressly contemplated by the arrangement agreement or the plan of arrangement, (i) entering into, adopting, amending or terminating compensation or benefit plans for current or former employees or directors; (ii) increasing employee or director compensation other than as required by any NuLoch benefit plan in effect prior to the date of the arrangement agreement; (iii) increasing the rate of compensation for any independent consultant or contractor; (iv) entering into or renewing any agreement (other than a renewal occurring in accordance with the terms of a NuLoch benefit plan in effect prior to the date of the arrangement agreement) providing for the payment to any director, officer, employee, independent contractor or consultant of compensation or benefits contingent, or the terms of which are materially altered, upon (A) the occurrence of any of the transactions contemplated by the arrangement agreement, (B) any change of control of NuLoch, (C) the termination or severance of such individual’s relationship with NuLoch, or (D) the retention or continued |
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employment of any such individual; (v) except as provided in the plan of arrangement, providing for the accelerated vesting of any equity-based award upon the occurrence of any of the transactions contemplated by the arrangement agreement; and (vi) paying any bonus or other compensation to any person (other than salaries, wages or bonuses paid or payable to employees in the ordinary course of business in accordance with current compensation levels and practices) for any reason, including as a result of the transactions contemplated by the arrangement agreement; |
• | subject to certain limited exceptions, changing NuLoch’s methods of accounting; | |
• | settling any litigation involving NuLoch or its subsidiaries where the amount paid in settlement exceeds $200,000; | |
• | intentionally taking any action that would reasonably be expected to make any representation or warranty of NuLoch inaccurate at closing, or cause any of the conditions to closing to not be satisfied or cause NuLoch to be in a violation of any provision of the arrangement agreement; | |
• | entering into any material new line of business; | |
• | issuing any press releases or otherwise making any public statement regarding NuLoch or any of its subsidiaries, or its or their business, properties or assets without consulting Magnum Hunter; | |
• | making or changing any tax election or changing any annual tax accounting period, individually or in the aggregate, which would reasonably be likely to have a material adverse effect; and | |
• | authorizing or entering into any agreement to do any of the foregoing. |
• | initiate, solicit or knowingly encourage inquiries or proposals with respect to an acquisition proposal (other than from Magnum Hunter); | |
• | engage in any discussions or negotiations concerning, or provide any confidential information or data to any third party in connection with, an acquisition proposal (except to notify such third party as to the existence of the non-solicitation provisions of the arrangement agreement), or knowingly take any other action with the purpose or intention of facilitating any other inquiries or the making of any proposal that constitutes, or that reasonably may be expected to lead to, any acquisition proposal; or | |
• | enter into any agreement (other than a confidentiality agreement to the extent permitted by the arrangement agreement as described below) with respect to any acquisition proposal or approve or resolve to approve any acquisition proposal. |
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• | approve or recommend, or propose to approve or recommend, any acquisition proposal (other than from Magnum Hunter); | |
• | cause or permit NuLoch to enter into any letter of intent, agreement in principle, acquisition agreement or similar agreement with respect to any acquisition proposal (other than from Magnum Hunter); or | |
• | in connection with an acquisition proposal withdraw or modify in a manner adverse to Magnum Hunter, or publicly propose to withdraw or modify in a manner adverse to Magnum Hunter, its recommendation to NuLoch securityholders to vote in favor of approving the arrangement, which is referred to in this proxy statement as an adverse recommendation change. |
• | an “acquisition proposal” means, any inquiry, proposal or offer whether in writing or otherwise, with respect to (a) any purchase of an equity interest (including by means of a tender or exchange offer) representing more than 20% of the voting power in NuLoch or any of its subsidiaries, (b) a merger, plan of arrangement, takeover bid, amalgamation, consolidation, other business combination, reorganization, recapitalization, dissolution, liquidation or similar transaction involving NuLoch or any of its subsidiaries or (c) any purchase of assets, businesses, securities or ownership interests (including the securities of any NuLoch subsidiary) representing more than 20% of the consolidated assets of NuLoch and its subsidiaries; |
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• | an “intervening event” means any material event, development, circumstance, occurrence or change in circumstances or facts not related to an acquisition proposal that was not known to NuLoch’s board of directors or senior management on the date of the arrangement agreement, that would have a material highly favorable impact on the business, condition (financial or otherwise), capitalization, assets, liabilities, operations or financial performance of NuLoch and its subsidiaries taken as a whole;provided,however,thatthe following will not constitute an intervening event: changes in the financial or securities markets or general economic or political conditions in the world, general conditions in the industry in which NuLoch and its subsidiaries operate, any change in the price of oil or natural gas, discovery of successful wells, or any oil and gas discovery; and | |
• | a “superior proposal” means an unsolicited,bona fidewritten acquisition proposal made by a third party which NuLoch’s board of directors concludes in good faith, after receipt of advice from an independent financial advisor, and after consultation with outside legal counsel, taking into account the legal, financial, regulatory, timing and other aspects of the proposal and the person making the proposal (including anybreak-up fees, expense reimbursement provisions and conditions to consummation): (i) is more favorable to the shareholders of NuLoch from a financial point of view, than the transactions contemplated by the arrangement agreement (after giving effect to any adjustments to the terms and provisions of the arrangement agreement committed to in writing by Magnum Hunter in response to such acquisition proposal) and (ii) is fully financed or NuLoch’s board of directors has received a commitment letter that such acquisition proposal will be fully financed, reasonably likely to receive all required governmental approvals on a timely basis and otherwise reasonably capable of being completed on the terms proposed;provided,that, for purposes of the definition of “superior proposal,” the term acquisition proposal has the meaning assigned to such term in the arrangement agreement, except that (i) the reference to “more than 20%” in clause (a) of the definition of “acquisition proposal” will be deemed to be a reference to “all,” (ii) the reference to “more than 20%” in clause (c) of the definition of “acquisition proposal” will be deemed to be a reference to “substantially all,” and (iii) “acquisition proposal” will only be deemed to refer to a transaction involving NuLoch. |
• | prior to the effective time of the arrangement, cause the governing documents of Exchangeco to be amended to createand/or provide for the exchangeable shares and otherwise as required to effect the transactions contemplated by the arrangement agreement; | |
• | reserve or have available a sufficient number of shares of Magnum Hunter common stock for issuance upon the exchange from time to time of the exchangeable shares; | |
• | convene and hold a special meeting of Magnum Hunter common stockholders for purposes of approving the MHR Stock Issuance in connection with the arrangement, and solicit proxies to be voted at such meeting to approve the MHR Stock Issuance; | |
• | file a registration statement onForm S-3 (or other applicable form) with the SEC, which we refer to in this proxy statement as theS-3 Registration Statement, in order to register under the Securities Act the |
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shares of Magnum Hunter common stock issuable from time to time after the effective time of the arrangement upon exchange of the exchangeable shares; and |
• | cause theS-3 Registration Statement to become effective and to maintain the effectiveness of such registration so long as any exchangeable shares remain outstanding (other than those exchangeable shares held by Magnum Hunter or any of its affiliates) or until such earlier time as Magnum Hunter determines that the securities covered by theS-3 Registration Statement have been sold, or may be sold without volume restrictions pursuant to Rule 144, as determined by Magnum Hunter, acting reasonably. |
• | the approval of NuLoch’s securityholders with respect to the arrangement; | |
• | the approval of Magnum Hunter common stockholders with respect to the MHR Stock Issuance in connection with the arrangement; | |
• | the final order of the Court of Queen’s Bench of Alberta approving the arrangement has been granted in form and substance satisfactory to Magnum Hunter and NuLoch, acting reasonably; | |
• | the closing of the arrangement occurring on or before May 31, 2011; | |
• | the MHR shares (including the MHR shares issuable upon exchange of the exchangeable shares) issued as consideration in the arrangement are authorized for listing on the NYSE and are generally freely tradable without further registration under applicable securities laws of the U.S. and Canada, and, with respect to the MHR shares issuable upon exchange of the exchangeable shares, subject to official notice of issuance and the effectiveness of theS-3 Registration Statement; | |
• | absence of any temporary restraining order, injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the arrangement; | |
• | absence of any law or action by a governmental entity or other circumstance that (i) makes illegal or prohibits the arrangement or (ii) results in a judgment or assessment of material damages relating to the transactions contemplated by the arrangement agreement; | |
• | the accuracy of all other representations and warranties made in the arrangement agreement by the other party (disregarding any materiality or material adverse effect qualifications contained in such representations and warranties) as of the effective time of the arrangement (or, in the case of representations and warranties that by their terms address matters only as of another specified time, as of that time), except for any such inaccuracies that have not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on such party; | |
• | performance in all material respects by the other party of the obligations required to be performed by it under the arrangement agreement at or prior to the effective time of the arrangement; and | |
• | the absence of any event, occurrence, circumstance, fact or change from the date of the arrangement agreement to the effective time of the arrangement which, individually or in the aggregate, has had, or is reasonably expected to have, a material adverse effect on the other party. |
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• | NuLoch has timely mailed its proxy circular and other documentation required in connection with the NuLoch meeting of securityholders to approve the arrangement; | |
• | holders of not more than five percent of the outstanding NuLoch shares and NuLoch stock options have exercised rights of dissent in respect of the arrangement; | |
• | resignations and mutual releases in a form acceptable to Magnum Hunter acting reasonably have been obtained from each director and officer of NuLoch and its subsidiaries; | |
• | there is no pending action or proceeding (other than those brought by securityholders of NuLoch) that: (i) challenges or seeks to restrain or prohibit the completion of the arrangement; (ii) seeks to prohibit Magnum Hunter’s ability effectively to exercise full rights of ownership of NuLoch’s stock; (iii) would materially and adversely affect the right of NuLoch to own its assets or operate its business; or (iv) seeks to compel Magnum Hunter, NuLoch or any of their respective subsidiaries to dispose of or hold separate any material assets as a result of the arrangement; and | |
• | Magnum Hunter has received a copy of the written fairness opinion of NuLoch’s financial advisor, which has not been amended or rescinded. |
• | any adverse effect (including any loss of or adverse change in the relationship of Magnum Hunter and its subsidiaries with their respective employees, customers, distributors, licensors, partners, suppliers or similar relationship) arising out of or related to the announcement, pendency or consummation of the arrangement; | |
• | changes in the financial or securities markets or general economic or political conditions in the world (so long as Magnum Hunter and its subsidiaries are not materially and disproportionately affected thereby); | |
• | general conditions in the industry in which Magnum Hunter and its subsidiaries operate (so long as Magnum Hunter and its subsidiaries are not materially and disproportionately affected thereby); | |
• | any changes (after the date of the arrangement agreement) in GAAP or any laws; | |
• | the commencement, occurrence or continuation of any war, armed hostility or act of terrorism; |
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• | any failure of Magnum Hunter to take any action as a result of restrictions or other prohibitions pursuant to the arrangement agreement; | |
• | any failure of Magnum Hunter to meet internal or analysts’ expectations or projections (provided that the underlying cause of any such failure may be considered in determining whether there has been a material adverse effect); | |
• | any changes in the price of oil or natural gas; | |
• | any proceeding made or brought by any third party other than a governmental entity arising out of or related to the arrangement agreement or any of the transactions contemplated thereby; | |
• | the taking of any action, or failure to take action, to which NuLoch has consented or approved in writing; | |
• | the closing of the NGAS acquisition, or any delay or adverse development in, failure to close, renegotiations relating to, litigation arising from or other unfavorable development in any manner relating to the NGAS acquisition; or | |
• | the business, condition (financial or otherwise), capitalization, assets, liabilities, operations or financial performance of NGAS and its subsidiaries or affiliates; or |
• | any adverse effect (including any loss of or adverse change in the relationship of NuLoch and its subsidiaries with their respective employees, customers, distributors, licensors, partners, suppliers or similar relationship) arising out of or related to the announcement, pendency or consummation of the arrangement; | |
• | changes in the financial or securities markets or general economic or political conditions in the world (so long as NuLoch and its subsidiaries are not materially and disproportionately affected thereby); | |
• | general conditions in the industry in which NuLoch and its subsidiaries operate (so long as NuLoch and its subsidiaries are not materially and disproportionately affected thereby); | |
• | any changes (after the date of the arrangement agreement) in Canadian generally accepted accounting principles or any laws; | |
• | the commencement, occurrence or continuation of any war, armed hostility or act of terrorism; | |
• | any failure of NuLoch and its subsidiaries to take any action as a result of restrictions or other prohibitions pursuant to the arrangement agreement; | |
• | any failure of NuLoch to meet internal or analysts’ expectations or projections (provided that the underlying cause of any such failure may be considered in determining whether there has been a material adverse effect); | |
• | any change in the price of oil or natural gas; | |
• | any proceeding made or brought by a NuLoch securityholder (including on such holder’s own behalf or on behalf of NuLoch) arising out of or related to the arrangement agreement or any of the transactions contemplated thereby; or |
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• | the taking of any action, or failure to take action, to which Magnum Hunter has consented or approved in writing; |
• | a governmental entity shall permanently enjoin or prohibit the arrangement (unless the party’s breach is the cause of the injunction), but the party seeking to terminate must have used its reasonable best efforts to remove or lift such an injunction; | |
• | the arrangement has not been completed on or before May 31, 2011 (unless the party’s breach is the cause of the delay); | |
• | NuLoch securityholders fail to approve the arrangement resolution, but (i) NuLoch may not terminate if any director, officer or employee of NuLoch or its subsidiaries who is a party to a support agreement has not voted his or her NuLoch securities in accordance with the support agreement or otherwise breached his or her material obligations thereunder and (ii) neither party may terminate if that party’s breach is the cause of the failure to obtain the required vote; or | |
• | Magnum Hunter common stockholders fail to approve the MHR Stock Issuance, but neither party may terminate if that party’s breach is the cause of the failure to obtain the required vote. |
• | the NuLoch board of directors fails to make or has withdrawn or changed its recommendation in a manner adverse to Magnum Hunter or NuLoch enters into an agreement with respect to any acquisition proposal (or resolves to do either); | |
• | abona fideacquisition proposal is publicly announced or offered to the NuLoch shareholders (and not publicly withdrawn) and the NuLoch securityholders do not approve the arrangement or the arrangement is not submitted for their approval; | |
• | NuLoch accepts, recommends, approves or enters into an agreement to implement a superior proposal, or publicly announces its intention to do any of the foregoing; or | |
• | NuLoch breaches any of the covenants and agreements in the non-solicitation provision. |
• | the NuLoch board of directors fails to make or has withdrawn or changed its recommendation in a manner adverse to Magnum Hunter (or resolves or publicly announces its intent to do so) prior to the effective date of the arrangement; |
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• | the NuLoch securityholders fail to approve the arrangement agreement at the NuLoch securityholders’ meeting called for such purpose or the arrangement agreement is not submitted for their approval, and (i) abona fideacquisition proposal has been publicly announced after the date of the arrangement agreement and prior to the date of the termination of the arrangement agreement and such acquisition proposal has not been publicly withdrawn, and (ii) either (1) within 12 months following the announcement of such acquisition proposal, NuLoch completes such acquisition proposal or any other acquisition proposal that is announced prior to termination or (2) any other acquisition proposal that is publicly announced after the termination of the arrangement agreement is consummated by September 30, 2011 (provided that for purposes of the foregoing clause (ii), each reference to “20%” in the definition of acquisition proposal is deemed to be a reference to “50%”); | |
• | NuLoch accepts, recommends, approves or enters into an agreement to implement a superior proposal or publicly announces its intention to do any of the foregoing; or | |
• | NuLoch breaches any of its covenants in the non-solicitation provision, and fails to cure such breach within three business days (if curable) after written notice thereof from Magnum Hunter and in any event before May 31, 2011. |
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Redemption | ||||
Redemption Date | Price | |||
On or before December 14, 2011 | $ | 25.50 | ||
After December 14, 2011 | $ | 25.00 |
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Redemption | ||||
Redemption Date | Price | |||
Prior to[ • ], 2012 | $ | 51.50 | ||
On or after[ • ], 2012 and prior to[ • ], 2013 | $ | 51.00 | ||
On or after[ • ], 2013 and prior to[ • ], 2014 | $ | 50.50 | ||
After[ • ], 2014 | $ | 50.00 |
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• | specifying the number of exchangeable shares the holder desires to retract; | |
• | stating the retraction date on which the holder desires to have Exchangeco redeem the exchangeable shares; and | |
• | acknowledging the retraction call right. |
• | certificates representing the number of shares of Magnum Hunter common stock equal to the number of exchangeable shares purchased or redeemed, registered in the name of the holder or such other name as the holder may request; and | |
• | if applicable, a check for the aggregate amount of cash dividends (or the applicable property, in the case of non-cash dividends) declared, payable and unpaid on each such exchangeable share to the holder, to the address recorded in the securities register of Exchangeco or to the address specified in the holder’s retraction request or by holding the same for the holder to pick up at the registered office of Exchangeco or the office of Exchangeco’s transfer agent as specified by Exchangeco, in each case less any amounts required to be withheld because of applicable taxes. |
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• | a Magnum Hunter control transaction, such as any merger, amalgamation, tender offer, material sale of shares or rights or interests in shares or similar transactions involving Magnum Hunter, or any proposal to carry out a control transaction; | |
• | an exchangeable share voting event, which is any matter that holders of exchangeable shares are entitled to vote on as shareholders of Exchangeco, other than an exempt exchangeable share voting event (described below), and other than any matter that holders of exchangeable shares are entitled to vote on (or instruct the trustee to vote on) in their capacity as beneficiaries under the voting and exchange trust agreement; or | |
• | an exempt exchangeable share voting event, which is any matter that holders of exchangeable shares are entitled to vote on as shareholders of Exchangeco in order to approve or disapprove, as applicable, any change to, or in the rights of the holders of, the exchangeable shares, where the approval or disapproval of the change would be required to maintain the equivalence of the exchangeable shares and the shares of Magnum Hunter common stock; |
• | certificates representing the aggregate number of shares of Magnum Hunter common stock equal to the number of exchangeable shares purchased or redeemed, registered in the name of the holder or such other name as the holder may request; and | |
• | if applicable, a check for the aggregate amount of cash dividends (or the applicable property, in the case of non-cash dividends) declared, payable and unpaid on each such exchangeable Share to the holder, |
• | the date that there are issued and outstanding less than 10% of the exchangeable shares that were originally issued on the effective date of the arrangement (other than exchangeable shares held by Magnum Hunter and its affiliates) and the board of directors of Exchangeco decides to accelerate the |
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redemption of the exchangeable shares prior to the first anniversary of the effective date of the arrangement; |
• | the occurrence of a Magnum Hunter control transaction, provided that the board of directors of Exchangeco determines (A) that it is not reasonably practicable to substantially replicate the terms and conditions of the exchangeable shares in connection with the Magnum Hunter control transaction and (B) that the redemption of the exchangeable shares is necessary to enable the completion of the Magnum Hunter control transaction; | |
• | a proposal being made for an exchangeable share voting event, provided that the board of directors of Exchangeco determines that it is not reasonably practicable to accomplish the business purpose intended by the exchangeable share voting event (which business purpose must bebona fideand not for the primary purpose of causing the occurrence of a redemption date); or | |
• | the failure by the holders of the exchangeable shares to approve or disapprove, as applicable, an exempt exchangeable share voting event. |
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• | pay any dividends on the common shares or preferred shares of Exchangeco or any other shares ranking junior to the exchangeable shares, other than stock dividends payable in common shares or preferred shares of Exchangeco or any other shares ranking junior to the exchangeable shares; | |
• | redeem, purchase or make any capital distribution in respect of common shares or preferred shares of Exchangeco or any other shares ranking junior to the exchangeable shares with respect to the payment of dividends or on any liquidation, dissolution orwinding-up of Exchangeco or any other distribution of assets of Exchangeco; | |
• | redeem or purchase or make any capital distribution in respect of any other shares of Exchangeco ranking equally with the exchangeable shares with respect to the payment of dividends or on any liquidation, dissolution orwinding-up of Exchangeco or any other distribution of assets of Exchangeco; or | |
• | issue any exchangeable shares or any other shares of Exchangeco ranking equally with, or superior to, the exchangeable shares other than by way of stock dividends to the holders of exchangeable shares. |
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• | Magnum Hunter will not declare or pay dividends on shares of Magnum Hunter common stock unless Exchangeco: (i) simultaneously declares or pays, as the case may be, an equivalent dividend on the exchangeable shares and has sufficient money or other assets or authorized but unissued securities available to enable the due declaration and the due and punctual payment, in accordance with applicable law, of any such equivalent dividend; or (ii) subdivides the exchangeable shares in lieu of a stock dividend thereon (as provided for in the exchangeable share provisions) and has sufficient authorized but unissued securities available to enable the subdivision; | |
• | Magnum Hunter will advise Exchangeco sufficiently in advance of the declaration of any dividend on shares of Magnum Hunter common stock and take other reasonably necessary actions to ensure that: (i) the declaration date, record date and payment date for dividends on the exchangeable shares are the same as those for the corresponding dividend on the shares of Magnum Hunter common stock; or (ii) the record date and effective date for a subdivision of the exchangeable shares in lieu of a stock dividend (as provided for in the exchangeable share provisions, attached to the plan of arrangement as Schedule A) are the same as the record date and payment date for the stock dividend on the shares of Magnum Hunter common stock; | |
• | Magnum Hunter will take all actions and do all things reasonably necessary or desirable to enable and permit Exchangeco, in accordance with applicable law, to pay to the holders of the exchangeable shares the applicable liquidation amount, redemption price or retraction price in the event of a liquidation, dissolution orwinding-up of Exchangeco, a retraction request by a holder of exchangeable shares or a redemption of exchangeable shares by Exchangeco, including delivering shares of Magnum Hunter common stock to holders of exchangeable shares; | |
• | Magnum Hunter will take all actions and do all things reasonably necessary or desirable to enable and permit Callco, in accordance with applicable law, to perform its obligations arising upon the exercise by it of the call rights, including delivering shares of Magnum Hunter common stock to holders of exchangeable shares in accordance with the applicable call right; and | |
• | Magnum Hunter will not (and will ensure that Callco or any of its affiliates does not) exercise its vote as a shareholder to initiate the voluntary liquidation, dissolution orwinding-up of Exchangeco or any other distribution of the assets of Exchangeco among its shareholders for the purpose of winding up its affairs nor take any action or omit to take any action (and Magnum Hunter will not permit Callco or any of its affiliates to take any action or omit to take any action) that is designed to result in the liquidation, dissolution or winding up of Exchangeco or any other distribution of the assets of Exchangeco among its shareholders for the purpose of winding up its affairs. |
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• | risk capital required to evaluate the prospect; | |
• | likelihood of economic success; and | |
• | estimated return on investment. |
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Year Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
OPERATING | ||||||||
Production — daily average | ||||||||
Oil and NGL (bbls/d) | 620 | 239 | ||||||
Natural gas (Mcf/d) | 1,626 | 2,020 | ||||||
Combined oil equivalent (boe/d)(1) | 891 | 576 | ||||||
Average sales prices | ||||||||
Oil and NGL ($/bbl) | 75.04 | 65.43 | ||||||
Natural gas ($/Mcf) | 4.06 | 4.31 | ||||||
Combined oil equivalent ($/boe) | 59.63 | 42.31 |
Year Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
($ thousands except per share amounts) | ||||||||
FINANCIAL | ||||||||
Petroleum and natural gas revenue | 19,383 | 8,888 | ||||||
Funds flow from operations(2) | 6,639 | 2,957 | ||||||
Per share — basic | 0.06 | 0.06 | ||||||
— diluted | 0.06 | 0.06 | ||||||
Net earnings (loss)(3) | (2,563 | ) | 1,884 | |||||
Per share — basic | (0.03 | ) | 0.04 | |||||
— diluted | (0.03 | ) | 0.04 | |||||
Working capital (deficiency) — end of period | (2,072 | ) | 374 | |||||
Undrawn line of credit | 25,000 | 7,000 | ||||||
Capital expenditures and acquisitions using cash | 58,069 | 20,879 |
Year Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
(Thousands) | ||||||||
COMMON SHARES | ||||||||
Class A, end of period | 122,333 | 78,288 | ||||||
Class B, end of period | — | 653 | ||||||
Employee options, end of period | 11,816 | 7,415 | ||||||
Underwriter options, end of period | 648 | 1,106 | ||||||
Basic, weighted average combined | 102,159 | 49,031 | ||||||
Diluted, weighted average | 102,159 | 49,735 |
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(1) | Six Mcf of natural gas is considered equivalent to 1 barrel of oil. | |
(2) | Cash flow from operations before changes in non-cash operating working capital. | |
(3) | In the third quarter of 2009, NuLoch recorded a $2,281,000 gain from an extraordinary item. |
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Producing Wells | ||||||||||||||||||
Net | ||||||||||||||||||
Primary Areas | Gross | Oil | Gas | Total | ||||||||||||||
Production Districts as of December 31, 2010 | ||||||||||||||||||
Alberta — Balsam | Balsam | 2 | 1.3 | — | 1.3 | |||||||||||||
Alberta — Shallow Gas | Enchant | 38 | — | 37.9 | 37.9 | |||||||||||||
Alberta — Others | Pembina, Enchant, Farrow | 17 | 1.5 | 7.1 | 8.6 | |||||||||||||
Saskatchewan | Tableland | 9 | 6.9 | — | 6.9 | |||||||||||||
North Dakota | Divide, Burke | 57 | 5.2 | — | 5.2 | |||||||||||||
123 | 14.9 | 45.0 | 59.9 | |||||||||||||||
Q1 | Q2 | Q3 | Q4 | Annual | ||||||||||||||||||||
2010 | ||||||||||||||||||||||||
Oil and NGL | (bbls/d | ) | 495 | 649 | 637 | 695 | 620 | |||||||||||||||||
Natural gas | (Mcf/d | ) | 2,047 | 1,659 | 1,470 | 1,336 | 1,626 | |||||||||||||||||
Combined oil equivalent | (boe/d | ) | 837 | 925 | 882 | 917 | 891 | |||||||||||||||||
2009 | ||||||||||||||||||||||||
Oil and NGL | (bbls/d | ) | 159 | 161 | 242 | 392 | 239 | |||||||||||||||||
Natural gas | (Mcf/d | ) | 2,140 | 2,074 | 1,968 | 1,899 | 2,020 | |||||||||||||||||
Combined oil equivalent | (boe/d | ) | 515 | 507 | 570 | 708 | 576 |
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Light & | ||||||||||||||||||||
Medium Oil | Heavy Oil | Natural Gas | NGL | Total | ||||||||||||||||
(Mbbl) | (Mbbl) | (MMcf) | (Mbbl) | (Mboe) | ||||||||||||||||
Company Gross Reserves(1) as at December 31, 2010 | �� | |||||||||||||||||||
Proved developed producing | 1,145 | 8 | 2,610 | 2 | 1,589 | |||||||||||||||
Proved developed non-producing | 450 | — | 429 | 2 | 523 | |||||||||||||||
Proved undeveloped | 3,499 | — | 4,085 | — | 4,181 | |||||||||||||||
Total proved | 5,094 | 8 | 7,124 | 4 | 6,293 | |||||||||||||||
Probable | 3,025 | 6 | 4,060 | 2 | 3,710 | |||||||||||||||
Total proved and probable | 8,119 | 14 | 11,184 | 6 | 10,003 | |||||||||||||||
Before Income Tax | ||||||||||||||||
Forecast Net Revenue(1) as at December 31, 2010 | ||||||||||||||||
$000s, discounted at | 0 | % | 5 | % | 10 | % | 15 | % | ||||||||
Proved developed producing | 66,539 | 50,213 | 40,386 | 33,991 | ||||||||||||
Proved developed non-producing | 29,479 | 19,634 | 14,639 | 11,650 | ||||||||||||
Proved undeveloped | 145,553 | 76,381 | 41,821 | 21,961 | ||||||||||||
Total proved | 241,571 | 146,228 | 96,846 | 67,602 | ||||||||||||
Probable | 255,797 | 103,423 | 54,929 | 33,695 | ||||||||||||
Total proved and probable | 497,368 | 249,651 | 151,775 | 101,297 | ||||||||||||
After Income Tax | ||||||||||||||||
$000s, discounted at | 0 | % | 5 | % | 10 | % | 15 | % | ||||||||
Proved developed producing | 66,539 | 50,213 | 40,386 | 33,991 | ||||||||||||
Proved developed non-producing | 29,474 | 19,633 | 14,638 | 11,650 | ||||||||||||
Proved undeveloped | 127,149 | 67,609 | 37,171 | 19,301 | ||||||||||||
Total proved | 223,162 | 137,455 | 92,195 | 64,942 | ||||||||||||
Probable | 220,281 | 89,327 | 47,557 | 29,227 | ||||||||||||
Total proved and probable | 443,443 | 226,782 | 139,752 | 94,169 | ||||||||||||
(1) | Columns and rows may not add due to rounding |
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Oil | Oil | Natural Gas | ||||||||||
Year | WTI | Edmonton | AECO Average | |||||||||
($US/bbl) | ($CDN/bbl) | ($CDN/Mcf) | ||||||||||
2011 | 85.00 | 82.80 | 4.10 | |||||||||
2012 | 89.25 | 88.80 | 4.60 | |||||||||
2013 | 91.55 | 94.05 | 5.20 | |||||||||
2014 | 95.50 | 98.15 | 5.50 | |||||||||
2015 | 102.85 | 105.80 | 5.75 |
Light & | ||||||||||||||||||||
Medium Oil | Heavy Oil | Natural Gas | NGL | Total | ||||||||||||||||
(Mbbl) | (Mbbl) | (MMcf) | (Mbbl) | (Mboe) | ||||||||||||||||
Proved | ||||||||||||||||||||
December 31, 2009 | 806 | 16 | 8,307 | 20 | 2,226 | |||||||||||||||
Extensions | 4,391 | 7 | 4,392 | |||||||||||||||||
Technical revisions | 105 | (1 | ) | (457 | ) | (15 | ) | 14 | ||||||||||||
Economic factors | — | (136 | ) | — | (23 | ) | ||||||||||||||
Acquisitions | 17 | — | — | — | 17 | |||||||||||||||
Dispositions | (7 | ) | — | (3 | ) | — | (7 | ) | ||||||||||||
Production | (218 | ) | (7 | ) | (593 | ) | (1 | ) | (325 | ) | ||||||||||
December 31, 2010 | 5,094 | 8 | 7,124 | 4 | 6,293 | |||||||||||||||
Probable | ||||||||||||||||||||
December 31, 2009 | 492 | 7 | 4,322 | 9 | 1,229 | |||||||||||||||
Extensions | 2,464 | 7 | 2,465 | |||||||||||||||||
Technical revisions | 63 | (1 | ) | (285 | ) | (7 | ) | 8 | ||||||||||||
Economic factors | 1 | 18 | 4 | |||||||||||||||||
Acquisitions | 9 | 9 | ||||||||||||||||||
Dispositions | (3 | ) | (1 | ) | (3 | ) | ||||||||||||||
Production | — | — | — | — | — | |||||||||||||||
December 31, 2010 | 3,025 | 6 | 4,060 | 2 | 3,710 | |||||||||||||||
Proved and Probable | ||||||||||||||||||||
December 31, 2009 | 1,298 | 23 | 12,629 | 29 | 3,455 | |||||||||||||||
Extensions | 6,855 | 14 | 6,857 | |||||||||||||||||
Technical revisions | 168 | (2 | ) | (743 | ) | (22 | ) | 20 | ||||||||||||
Economic factors | 1 | (119 | ) | (19 | ) | |||||||||||||||
Acquisitions | 26 | 26 | ||||||||||||||||||
Dispositions | (10 | ) | (3 | ) | (10 | ) | ||||||||||||||
Production | (218 | ) | (7 | ) | (593 | ) | (1 | ) | (325 | ) | ||||||||||
December 31, 2010 | 8,119 | 14 | 11,184 | 6 | 10,003 | |||||||||||||||
(1) | Columns and rows may not add due to rounding |
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Q1 | Q2 | Q3 | Q4 | Annual | ||||||||||||||||
($ thousands, except per share information) | ||||||||||||||||||||
2010 | ||||||||||||||||||||
Petroleum and natural gas revenue | 4,360 | 4,931 | 4,735 | 5,357 | 19,383 | |||||||||||||||
Funds flow from operations(1) | 1,770 | 1,739 | 1,496 | 1,634 | 6,639 | |||||||||||||||
Per share — basic | 0.02 | 0.02 | 0.01 | 0.01 | 0.06 | |||||||||||||||
— diluted | 0.02 | 0.02 | 0.01 | 0.01 | 0.06 | |||||||||||||||
Net loss | (280 | ) | (722 | ) | (901 | ) | (660 | ) | (2,563 | ) | ||||||||||
Per share — basic | — | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.03 | ) | |||||||||||
— diluted | — | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.03 | ) | |||||||||||
Total assets — end of period | 93,392 | 93,760 | 94,843 | 123,239 | 123,239 | |||||||||||||||
Working capital (deficiency) — end of period | 9,323 | (1,915 | ) | (9,930 | ) | (2,072 | ) | (2,072 | ) | |||||||||||
2009 | ||||||||||||||||||||
Petroleum and natural gas revenue | 1,632 | 1,638 | 2,182 | 3,436 | 8,888 | |||||||||||||||
Funds flow from operations(1) | 469 | 556 | 650 | 1,282 | 2,957 | |||||||||||||||
Per share — basic | 0.01 | 0.01 | 0.02 | 0.02 | 0.06 | |||||||||||||||
— diluted | 0.01 | 0.01 | 0.02 | 0.02 | 0.06 | |||||||||||||||
Net earnings (loss) before | (614 | ) | (520 | ) | (501 | ) | 1,238 | (397 | ) | |||||||||||
Extraordinary items(2) | ||||||||||||||||||||
Per share — basic | (0.02 | ) | (0.01 | ) | (0.01 | ) | 0.02 | (0.01 | ) | |||||||||||
— diluted | (0.02 | ) | (0.01 | ) | (0.01 | ) | 0.02 | (0.01 | ) | |||||||||||
Net earnings (loss) | (614 | ) | (520 | ) | 1,780 | 1,238 | 1,884 | |||||||||||||
Per share — basic | (0.02 | ) | (0.01 | ) | 0.04 | 0.02 | 0.04 | |||||||||||||
— diluted | (0.02 | ) | (0.01 | ) | 0.04 | 0.02 | 0.04 | |||||||||||||
Total assets — end of period | 37,245 | 37,032 | 41,127 | 66,065 | 66,065 | |||||||||||||||
Working capital (deficiency) — end of period | (4,470 | ) | (4,368 | ) | (6,324 | ) | 374 | 374 |
(1) | Funds flow from operations is a non-Canadian GAAP measurement. | |
(2) | In the third quarter of 2009, NuLoch recorded a $2,281,000 gain from an extraordinary item. |
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Q1 | Q2 | Q3 | Q4 | Year | ||||||||||||||||||||
2010 | ||||||||||||||||||||||||
Production — daily average | ||||||||||||||||||||||||
Oil and NGL | (bbls/d) | 495 | 649 | 637 | 695 | 620 | ||||||||||||||||||
Natural gas | (Mcf/d) | 2,047 | 1,659 | 1,470 | 1,336 | 1,626 | ||||||||||||||||||
Combined oil equivalent | (boe/d) | 837 | 925 | 882 | 917 | 891 | ||||||||||||||||||
Average sales prices | ||||||||||||||||||||||||
Oil and NGL | ($/bbl) | 77.17 | 73.72 | 72.58 | 77.01 | 75.04 | ||||||||||||||||||
Natural gas | ($/Mcf) | 4.98 | 3.84 | 3.55 | 3.54 | 4.06 | ||||||||||||||||||
Combined oil equivalent | ($/boe) | 57.89 | 58.58 | 58.33 | 63.47 | 59.63 | ||||||||||||||||||
Oil and NGL revenue | ($) | 3,442 | 4,350 | 4,256 | 4,922 | 16,970 | ||||||||||||||||||
Natural gas revenue | ($) | 918 | 581 | 479 | 435 | 2,413 | ||||||||||||||||||
Petroleum and natural gas revenue | ($) | 4,360 | 4,931 | 4,735 | 5,357 | 19,383 | ||||||||||||||||||
2009 | ||||||||||||||||||||||||
Production — daily average | ||||||||||||||||||||||||
Oil and NGL | (bbls/d) | 159 | 161 | 242 | 392 | 239 | ||||||||||||||||||
Natural gas | (Mcf/d) | 2,140 | 2,074 | 1,968 | 1,899 | 2,020 | ||||||||||||||||||
Combined oil equivalent | (boe/d) | 515 | 507 | 570 | 708 | 576 | ||||||||||||||||||
Average sales prices | ||||||||||||||||||||||||
Oil and NGL | ($/bbl) | 46.01 | 60.89 | 68.23 | 73.26 | 65.43 | ||||||||||||||||||
Natural gas | ($/Mcf) | 5.06 | 3.94 | 3.65 | 4.57 | 4.31 | ||||||||||||||||||
Combined oil equivalent | ($/boe) | 35.19 | 35.50 | 41.60 | 52.77 | 42.31 | ||||||||||||||||||
Oil and NGL revenue | ($) | 657 | 894 | 1,520 | 2,637 | 5,708 | ||||||||||||||||||
Natural gas revenue | ($) | 975 | 744 | 662 | 799 | 3,180 | ||||||||||||||||||
Petroleum and natural gas revenue | ($) | 1,632 | 1,638 | 2,182 | 3,436 | 8,888 | ||||||||||||||||||
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Change | ||||||||||||
2010 | 2009 | % | ||||||||||
Royalties Years ended December 31, | ||||||||||||
Petroleum and natural gas revenue | 19,383 | 8,888 | 118 | |||||||||
Government royalties | 3,667 | 1,932 | 90 | |||||||||
Other royalties | 1,812 | 294 | 516 | |||||||||
Royalties | 5,479 | 2,226 | 146 | |||||||||
2010 | 2009 | |||||||
% | % | |||||||
Royalties as a percentage of revenue Years ended December 31, | ||||||||
Petroleum and natural gas revenue | 100 | 100 | ||||||
Government royalties | 19 | 22 | ||||||
Other royalties | 9 | 3 | ||||||
Royalties | 28 | 25 | ||||||
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Change | ||||||||||||
2010 | 2009 | % | ||||||||||
Operating Expense Years ended December 31, | ||||||||||||
Operating expense | 4,269 | 2,342 | 82 | |||||||||
Operating expense ($/boe) | 13.13 | 11.15 | 18 |
December 31, 2010 | ||||||||||||||||||||
Rolling | ||||||||||||||||||||
3 Year | Cumulative | |||||||||||||||||||
FD&A Costs | 2008 | 2009 | 2010 | 2010 | since 2005 | |||||||||||||||
Additions to property and equipment | 16,234 | 4,809 | 53,781 | 74,824 | 105,479 | |||||||||||||||
Add (deduct): | ||||||||||||||||||||
Disposition proceeds | 150 | 150 | 150 | |||||||||||||||||
Change in asset retirement obligations | (13 | ) | 71 | (7 | ) | 51 | (430 | ) | ||||||||||||
Office equipment | (2 | ) | (32 | ) | (303 | ) | (337 | ) | (482 | ) | ||||||||||
Change due to foreign exchange | — | 282 | 1,792 | 2,074 | 2,074 | |||||||||||||||
Change in future development costs | ||||||||||||||||||||
Proved reserves | (808 | ) | 2,556 | 79,735 | 81,483 | 90,333 | ||||||||||||||
Probable reserves | (351 | ) | 194 | 12,340 | 12,183 | 12,534 | ||||||||||||||
Total F&D costs | 15,060 | 7,880 | 147,488 | 170,428 | 209,658 | |||||||||||||||
Acquisitions | — | 17,168 | 3,408 | 20,576 | 20,576 | |||||||||||||||
Add (deduct): | ||||||||||||||||||||
Change in asset retirement obligations | — | (38 | ) | — | (38 | ) | (38 | ) | ||||||||||||
Change in future development costs | ||||||||||||||||||||
Proved reserves | — | 6,797 | — | 6,797 | 6,797 | |||||||||||||||
Probable reserves | — | 4,050 | — | 4,050 | 4,050 | |||||||||||||||
Total FD&A costs | 15,060 | 35,857 | 150,896 | 201,813 | 241,043 | |||||||||||||||
F&D costs ($/boe) | ||||||||||||||||||||
Proved | 146.64 | 51.00 | 30.85 | 34.13 | 30.26 | |||||||||||||||
Proved and probable | (* | ) | 45.95 | 21.49 | 24.75 | 21.44 | ||||||||||||||
FD&A costs ($/boe) | ||||||||||||||||||||
Proved | 146.64 | 36.57 | 31.55 | 34.62 | 31.01 | |||||||||||||||
Proved and probable | (* | ) | 26.56 | 21.93 | 24.94 | 21.98 |
(*) | FD&A costs not applicable due to negative technical revisions. |
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Year Ended | ||||||||
December 31, | ||||||||
Periods Ended December 31, | 2010 | 2009 | ||||||
Acquisition | 3,408 | 15,987 | ||||||
Land | 5,333 | 664 | ||||||
Drilling and completions | 42,716 | 2,556 | ||||||
Equipment | 4,130 | 308 | ||||||
Geoscience | 1,029 | 462 | ||||||
Capitalized G&A | 1,150 | 870 | ||||||
Administrative assets | 303 | 32 | ||||||
58,069 | 20,879 | |||||||
Disposal of property and equipment | (150 | ) | — | |||||
Non-cash changes in property and equipment: | ||||||||
Acquisitions | — | 1,181 | ||||||
Foreign exchange | (1,792 | ) | (282 | ) | ||||
Other | 1,062 | 199 | ||||||
(730 | ) | 1,098 | ||||||
Increase in property and equipment | 57,189 | 21,977 |
Wells Completed | Natural | |||||||||||||||
Years Ended December 31, | Oil | Gas | Dry | Total | ||||||||||||
2010 | ||||||||||||||||
Gross | 28 | 1 | 3 | 32 | ||||||||||||
Net | 7.1 | 1.0 | 1.3 | 9.4 | ||||||||||||
2009 | ||||||||||||||||
Gross | 5 | 1 | 2 | 8 | ||||||||||||
Net | 1.2 | 0.2 | 1.7 | 3.1 |
Depletion and Depreciation | ||||||||||||
Years ended December 31, | 2010 | 2009 | Change % | |||||||||
Depletion and depreciation | 9,373 | 5,370 | 75 | |||||||||
Depletion and depreciation ($/boe) | 28.84 | 25.56 | 13 |
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Interest Expense | ||||||||||||
Years Ended December 31, | 2010 | 2009 | Change % | |||||||||
Bank interest | 98 | 156 | (37 | ) | ||||||||
Part XII.6 tax | 62 | — | — | |||||||||
160 | 156 | 3 |
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Payments Due in Twelve Month Period Ending: | ||||||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||||
Contractual Obligations | Total | 2011 | 2012-2013 | 2014-2015 | Thereafter | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Lease obligations | $ | 1,182 | $ | 375 | $ | 736 | $ | 71 | $ | 0 |
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Magnum Hunter | NuLoch | NuLoch | ||||||||||||||||||||||
Common Stock (USD) | Class A Shares (CAD) | Class A Shares (USD) | ||||||||||||||||||||||
Quarter | High | Low | High | Low | High | Low | ||||||||||||||||||
2009 | ||||||||||||||||||||||||
First Quarter | $ | 0.65 | $ | 0.19 | $ | 0.32 | $ | 0.18 | $ | 0.26 | $ | 0.15 | ||||||||||||
Second Quarter | $ | 0.88 | $ | 0.20 | $ | 0.45 | $ | 0.20 | $ | 0.42 | $ | 0.16 | ||||||||||||
Third Quarter | $ | 1.45 | $ | 0.50 | $ | 1.00 | $ | 0.38 | $ | 0.93 | $ | 0.32 | ||||||||||||
Fourth Quarter | $ | 2.24 | $ | 1.15 | $ | 1.02 | $ | 0.60 | $ | 0.96 | $ | 0.55 | ||||||||||||
2010 | ||||||||||||||||||||||||
First Quarter | $ | 3.29 | $ | 1.50 | $ | 1.87 | $ | 0.85 | $ | 1.75 | $ | 0.82 | ||||||||||||
Second Quarter | $ | 5.49 | $ | 3.00 | $ | 1.69 | $ | 1.20 | $ | 1.69 | $ | 1.13 | ||||||||||||
Third Quarter | $ | 4.85 | $ | 3.75 | $ | 1.56 | $ | 0.95 | $ | 1.47 | $ | 0.90 | ||||||||||||
Fourth Quarter | $ | 8.05 | $ | 3.87 | $ | 2.15 | $ | 1.22 | $ | 2.15 | $ | 1.19 | ||||||||||||
2011 | ||||||||||||||||||||||||
First Quarter (through[ • ], 2011) | $ | [ • ] | $ | [ • ] | $ | [ • ] | $ | [ • ] | $ | [ • ] | $ | [ • ] |
Implied Per Share | ||||||||||||||||
NuLoch | NuLoch | Value of | ||||||||||||||
Magnum Hunter | Class A Shares | Class A Shares | Arrangement | |||||||||||||
Date | Common Stock (USD) | (USD) | (CAD) | Consideration | ||||||||||||
January 18, 2011 | $ | 7.92 | $ | 2.11 | $ | 2.10 | $ | 2.62 | ||||||||
[ • ], 2011 | $ | [ • ] | $ | [ • ] | $ | [ • ] | $ | [ • ] |
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As of December 31, 2010
NuLoch | ||||||||||||||||||||||||||||||||||||
Resources | Combined | Combined | ||||||||||||||||||||||||||||||||||
NuLoch | Conversion to | NuLoch | Pro Forma for | Pro Forma for | ||||||||||||||||||||||||||||||||
Magnum | NGAS | Resources | PostRock | NGAS | U.S. GAAP and | Resources | Magnum Hunter, | Magnum Hunter, | ||||||||||||||||||||||||||||
Hunter | Resources | Historical | Pro Forma | Pro Forma | USD | Pro Forma | NGAS and | NGAS, PostRock | ||||||||||||||||||||||||||||
Historical | Historical | (CAN $) | Adjustments | Adjustments | Adjustments | Adjustments | PostRock | and NuLoch | ||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 554,186 | $ | 6,844,475 | $ | 9,673,000 | $ | — | $ | — | (4) | $ | 14,510 | $ | — | $ | 7,398,661 | $ | 17,086,171 | |||||||||||||||||
Accounts receivable | 11,705,046 | 5,640,891 | 5,200,000 | — | — | (4) | (319,690 | ) | — | 17,345,937 | 22,226,247 | |||||||||||||||||||||||||
Notes receivable | — | 6,766,451 | — | — | (2) | (6,766,451 | ) | — | — | — | — | |||||||||||||||||||||||||
Prepaids and other current assets | 867,013 | 552,741 | 507,000 | (1) | 2,658 | — | (4) | 761 | — | 1,422,412 | 1,930,173 | |||||||||||||||||||||||||
Total current assets | 13,126,245 | 19,804,558 | 15,380,000 | 2,658 | (6,766,451 | ) | (304,419 | ) | — | 26,167,010 | 41,242,591 | |||||||||||||||||||||||||
PROPERTY AND EQUIPMENT (Net of Accumulated Depletion and Depreciation): | ||||||||||||||||||||||||||||||||||||
Oil and natural gas properties, successful efforts accounting | 189,911,500 | 174,630,484 | 101,149,000 | (1) | 13,334,502 | (2) | (60,824,175 | )(4) | (15,953,398 | )(3) | 356,535,437 | 317,052,311 | 758,783,350 | |||||||||||||||||||||||
Equipment and other fixed assets | 42,689,125 | 9,475,659 | 330,000 | (1) | 3,750 | (2) | 1,279,170 | (4) | 495 | — | 53,447,704 | 53,778,199 | ||||||||||||||||||||||||
Total property and equipment, net | 232,600,625 | 184,106,143 | 101,479,000 | 13,338,252 | (59,545,005 | ) | (15,952,903 | ) | 356,535,437 | 370,500,015 | 812,561,549 | |||||||||||||||||||||||||
OTHER ASSETS: | ||||||||||||||||||||||||||||||||||||
Other assets | 561,711 | 258,945 | — | — | — | — | — | 820,656 | 820,656 | |||||||||||||||||||||||||||
Deferred financing costs, net of amortization | 2,678,244 | 750,462 | — | — | (2) | (937,456 | ) | — | — | 2,491,250 | 2,491,250 | |||||||||||||||||||||||||
Deferred tax asset | — | — | 6,380,000 | — | — | (4) | 6,737,647 | (3) | (13,117,647 | ) | — | — | ||||||||||||||||||||||||
Total assets | $ | 248,966,825 | $ | 204,920,108 | $ | 123,239,000 | $ | 13,340,910 | $ | (67,248,912 | ) | $ | (9,519,675 | ) | $ | 343,417,790 | $ | 399,978,931 | $ | 857,116,046 | ||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||||||||||||||||||||||
Accounts payable | $ | 29,839,557 | $ | 5,562,836 | $ | 4,053,000 | $ | — | $ | — | (4) | $ | 6,080 | $ | — | $ | 35,402,393 | $ | 39,461,473 | |||||||||||||||||
Accrued liabilities | 3,914,136 | 6,134,962 | 13,399,000 | (1) | 369,805 | (2) | 8,681,578 | (4) | 20,099 | (3) | 7,032,198 | 19,100,481 | 39,551,778 | |||||||||||||||||||||||
Revenue payable | 2,629,999 | — | — | — | — | — | 2,629,999 | 2,629,999 | ||||||||||||||||||||||||||||
Current portion of notes payable | 7,132,455 | 53,298,857 | — | — | (2) | (53,298,857 | ) | — | — | 7,132,455 | 7,132,455 | |||||||||||||||||||||||||
Warrant liability | — | — | — | — | (2) | 1,279,834 | — | — | 1,279,834 | 1,279,834 | ||||||||||||||||||||||||||
Derivative liability | 718,771 | 2,615,847 | — | — | (2) | (2,615,847 | ) | — | — | 718,771 | 718,771 | |||||||||||||||||||||||||
Total current liabilities | 44,234,918 | 67,612,502 | 17,452,000 | 369,805 | (45,953,292 | ) | 26,179 | 7,032,198 | 66,263,933 | 90,774,310 | ||||||||||||||||||||||||||
Deferred compensation | — | 985,716 | — | — | (2) | (985,716 | ) | — | — | — | — | |||||||||||||||||||||||||
Deferred income tax | — | 9,534,798 | — | — | (2) | (9,534,798 | ) | — | (3) | 117,756,387 | — | 117,756,387 | ||||||||||||||||||||||||
Payable on sale of partnership | 640,695 | — | — | — | — | — | — | 640,695 | 640,695 | |||||||||||||||||||||||||||
Notes payable, less current portion | 26,018,615 | 5,953,259 | — | (1) | 5,763,983 | (2) | 47,725,685 | — | — | 85,461,542 | 85,461,542 | |||||||||||||||||||||||||
Asset retirement obligation | 4,455,327 | 2,269,442 | 1,357,000 | — | — | (4) | 2,036 | — | 6,724,769 | 8,083,805 | ||||||||||||||||||||||||||
Derivative liability | 59,181 | 60,397 | — | — | (2) | (60,397 | ) | — | — | 59,181 | 59,181 | |||||||||||||||||||||||||
Other long-term liabilities | — | 1,895,000 | — | — | — | 1,352,025 | (1,352,025 | ) | 1,895,000 | 1,895,000 | ||||||||||||||||||||||||||
Total liabilities | 75,408,736 | 88,311,114 | 18,809,000 | 6,133,788 | (8,808,518 | ) | 1,380,240 | 123,436,560 | 161,045,120 | 304,670,920 | ||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||||||||||||||||||||
REDEEMABLE PREFERRED STOCK: | ||||||||||||||||||||||||||||||||||||
Series C Cumulative Perpetual Preferred Stock | 70,236,400 | — | — | — | — | — | — | 70,236,400 | 70,236,400 | |||||||||||||||||||||||||||
SHAREHOLDERS’ EQUITY: | ||||||||||||||||||||||||||||||||||||
Shareholders’ equity | 101,871,350 | 116,608,994 | 104,430,000 | (1) | 7,207,122 | (2) | (58,440,394 | )(4) | (10,899,915 | )(3) | 219,981,230 | 167,247,072 | 480,758,387 | |||||||||||||||||||||||
Non-controlling interest | 1,450,339 | — | — | — | — | — | — | 1,450,339 | 1,450,339 | |||||||||||||||||||||||||||
Total Equity | 103,321,689 | 116,608,994 | 104,430,000 | 7,207,122 | (58,440,394 | ) | (10,899,915 | ) | 219,981230 | 168,697,411 | 482,208,726 | |||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 248,966,825 | $ | 204,920,108 | $ | 123,239,000 | $ | 13,340,910 | $ | (67,248,912 | ) | $ | (9,519,675 | ) | $ | 343,417,790 | $ | 399,978,931 | $ | 857,116,046 | ||||||||||||||||
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Year Ended December 31, 2010
Combined | ||||||||||||||||||||||||||||||||||||||||
NuLoch | Combined | Pro Forma | ||||||||||||||||||||||||||||||||||||||
Resources | Pro Forma | for Magnum | ||||||||||||||||||||||||||||||||||||||
NuLoch | NGAS | Conversion to | NuLoch | for Magnum | Hunter, | |||||||||||||||||||||||||||||||||||
Magnum | NGAS | Resources | PostRock | Resources | U.S. GAAP & | Resources | Hunter, | NGAS, | ||||||||||||||||||||||||||||||||
Hunter | PostRock | Resources | Historical | Pro Forma | Pro Forma | USD | Pro Forma | NGAS | PostRock | |||||||||||||||||||||||||||||||
Historical | Historical | Historical | (CAN $) | Adjustments | Adjustments | Adjustments | Adjustments | and PostRock | and NuLoch | |||||||||||||||||||||||||||||||
REVENUE: | ||||||||||||||||||||||||||||||||||||||||
Oil and gas sales | $ | 27,714,542 | $ | 1,912,012 | $ | 23,010,779 | $ | 13,904,000 | $ | — | $ | — | (4) | $ | 103,699 | $ | — | $ | 52,637,333 | $ | 66,645,032 | |||||||||||||||||||
Field operations and other | 5,009,131 | — | 27,809,338 | — | — | — | — | — | 32,818,469 | 32,818,469 | ||||||||||||||||||||||||||||||
Total revenue | 32,723,673 | 1,912,012 | 50,820,117 | 13,904,000 | — | — | 103,699 | — | 85,455,802 | 99,463,501 | ||||||||||||||||||||||||||||||
EXPENSES: | ||||||||||||||||||||||||||||||||||||||||
Lease operating expenses | 10,399,323 | 643,807 | 14,675,547 | 4,269,000 | — | — | (4) | (746,693 | ) | — | 25,718,677 | 29,240,984 | ||||||||||||||||||||||||||||
Severance taxes and marketing | 2,304,570 | 138,192 | — | — | — | — | (4) | 1,133,661 | — | 2,442,762 | 3,576,423 | |||||||||||||||||||||||||||||
Exploration | 936,371 | — | — | — | — | — | (4) | 7,779,359 | — | 936,371 | 8,715,730 | |||||||||||||||||||||||||||||
Field operations | 4,362,618 | — | 18,504,612 | — | — | — | — | — | 22,867,230 | 22,867,230 | ||||||||||||||||||||||||||||||
Impairment of oil & gas properties | 305,786 | — | — | — | — | — | — | — | 305,786 | 305,786 | ||||||||||||||||||||||||||||||
Impairment of goodwill | — | — | 313,177 | — | — | — | — | — | 313,177 | 313,177 | ||||||||||||||||||||||||||||||
Depreciation, depletion and accretion | 8,923,202 | — | 13,280,961 | 9,480,000 | (5) | 359,249 | (7) | (6,787,960 | )(4) | 2,442,850 | (13) | (6,818,666 | ) | 15,775,452 | 20,879,636 | |||||||||||||||||||||||||
General and administrative | 24,900,996 | — | 13,620,819 | 3,775,000 | — | (8) | (625,344 | )(4) | 1,682,684 | — | 37,896,471 | 43,354,155 | ||||||||||||||||||||||||||||
Total expenses | 52,132,866 | 781,999 | 60,395,116 | 17,524,000 | 359,249 | (7,413,304 | ) | 12,291,861 | (6,818,666 | ) | 106,255,926 | 129,253,121 | ||||||||||||||||||||||||||||
LOSS FROM OPERATIONS | (19,409,193 | ) | 1,130,013 | (9,574,999 | ) | (3,620,000 | ) | (359,249 | ) | 7,413,304 | (12,188,162 | ) | 6,818,666 | (20,800,124 | )) | (29,789,620 | ) | |||||||||||||||||||||||
OTHER INCOME AND (EXPENSE): | ||||||||||||||||||||||||||||||||||||||||
Interest income | 60,526 | — | 821,923 | 35,000 | — | (9) | (821,923 | )(4) | (1,029 | ) | — | 60,526 | 94,497 | |||||||||||||||||||||||||||
Interest expense | (3,593,524 | ) | — | (7,093,001 | ) | (160,000 | )(6) | (259,379 | )(10) | 5,487,965 | (4) | 4,704 | — | (5,457,939 | ) | (5,613,234 | ) | |||||||||||||||||||||||
Gain (Loss) on derivative contracts | 814,037 | — | (4,394,953 | ) | — | — | (11) | 4,394,953 | — | — | 814,037 | 814,037 | ||||||||||||||||||||||||||||
Other, net | — | — | (2,276,948 | ) | — | — | — | — | — | (2,276,948 | ) | (2,276,948 | ) | |||||||||||||||||||||||||||
Net loss from continuing operations before income taxes and non controlling interest | (22,128,154 | ) | 1,130,013 | (22,517,978 | ) | (3,745,000 | ) | (618,628 | ) | 16,474,299 | (12,184,487 | ) | 6,818,666 | (27,660,448 | (36,771,268 | ) | ||||||||||||||||||||||||
Income tax benefit | — | — | 3,024,751 | 1,182,000 | — | (12) | (3,024,751 | )(4) | 1,511,415 | (14) | (2,693,415 | ) | — | — | ||||||||||||||||||||||||||
Net (income) loss attributable to non-controlling interest | (128,586 | ) | — | — | — | — | — | — | — | (128,586 | ) | (128,586 | ) | |||||||||||||||||||||||||||
Net loss attributable to Magnum Hunter from continuing operations | (22,256,740 | ) | 1,130,013 | (19,493,227 | ) | (2,563,000 | ) | (618,628 | ) | 13,449,548 | (10,673,072 | ) | 4,125,251 | (27,789,034 | ) | (36,899,854 | ) | |||||||||||||||||||||||
Income from discontinued operations | 8,456,811 | — | — | — | — | — | — | — | 8,456,811 | 8,456,811 | ||||||||||||||||||||||||||||||
Net loss | (13,799,929 | ) | 1,130,013 | (19,493,227 | ) | (2,563,000 | ) | (618,628 | ) | 13,449,548 | (10,673,072 | ) | 4,125,251 | (19,332,223 | ) | (28,443,043 | ) | |||||||||||||||||||||||
Dividends on preferred stock | (2,466,679 | ) | — | — | — | — | — | — | — | (2,466,679 | ) | (2,466,679 | ) | |||||||||||||||||||||||||||
Net loss attributable to common shareholders | $ | (16,266,608 | ) | $ | 1,130,013 | $ | (19,493,227 | ) | $ | (2,563,000 | ) | $ | (618,628 | ) | $ | 13,449,548 | $ | (10,673,072 | ) | $ | 4,125,251 | $ | (21,798,902 | ) | $ | (30,909,722 | ||||||||||||||
Loss per common share Basic and diluted | $ | (0.25 | ) | $ | (0.30 | ) | $ | (0.27 | ) | |||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding Basic and diluted | 63,921,525 | (15 | ) | 946,314 | (15) | 8,033,889 | (15 | ) | 42,804,675 | 72,901,728 | 115,706,403 | |||||||||||||||||||||||||||||
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(1) | To record the closing of the second phase of the acquisition of the PostRock assets for an estimated purchase price of $13.3 million. The first phase of the acquisition closed December 30, 2010. The estimated purchase price includes cash payment and issuance of our common stock, which is based on the closing price of $7.97 per share on January 14, 2011, the closing date for the second phase of the acquisition of the PostRock assets. The purchase and sale agreement for the PostRock assets had valued the common stock at $6.21 per share based on the volume weighted average price of our common stock for the 10 consecutive trading days prior to execution of the agreement on December 24, 2010. The acquisition is accounted for under the purchase method of accounting. All assets acquired and liabilities assumed are recorded at fair market value as determined by management. As noted above, these are preliminary estimates and are subject to adjustment. The following table summarizes the assets acquired and purchase price paid: |
Fair value of total purchase price: | ||||
946,314 shares of common stock issued on January 14, 2011 valued at $7.97 per share | $ | 7,542,122 | ||
Cash paid on January 14, 2011 with funds borrowed under our line of credit agreement | 5,763,983 | |||
Net operations since effective date | 8,963 | |||
Total | $ | 13,315,068 | ||
Amounts recognized for assets acquired and liabilities assumed: | ||||
Working capital | $ | (23,184 | ) | |
Oil and gas properties | 13,334,502 | |||
Equipment and other fixed assets | 3,750 | |||
Total | $ | 13,315,068 | ||
Working capital acquired: | ||||
Prepaid expenses | $ | 2,658 | ||
Transfer tax payable | (25,842 | ) | ||
Total working capital acquired | $ | (23,184 | ) | |
(2) | To record the acquisition of NGAS’ assets for an estimated purchase price of $119.2 million. The estimated purchase price includes the estimated shares of our common stock to be issued to shareholders of NGAS, the estimated shares of our common stock issued to certain holders of NGAS convertible notes, payment to a third party to restructure a gas gathering and transportation agreement, the assumption of the senior credit facility of NGAS, the assumption of certain notes payable related to equipment included in the transaction, and the payoff in cash of the remaining NGAS convertible notes. The acquisition is accounted for under the purchase method of accounting. All assets acquired and liabilities assumed are recorded at fair market value as determined by management. As noted above, these are preliminary estimates and are subject to adjustment. The following table summarizes the assets acquired, liabilities assumed, and purchase price paid: |
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Fair value of total purchase price: | ||||
Estimated 6,634,026 shares of common stock at estimated $7.34 per share(a) | $ | 48,693,751 | ||
Estimated 1,399,863 shares of common stock at estimated $7.34 per share(a) | 10,275,000 | |||
Senior credit facility assumed | 34,000,000 | |||
Estimated NGAS convertible notes to be paid off in cash at closing | 13,528,944 | |||
Other long-term debt assumed | 6,150,000 | |||
Change in control payments in cash(b) | 5,000,000 | |||
Common stock warrants and options | 1,564,677 | |||
Total | $ | 119,212,372 | ||
Amounts recognized for assets acquired and liabilities assumed: | ||||
Working capital | $ | (1,443,269 | ) | |
Bonds and deposits | 258,945 | |||
Oil and gas properties | 113,806,309 | |||
Equipment and other fixed assets | 10,754,829 | |||
Other long term liabilities | (4,164,442 | ) | ||
Total | $ | 119,212,372 | ||
Working capital acquired: | ||||
Cash | $ | 6,844,475 | ||
Accounts receivable | 5,640,891 | |||
Prepaid expenses | 552,741 | |||
Accounts payable | (5,562,836 | ) | ||
Accrued liabilities | (736,452 | ) | ||
Transaction closing costs | (3,432,923 | ) | ||
Drilling advances | (4,749,165 | ) | ||
Total working capital acquired | $ | (1,443,269 | ) | |
a. | The closing price of our common stock on February 25, 2011 was used to estimate the value of the shares to be issued in the NGAS acquisition. The final entries and the resulting effect on our balance sheet may differ as they will be based on the actual stock price at the date of closing. | |
b. | Pursuant to the arrangement agreement, these payments may be paid in cash or shares of our common stock or any combination thereof, as determined by us in our sole discretion, except for the payment of approximately $855,000 that must be paid in cash. The closing stock price on the date of grant of any such change in control payment will be used to calculate the number of shares of common stock to be issued. |
(3) | To record the acquisition of NuLoch’s assets for an estimated purchase price of $431.9 million. The estimated purchase price includes the estimated shares of our common stock to be issued to shareholders of NuLoch and the deferred tax liability resulting from the acquisition. The NuLoch acquisition is accounted for under the purchase method of accounting. All assets acquired and liabilities assumed are recorded at fair market value as determined by management. As noted above, these are preliminary estimates and are subject to adjustment. The following table summarizes the assets acquired, liabilities assumed, and purchase price paid: |
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Fair value of total purchase price: | ||||
Estimated 42,804,675 shares of common stock at estimated $7.34 per share(a) | $ | 314,186,315 | ||
Deferred income tax liability (see schedule below) | 117,756,387 | |||
Total | $ | 431,942,702 | ||
Amounts recognized for assets acquired and liabilities assumed: | ||||
Working capital | $ | (8,759,796 | ) | |
Oil and gas properties | 441,731,039 | |||
Equipment and other fixed assets | 330,495 | |||
Asset retirement obligation | (1,359,036 | ) | ||
Total | $ | 431,942,702 | ||
Working capital acquired: | ||||
Cash | $ | 9,687,510 | ||
Accounts receivable | 4,880,310 | |||
Prepaid expenses | 507,761 | |||
Transaction closing costs | (6,357,198 | ) | ||
Accounts payable | (4,059,080 | ) | ||
Accrued liabilities | (13,419,099 | ) | ||
Total working capital acquired | $ | (8,759,796 | ) | |
a. | The closing price of our common stock on February 25, 2011 was used to estimate the value of the shares to be issued in the NuLoch acquisition. The final entries, and the resulting effect on our balance sheet may differ as they will be based on the actual stock price at the date of closing. |
Deferred | ||||||||||||||||||||
Book | Tax | Asset | ||||||||||||||||||
Deferred Income Tax Liability | Rate | Basis | Basis | Difference | (Liability) | |||||||||||||||
PPE US | 38.0 | % | $ | 290,675,762 | $ | 29,492,753 | $ | (261,183,009 | ) | $ | (99,145,087 | ) | ||||||||
PPE Canada | 25.0 | % | 158,829,050 | 53,264,982 | (105,564,068 | ) | (26,391,000 | ) | ||||||||||||
NOL US — 2009 | 38.0 | % | 1,704,787 | 1,704,787 | 647,100 | |||||||||||||||
NOL Canada — 2009 | 25.0 | % | 28,530,348 | 28,530,348 | 7,132,600 | |||||||||||||||
Net Deferred Tax Liability | $ | (336,511,932 | ) | $ | (117,756,387 | ) | ||||||||||||||
(4) | To record the adjustment to NuLoch’s historical financial statements prepared in accordance with Canadian GAAP and in Canadian dollars to U.S. GAAP and U.S. dollars. The adjustment includes: |
a. | To convert Canadian GAAP full cost accounting to U.S. GAAP successful efforts accounting for oil and gas properties. This has reduced the net book value (NBV) of property and equipment as all geological and geophysical costs and general and administrative costs capitalized under Canadian GAAP have been expensed to conform with U.S. GAAP. The NBV has also decreased due to all unsuccessful exploratory wells being expensed. The resulting change in NBV of oil and gas properties along with the reduction of depletion on a field level basis resulted in lower depletion expense over the periods presented. | |
b. | To adjust NuLoch for the conversion to U.S. GAAP of an acquisition it completed in 2009. This adjustment resulted in the recording of additional fair value of oil and gas property and equipment of $8,969,000 and the value of shares issued increasing by $660,000 (Canadian GAAP value at announcement date compared to U.S. GAAP at closing date). These adjustments resulted in a future tax asset reduction of $2,242,000. |
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c. | To adjust for Canadian GAAP “Flow-through shares” for treatment under U.S. GAAP. This resulted in an increase to additional paid in capital and a decrease in deferred tax asset. | |
d. | Due to the adjustments noted above, adjustments to income tax expense or benefit were made to statements presented. | |
e. | To convert NuLoch’s balance sheet as of December 31, 2010, and income statement for the year ended December 31, 2010 from Canadian dollars to U.S. dollars using the applicable conversion factors. |
(5) | To record the pro forma adjustment to depletion and depreciation expense as the result of treating the acquisition of the PostRock assets as if it had occurred January 1, 2010. Depletion was calculated using the units of production method. | |
(6) | To record the pro forma adjustment to interest expense as the result of treating the cash paid in the acquisition of the PostRock assets as if it had been borrowed January 1, 2010. | |
(7) | To record the pro forma adjustment to NGAS’ depletion and depreciation expense as the result of treating the acquisition of NGAS as if it had occurred January 1, 2010. Depletion was calculated using the units of production method. | |
(8) | To record the pro forma adjustment to NGAS’ refinancing costs amortized as the result of treating the acquisition of NGAS as if it had occurred January 1, 2010. | |
(9) | To record the pro forma adjustment to NGAS’ interest income on notes receivable as the result of restructuring a gas gathering and transportation agreement as if it had occurred January 1, 2010. | |
(10) | To record the pro forma adjustment to NGAS’ interest expense as the result of treating the acquisition of NGAS and the payment of assumed debt using Magnum Hunter’s credit facility as if it had occurred January 1, 2010. | |
(11) | To record the pro forma adjustment to NGAS’ gain (loss) on derivative contracts as the result of treating the acquisition of NGAS as if it had occurred January 1, 2010. The derivative loss reported by NGAS was the result of the convertible feature on certain notes payable which will be paid at closing. | |
(12) | To record the pro forma adjustment to NGAS’ income tax benefit on its income statement as the result of treating the acquisition of NGAS as if it had occurred January 1, 2010. The deferred tax liability and income tax benefit on the NGAS financial statements will be eliminated as the result of the fair market value adjustment to the oil and gas properties resulting from the acquisition. | |
(13) | To record the pro forma adjustment to NuLoch’s depletion and depreciation expense as the result of treating the acquisition of NuLoch as if it had occurred January 1, 2010. Depletion was calculated using the units of production method. | |
(14) | To record the pro forma adjustment to NuLoch’s income tax benefit as the result of treating the acquisition of NuLoch as if it had occurred January 1, 2010. | |
(15) | Acquisition shares were added to the weighted average number of common shares outstanding as if the shares were issued January 1, 2010. |
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(INCLUDING SHARES OF MAGNUM HUNTER COMMON STOCK UPON EXCHANGE OF THE
EXCHANGEABLE SHARES) IN CONNECTION WITH THE ARRANGEMENT
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• | personal and professional integrity, experience, reputation and skills; | |
• | ability and willingness to devote the time and effort necessary to be an effective board member; and |
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• | commitment to act in the best interests of Magnum Hunter and its stockholders. |
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• | ethical handling of actual or apparent conflicts of interest; | |
• | full, fair, accurate and timely disclosure in filings with the SEC and other public disclosures; | |
• | compliance with the law and other regulations; | |
• | protection of our assets; | |
• | insider trading policies; and | |
• | prompt internal reporting of any violation of the code. |
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Compensation | ||||||||
Director | Audit Committee | and Nominating Committee | ||||||
J. Raleigh Bailes, Sr. | + | |||||||
Brad Bynum | X | X | ||||||
Joe L. McClaugherty | X | + | ||||||
Steven A. Pfeifer | X | |||||||
Jeff Swanson | X |
(+) | Denotes Chair |
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Brad Bynum
Joe L. McClaugherty
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• | J. Raleigh Bailes, Sr., Brad Bynum, Gary L. Hall, Joe L. McClaugherty, Steven A. Pfeifer and Jeff Swanson, each a director of the Company, made late filings of Form 4 to report grants of shares of restricted stock. |
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• | J. Raleigh Bailes, Sr., Brad Bynum, Gary L. Hall, Joe L. McClaugherty, Steven A. Pfeifer and Jeff Swanson, each a director of the Company, made late filings of Form 4 to report grants of options to purchase shares of common stock. | |
• | Gary L. Hall, a director of the Company, made a late filing of a Form 4 to report his purchase of shares of common stock and exercise of warrants to purchase shares of common stock. | |
• | Wayne P. Hall, the former vice chairman of the Company, made a late filing of a Form 4 to report his purchase of shares of our Series C Preferred Stock. | |
• | Brian G. Burgher, M. Bradley Davis and David S. Krueger, each an officer of the Company, made late filings of Form 3 with respect to options to purchase shares of our common stock. | |
• | James W. Denny, III, H.C. Ferguson, III and Donald L. Kirkendall, each on officer of the Company, made late filings of Form 4 to report grants of options to purchase shares of our common stock. |
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Fees Earned | Option | Stock | All Other | |||||||||||||||||
or Paid in | Awards ($) | Awards ($) | Compensation | |||||||||||||||||
Name | Cash ($) | (1)(2) | (1)(3) | ($) | Total ($) | |||||||||||||||
J. Raleigh Bailes, Sr. | $ | — | $ | 118,963 | $ | 34,507 | $ | — | $ | 153,470 | ||||||||||
Brad Bynum | $ | — | $ | 118,963 | $ | 40,002 | $ | — | $ | 158,965 | ||||||||||
Gary L. Hall | $ | — | $ | 118,963 | $ | 13,505 | $ | — | $ | 132,468 | ||||||||||
Joe L. McClaugherty | $ | — | $ | 118,963 | $ | 51,501 | $ | — | $ | 170,464 | ||||||||||
Steven A. Pfeifer | $ | — | $ | 118,963 | $ | 30,498 | $ | — | $ | 149,461 | ||||||||||
Jeff Swanson | $ | — | $ | 118,963 | $ | 25,498 | $ | — | $ | 144,461 |
(1) | Represents the aggregate grant date fair value, in accordance with Accounting Standards Codification 718, “Stock Compensation” (“ASC 718”) (except no assumptions for forfeitures were included), with respect to (a) shares of common stock (under the Stock Awards column), and (b) stock options (under the Option Awards column). See Notes 2 and 3 to our consolidated financial statements included in our Annual Report onForm 10-K for the fiscal year ended December 31, 2010, as amended, for information regarding the assumptions made in determining these values. | |
(2) | In May 2010, Messrs. Bailes, Bynum, Hall, McClaugherty, Pfeifer and Swanson were each granted an option to purchase up to 35,000 shares of our common stock at an exercise price of $4.45 per share with a ten year expiration date. | |
(3) | From time to time, board members are issued shares of common stock in lieu of cash for past participation in board and committee meetings. |
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• | the nature of the relationships among the parties; | |
• | the materiality of the transaction to Magnum Hunter; | |
• | the related person’s interest in the transaction; and | |
• | the benefit of the transaction to the related person and to our company. |
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Amount and Nature | ||||||||||
Title of Class | Name of Beneficial Owner | of Beneficial Ownership | Percent of Class (%) | |||||||
Common Stock | Gary C. Evans(a) | 5,925,620 | 8 | % | ||||||
Common Stock | Ronald D. Ormand(b) | 2,796,660 | 4 | % | ||||||
Common Stock | H.C. “Kip” Ferguson, III(c) | 420,340 | * | |||||||
Common Stock | Brian G. Burgher(d) | 250,000 | * | |||||||
Common Stock | James W. Denny, III(e) | 565,000 | * | |||||||
Common Stock | J. Raleigh Bailes, Sr.(f)(g) | 271,961 | * | |||||||
Common Stock | Brad Bynum(f) | 409,585 | * | |||||||
Common Stock | Victor G. Carrillo(h) | 35,000 | * | |||||||
Common Stock | Gary L. Hall(f)(i) | 206,980 | * | |||||||
Common Stock | Joe L. McClaugherty(j)(k) | 718,013 | 1 | % | ||||||
Common Stock | Steven A. Pfeifer(j) | 401,019 | * | |||||||
Common Stock | Jeff Swanson(l) | 173,652 | * | |||||||
Common Stock | BlackRock, Inc.(m) | 4,800,426 | 6 | % | ||||||
Common Stock | Directors and executive officers as a group (16 persons) | 13,185,189 | 17 | % | ||||||
Series C Preferred Stock | Gary C. Evans | 10,000 | * | |||||||
Series C Preferred Stock | Directors and executive officers as a group (1 person named above) | 10,000 | 0.25 | % |
* | Less than one percent. | |
(a) | Includes 2,945,074 shares of restricted common stock, 2,750,000 of which have vested; an option to purchase 2,750,000 shares of common stock, which has vested; and 142,341 shares underlying presently exercisable warrants, of which 125,000 shares are held in an account under the name of Mr. Evans’ children and Mr. Evans’ Special Inheritance Account. | |
(b) | Includes an option to purchase 1,400,000 shares of common stock, 1,300,000 of which have vested; 11,560 shares underlying presently exercisable warrants; and 157,800 shares held in a private investment company controlled by Mr. Ormand. | |
(c) | Includes an option to purchase 400,000 shares of common stock, 280,000 of which have vested; and 2,890 shares underlying presently exercisable warrants. | |
(d) | Includes an option to purchase 250,000 shares of common stock, 170,000 of which have vested. | |
(e) | Includes an option to purchase 425,000 shares of common stock, 385,000 of which have vested. |
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(f) | The amounts for each of Messrs. Bailes, Bynum and Hall include 135,000 shares of common stock underlying presently exercisable options. | |
(g) | Includes 5,780 shares of common stock underlying presently exercisable warrants. | |
(h) | Includes 35,000 shares of common stock underlying a presently exercisable option. | |
(i) | Includes 11,560 shares of common stock underlying presently exercisable warrants. | |
(j) | The amounts for each of Messrs. McClaugherty and Pfeifer include 165,000 shares of common stock underlying presently exercisable options. | |
(k) | Includes 2,890 shares of common stock underlying presently exercisable warrants. | |
(l) | Includes 2,890 shares of common stock underlying presently exercisable warrants; and 135,000 shares of common stock underlying a presently exercisable option. | |
(m) | BlackRock, Inc.’s principal business office address is 40 East 52nd Street, New York, New York 10022. Information relating to this reporting stockholder is based on the stockholder’s Schedule 13G filed with the SEC on February 7, 2011. |
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• | Use of long-term incentive compensation; | |
• | Vesting periods for equity compensation awards that encourage executives and other key employees to focus on sustained stock price appreciation; | |
• | The compensation and nominating committee’s discretionary authority to adjust annual incentive awards, which helps mitigate any business risks associated with such awards; | |
• | The Company’s internal control over financial reporting and other financial, operational and compliance policies and practices currently in place; | |
• | Base salaries consistent with executives’ responsibilities so that they are not motivated to take excessive risks to achieve a reasonable level of financial security; and | |
• | Design of long-term compensation to reward executives and other key employees for driving sustainable, profitable, growth for stockholders. |
Stock Awards | Option Awards | Total Compensation | ||||||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Bonus ($) | ($)(1) | ($)(1) | ($) | ||||||||||||||||||
Gary C. Evans, | 2010 | $ | 300,000 | $ | (a) | $ | 1,188,001 | (j) | $ | 9,158,722 | (k) | $ | 10,646,723 | |||||||||||
Chairman and CEO | 2009 | $ | 153,865 | (a) | $ | 505,400 | $ | 857,182 | (f) | $ | 581,670 | (f) | $ | 2,098,117 | ||||||||||
Ronald D. Ormand, | 2010 | $ | 225,000 | $ | 200,000 | $ | — | $ | 425,946 | (l) | $ | 943,996 | ||||||||||||
Executive Vice President and CFO | 2009 | $ | 109,038 | (b) | $ | 178,200 | $ | 392,363 | (g) | $ | 264,395 | (g) | $ | 941,996 | ||||||||||
James W. Denny III, | 2010 | $ | 225,000 | $ | 200,000 | $ | — | $ | 170,379 | (m) | $ | 595,379 | ||||||||||||
Executive Vice President Operations | 2009 | $ | 180,000 | $ | 214,200 | (e) | $ | — | $ | 326,193 | (h) | $ | 720,393 | |||||||||||
H.C. “Kip” Ferguson, | 2010 | $ | 225,000 | $ | 200,000 | $ | — | $ | 511,136 | (n) | $ | 936,136 | ||||||||||||
Executive Vice President Exploration | 2009 | $ | 45,000 | (c) | $ | 148,000 | $ | — | $ | 176,743 | (i) | $ | 369,743 | |||||||||||
Brian G. Burgher, | 2010 | $ | 170,000 | $ | 125,000 | $ | — | $ | 340,757 | (o) | $ | 635,757 | ||||||||||||
Senior Vice President Land | 2009 | $ | 35,000 | (d) | $ | 123,900 | $ | — | $ | 88,372 | (j) | $ | 247,272 |
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(1) | Represents the aggregate grant date fair value, in accordance with ASC 718 (except no assumptions for forfeitures were included), with respect to (a) shares of restricted stock (under the Stock Awards column), and (b) stock options (under the Option Awards column). See Notes 2 and 3 to our consolidated financial statements included in our Annual Report on Form10-K for the fiscal year ended December 31, 2010, as amended, for information regarding the assumptions made in determining these values. | |
(a) | Mr. Evans did not become employed by us until May 22, 2009. Mr. Evans’ annual salary for 2009 was $254,000. As of the date of this proxy statement, the compensation and nominating committee had not yet determined Mr. Evans’ bonus for 2010. | |
(b) | Mr. Ormand did not become employed by us until May 22, 2009. Mr. Ormand’s annual salary for 2009 was $180,000. | |
(c) | Mr. Ferguson did not become employed by us until September 30, 2009. Mr. Ferguson’s annual salary for 2009 was $180,000. | |
(d) | Mr. Burgher did not become employed by us until September 30, 2009. Mr. Burgher’s annual salary for 2009 was $140,000. | |
(e) | A portion of the cash bonus awarded to Mr. Denny in 2009 was awarded in July 2009 with consideration based on individual performance for the fiscal year ended December 31, 2008. | |
(f) | In May 2009, we entered into a stock option agreement with Mr. Evans, granting him an option to purchase up to 2,750,000 shares of our common stock at an exercise price of $0.37 per share for a five-year term ending on May 22, 2014. The option vests pursuant to certain performance conditions set forth in Mr. Evans’ stock option agreement. We also entered into a restricted stock agreement with Mr. Evans in May 2009, granting him 2,750,000 shares of our restricted common stock that become vested over a three-year period pursuant to certain conditions set forth in Mr. Evans’ restricted stock agreement. In 2009, Mr. Evans’ option vested with respect to 2,062,500 shares of common stock and his restricted stock grant vested with respect to 1,312,500 shares of common stock. In 2010, Mr. Evans’ option vested with respect to an additional 687,500 shares of common stock and his restricted stock grant vested with respect to an additional 437,500 shares of common stock. | |
(g) | In May 2009, we entered into a stock option agreement with Mr. Ormand, granting him an option to purchase up to 1,250,000 shares of our common stock at an exercise price of $0.37 per share over a three-year period ending on May 22, 2012. The option vests pursuant to certain performance conditions set forth in Mr. Ormand’s stock option agreement. We also entered into a restricted stock agreement with Mr. Ormand in May 2009, granting him 1,250,000 shares of our restricted common stock that become vested over a three year period pursuant to certain conditions set forth in Mr. Ormand’s restricted stock agreement. In 2009, Mr. Ormand’s option vested with respect to 937,500 shares of common stock and his restricted stock grant vested with respect to 562,500 shares of common stock. In 2010, Mr. Ormand’s option vested with respect to an additional 312,500 shares of common stock and his restricted stock grant vested with respect to an additional 187,500 shares of common stock. | |
(h) | In March 2008, we entered into a restricted stock agreement with Mr. Denny granting him 130,000 shares of our restricted common stock, vesting over a four year period, of which 40,000 shares vested in 2008. In March 2009, (i) Mr. Denny vested in an additional 30,000 shares of our common stock pursuant to this restricted stock agreement and (ii) Mr. Denny vested in 25,000 option shares, at an exercise price of $1.69 per share, pursuant to his non-statutory stock option agreement dated March 1, 2008. In September 2009, we granted Mr. Denny an option to purchase up to 50,000 shares of our common stock at an exercise price of $1.17 per share, of which 12,500 option shares vested on the date of grant, 12, 500 vested on September 30, 2010 and the remaining 25,000 option shares vest in 12,500 share increments on September 30, 2011, and 2012. In October 2009, we granted Mr. Denny an option to purchase up to 250,000 shares of our common stock, based on performance objectives, at an exercise price of $1.69 per share, 200,000 of which vested as of March 1, 2011. | |
(i) | In September 2009, we awarded Mr. Ferguson an option to purchase up to 200,000 shares of our common stock at an exercise price of $1.17 per share, of which 100,000 option shares have vested as of March 1, |
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2011 and the remaining 100,000 option shares vest in 50,000 share increments on September 30, 2011 and 2012. | ||
(j) | In September 2009, we awarded Mr. Burgher an option to purchase up to 100,000 shares of our common stock at an exercise price of $1.17 per share, of which 50,000 option shares have vested as of March 1, 2011 and the remaining 50,000 option shares vest in 25,000 share increments on September 30, 2011 and 2012. | |
(k) | In November 2010, we entered into a restricted stock agreement with Mr. Evans granting him 195,074 shares of our restricted common stock. The restricted shares are subject to certain vesting and payment provisions. Generally, one-third of the restricted shares will vest on each of the first three anniversaries of the grant date if Mr. Evans is employed by the Company on the applicable date, provided that if Mr. Evans’ employment with the Company is terminated on account of death, disability or by the Company without cause, any remaining vesting conditions at such time will be deemed satisfied. Additionally, in November 2010, we entered into a stock appreciation rights award agreement with Mr. Evans granting him stock appreciation rights, or SARS, covering 3,083,332 shares of common stock. The SARs are performance based and are subject to certain specific stock price performance measures and certain specific reserve growth performance achievements over the five-year period following the grant date. The SARs that become vested are exercisable for five years after the grant date and have a base price of $6.09 per share. | |
(l) | In February 2010, we entered into a non-statutory stock option agreement with Mr. Ormand, granting him an option to purchase up to 250,000 shares of our common stock at an exercise price of $2.25 per share over a ten-year period ending on February 11, 2020. The option vests pursuant to certain performance conditions set forth in Mr. Ormand’s agreement. | |
(m) | In February 2010, we entered into a non-statutory stock option agreement with Mr. Denny, granting him an option to purchase up to 100,000 shares of our common stock at an exercise price of $2.25 per share over a ten-year period ending on February 11, 2020. The option vests pursuant to certain performance conditions set forth in Mr. Denny’s agreement. | |
(n) | In February 2010, we entered into a non-statutory stock option agreement with Mr. Ferguson, granting him an option to purchase up to 300,000 shares of our common stock at an exercise price of $2.25 per share over a ten-year period ending on February 11, 2020. The option vests pursuant to certain performance conditions set forth in Mr. Ferguson’s agreement. | |
(o) | In February 2010, we entered into a non-statutory stock option agreement with Mr. Burgher, granting him an option to purchase up to 200,000 shares of our common stock at an exercise price of $2.25 per share over a ten-year period ending on February 11, 2020. The option vests pursuant to certain performance conditions set forth in Mr. Burgher’s agreement. |
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Option Awards | Stock Awards | |||||||||||||||||||||||||||||
Number of | Number of | |||||||||||||||||||||||||||||
Securities | Securities | |||||||||||||||||||||||||||||
Underlying | Underlying | Number of | Market | |||||||||||||||||||||||||||
Unexercised | Unexercised | Shares | Value of | |||||||||||||||||||||||||||
Options | Options | Option | Option | That | Shares That | |||||||||||||||||||||||||
Exercisable | Unexercisable | Exercise | Expiration | Have Not | Have Not | |||||||||||||||||||||||||
Name and Principal Position | (#) | (#) | Price ($) | Date | Vested (#) | Vested ($)(1) | ||||||||||||||||||||||||
Gary C. Evans, | 2,750,000 | 0 | $ | 0.37 | 5/22/14 | |||||||||||||||||||||||||
Chairman and CEO(a) | 0 | 3,083,332 | $ | 6.09 | 11/29/15 | 194,074 | $ | 1,397,333 | ||||||||||||||||||||||
Ronald D. Ormand, | 1,250,000 | 0 | $ | 0.37 | 5/22/14 | |||||||||||||||||||||||||
Executive Vice President and CFO(b) | 100,000 | 150,000 | $ | 2.25 | 2/11/20 | — | $ | — | ||||||||||||||||||||||
James W. Denny III, | 75,000 | 25,000 | $ | 1.69 | 3/01/13 | |||||||||||||||||||||||||
Executive Vice President Operations(c) | 25,000 | 25,000 | $ | 1.17 | 9/30/14 | 30,000 | $ | 216,000 | ||||||||||||||||||||||
100,000 | 150,000 | $ | 1.69 | 10/23/14 | ||||||||||||||||||||||||||
40,000 | 60,000 | $ | 2.25 | 2/11/20 | ||||||||||||||||||||||||||
H.C. “Kip” Ferguson, | 100,000 | 100,000 | $ | 1.17 | 9/30/14 | |||||||||||||||||||||||||
Executive Vice President Exploration(d) | 120,000 | 180,000 | $ | 2.25 | 2/11/20 | — | $ | — | ||||||||||||||||||||||
Brian G. Burgher, | 50,000 | 50,000 | $ | 1.17 | 9/30/14 | |||||||||||||||||||||||||
Senior Vice President Land(e) | 80,000 | 120,000 | $ | 2.25 | 2/11/20 | — | $ | — |
(1) | The dollar amounts are based on the market value of the shares as of December 31, 2010 using the last sale price on that date of $7.20 per share as reported on the NYSE Amex. | |
(a) | In May 2009, we granted Mr. Evans 2,750,000 stock options at an exercise price of $0.37 per share, of which 2,750,000 options had vested as of December 31, 2010. In May 2009, we granted Mr. Evans 2,750,000 shares of our restricted common stock, of which 2,750,000 were issued as of December 31, 2010. In November 2010, we granted Mr. Evans 195,074 shares of our restricted common stock, of which none were vested or issued as of December 31, 2010. The shares vest and will be issued, subject to certain vesting and payment provisions. In November 2010, we granted Mr. Evans 3,083,332 shares of common stock pursuant to a stock appreciation rights award agreement (“SARs”), of which none had vested as of December 31, 2010. The SARs vest based on certain specific stock price performance measures and certain specific reserve growth performance achievements over five-year period following the grant date. | |
(b) | In May 2009, we granted Mr. Ormand 1,250,000 stock options at an exercise price of $0.37 per share, of which 1,250,000 options had vested as of December 31, 2010. In May 2009, we granted Mr. Ormand 1,250,000 shares of our restricted common stock, of which 1,250,000 were issued as of December 31, 2010. In February 2010, we granted Mr. Ormand 250,000 stock options at an exercise price of $2.25 per share, of which 100,000 options had vested as of December 31, 2010. The remaining 150,000 options vest pursuant to certain performance conditions set forth in Mr. Ormand’s non-statutory stock option agreement. | |
(c) | In March 2008, we granted Mr. Denny 100,000 stock options at an exercise price of $1.69 per share, of which all 100,000 options had vested as of March 1, 2011. In September 2009, we granted Mr. Denny 50,000 stock options, at an exercise price of $1.17 per share, of which 25,000 options had vested as of December 31, 2010. The remaining 25,000 options vest, subject to his continued employment, in 12,500 increments on September 30, 2011 and 2012. In October 2009, we granted Mr. Denny 250,000 stock options based at an exercise price of $1.69 per share, of which 200,000 had vested as of December 31, 2010. The remaining 50,000 options vest pursuant to certain performance conditions set forth in Mr. Denny’s option agreement. In February 2010, we granted Mr. Denny 100,000 stock options at an exercise |
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price of $2.25 per share, of which 40,000 options had vested as of December 31, 2010. The remaining 60,000 options vest pursuant to certain performance conditions set forth in Mr. Denny’s agreement. In March 2008, we awarded Mr. Denny 130,000 shares of our common stock, of which all were issued as of March 1, 2011. | ||
(d) | In September 2009, we granted Mr. Ferguson 200,000 options at an exercise price of $1.17 per share, of which 100,000 options had vested as of December 31, 2010. The remaining 100,000 options vest in 50,000 share increments on September 30, 2011 and 2012. In February 2010, we granted Mr. Ferguson 300,000 stock options at an exercise price of $2.25 per share, of which 120,000 options had vested as of December 31, 2010. The remaining 180,000 options vest pursuant to certain performance conditions set forth in Mr. Ferguson’s option agreement. | |
(e) | In September 2009, we granted Mr. Burgher 100,000 options at an exercise price of $1.17 per share, of which 50,000 options had vested as of December 31, 2010. The remaining 50,000 options vest in 25,000 share increments on September 30, 2011 and 2012. In February 2010, we granted Mr. Burgher 200,000 stock options at an exercise price of $2.25 per share, of which 80,000 options had vested as of December 31, 2010. The remaining 120,000 options vest pursuant to certain performance conditions set forth in Mr. Burgher’s option agreement. |
INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF MAGNUM HUNTER COMMON STOCK TO 250,000,000
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• | Authorized but unissued shares. The authorized but unissued shares or our common stock and preferred stock are available for future issuance without stockholder approval, unless such approval is required by applicable law or listing rules of an applicable securities exchange or quotation system. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult or discourage an attempt to obtain control of Magnum Hunter by means of a proxy contest, tender offer, merger or otherwise. | |
• | Amendment to bylaws. Our board of directors is authorized to make, alter or repeal our bylaws without further stockholder approval. | |
• | Advance notice of director nominations and matters to be acted upon at meetings. Our bylaws contain advance notice requirements for nominations for directors to our board of directors and for proposing matters that can be acted upon by stockholders at stockholder meetings. | |
• | Vacancies in the board of directors. Any vacancy in our board of directors existing for any reason may be filled solely by the remaining directors. | |
• | Special meetings of stockholders. Our bylaws provide that special meetings of stockholders may be called only by our chairman, by a majority of our board of directors, by our chief executive officer, by our president or by one or more stockholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting. |
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INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF MAGNUM
HUNTER PREFERRED STOCK TO 15,000,000
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• | by subordinating our common stock to the preferred stock with respect to dividend rights, liquidation preferences and other rights; | |
• | by diluting the voting power of our common stock; | |
• | by diluting the earnings per share of our common stock; | |
• | by restricting our ability to repurchase outstanding common stock; and | |
• | by issuing common stock, upon the conversion of any convertible preferred stock, at a price below the fair market value of the common stock that is outstanding prior to such issuance. |
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• | preferred stock could be issued to increase the number of outstanding shares entitled to vote on a change in control, thereby increasing the number of votes required to approve a change in control or to otherwise obtain control of a company; | |
• | preferred stock (with significant voting, conversion or other rights, preferences or privileges) could be issued to a friendly investor, which could make it difficult for the potential acquirer to replace the board of directors or gain voting control of a company; and | |
• | preferred stock (with a significant liquidation preference) could be issued to make a change in control more expensive for the potential acquirer. |
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2010 | 2009 | |||||||
Audit Fees(1) | $ | 335,985 | $ | 283,698 | (1) | |||
Tax Fees | $ | — | $ | — | ||||
Audit-Related Fees | $ | 95,421 | $ | 9,950 | ||||
$ | 431,406 | $ | 293,648 | |||||
(1) | In 2009, we changed audit firms from MaloneBailey to Hein. These audit fees included the three quarterly reviews conducted by MaloneBailey for ourForm 10-Q’s and the annual review conducted by Hein for ourForm 10-K for the fiscal year ended December 31, 2010, as amended. |
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• | compensation levels should be sufficiently competitive to enable us to recruit and retain highly qualified managerial talent by providing market-based levels of compensation; and | |
• | motivate our executives to achieve individual and business performance objectives by varying their compensation in accordance with the success of our business. |
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Magnum Hunter’s SEC Filings | ||
(File No. 001-32997) | Period | |
Annual Report onForm 10-K, as amended | Fiscal year ended December 31, 2010 | |
Current Reports onForm 8-K | Filed on March 9, 2011, March 2, 2011, February 18, 2011, February 1, 2011, January 31, 2011, January 25, 2011, January 19, 2011, January 18, 2011, and January 11, 2011 | |
Description of Magnum Hunter’s common stock onForm 8-A | Filed on December 29, 2010 | |
Description of Magnum Hunter’s 10.25% Series C Cumulative Perpetual Preferred Stock onForm 8-A | Filed on December 10, 2009 | |
Description of Magnum Hunter’s 8.0% Series D Cumulative Preferred Stock onForm 8-A | Filed on[ • ], 2011 |
777 Post Oak Boulevard, Suite 650
Houston, Texas 77056
(832) 369-6986
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ARTICLE 1 DEFINITIONS | ||||||
1.1 | Certain Defined Terms | A-1 | ||||
ARTICLE 2 THE ARRANGEMENT | ||||||
2.1 | Plan of Arrangement | A-10 | ||||
2.2 | Interim Order and Company Meeting | A-11 | ||||
2.3 | Effective Date | A-11 | ||||
2.4 | Closing | A-11 | ||||
2.5 | Final Order | A-12 | ||||
2.6 | Management and Board of Directors | A-12 | ||||
2.7 | Privacy Issues | A-12 | ||||
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY | ||||||
3.1 | Organization, Standing and Power; Subsidiaries | A-13 | ||||
3.2 | Capitalization | A-14 | ||||
3.3 | Authority | A-15 | ||||
3.4 | Regulatory Matters; Reports | A-16 | ||||
3.5 | Financial Statements | A-17 | ||||
3.6 | Undisclosed Liabilities | A-18 | ||||
3.7 | Compliance with Applicable Law; Permits | A-18 | ||||
3.8 | Legal Proceedings | A-18 | ||||
3.9 | Taxes | A-19 | ||||
3.10 | Certain Agreements | A-21 | ||||
3.11 | Benefit Plans | A-22 | ||||
3.12 | Severance and Change of Control Agreements | A-24 | ||||
3.13 | Absence of Certain Changes or Events | A-24 | ||||
3.14 | Board and Shareholder Approval | A-24 | ||||
3.15 | Intellectual Property | A-24 | ||||
3.16 | [Not Used] | A-25 | ||||
3.17 | Environmental Matters | A-25 | ||||
3.18 | Labor and Employment Matters | A-26 | ||||
3.19 | Insurance | A-27 | ||||
3.20 | Property; Title to Oil and Gas Interests | A-27 | ||||
3.21 | Oil and Gas Operations | A-28 | ||||
3.22 | Production Allowables and Production Penalties | A-28 | ||||
3.23 | Lease Provisions | A-28 | ||||
3.24 | Sale Contracts | A-29 | ||||
3.25 | Consents; Preferential Rights | A-29 | ||||
3.26 | AFEs | A-29 | ||||
3.27 | Imbalances | A-29 | ||||
3.28 | Plugging and Abandonment | A-29 | ||||
3.29 | No Expenses Owed and Delinquent | A-30 | ||||
3.30 | Payout Balances | A-30 |
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3.31 | Operating Limitations | A-30 | ||||
3.32 | No Net Profits or Other Interests | A-30 | ||||
3.33 | Condition of Personalty | A-30 | ||||
3.34 | Revenues | A-30 | ||||
3.35 | Non-Arm’s Length Transactions | A-30 | ||||
3.36 | Opinion of Financial Advisor; Brokers | A-30 | ||||
3.37 | Full Disclosure | A-31 | ||||
3.38 | Taxable Transaction | A-31 | ||||
3.39 | No Additional Representations | A-31 | ||||
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND EXCHANGECO | ||||||
4.1 | Organization, Standing and Power; Subsidiaries | A-31 | ||||
4.2 | Capital Structure | A-32 | ||||
4.3 | Authority | A-33 | ||||
4.4 | SEC Documents | A-33 | ||||
4.5 | Compliance with Applicable Laws and Reporting Requirements; Permits | A-34 | ||||
4.6 | Financial Statements | A-34 | ||||
4.7 | Legal Proceedings | A-35 | ||||
4.8 | Taxes | A-36 | ||||
4.9 | Non-Contravention | A-36 | ||||
4.10 | Absence of Certain Changes or Events | A-36 | ||||
4.11 | Properties | A-36 | ||||
4.12 | Environmental | A-37 | ||||
4.13 | Oil and Gas Operations | A-37 | ||||
4.14 | Lease and Royalty Obligations | A-37 | ||||
4.15 | Operating Limitations | A-37 | ||||
4.16 | Production Allowables and Production Penalties | A-37 | ||||
4.17 | No Net Profits or Other Interests | A-37 | ||||
4.18 | No Expenses Owed and Delinquent | A-38 | ||||
4.19 | Revenues | A-38 | ||||
4.20 | Stockholder Vote Required | A-38 | ||||
4.21 | Brokers or Finders | A-38 | ||||
4.22 | Acquiror Common Stock | A-38 | ||||
4.23 | Board Approval | A-38 | ||||
4.24 | Financing | A-38 | ||||
4.25 | NGAS Resources | A-38 | ||||
4.26 | Transaction Consideration | A-38 | ||||
4.27 | Full Disclosure | A-38 | ||||
ARTICLE 5 COVENANTS RELATING TO CONDUCT OF BUSINESS | ||||||
5.1 | Covenants of the Company | A-39 | ||||
5.2 | Acquiror Covenants | A-42 | ||||
5.3 | Acquiror Meeting | A-42 |
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5.4 | Control of Each Party’s Businesses | A-42 | ||||
5.5 | Advice of Changes; Government Filings | A-42 | ||||
ARTICLE 6 ADDITIONAL AGREEMENTS | ||||||
6.1 | Company Proxy Circular and Company Meeting | A-43 | ||||
6.2 | Acquiror Proxy Circular and Acquiror Meeting | A-44 | ||||
6.3 | Amendments | A-45 | ||||
6.4 | Final Order | A-45 | ||||
6.5 | Filing to Effect Arrangement | A-45 | ||||
6.6 | Copy of Documents | A-45 | ||||
6.7 | Access to Information; Confidentiality | A-45 | ||||
6.8 | Reasonable Efforts | A-46 | ||||
6.9 | No Solicitation; Third-Party Proposals | A-47 | ||||
6.10 | Fees and Expenses | A-50 | ||||
6.11 | Indemnification | A-50 | ||||
6.12 | Public Announcements | A-51 | ||||
6.13 | Employee Benefits | A-51 | ||||
6.14 | Opinion of Financial Advisor; Brokers | A-52 | ||||
6.15 | Preferential Rights | A-52 | ||||
6.16 | Governance Matters | A-52 | ||||
6.17 | Additional Agreements | A-52 | ||||
6.18 | Updated Company Reserve Report | A-52 | ||||
6.19 | Company U.S. Oil and Gas Interest Schedule | A-52 | ||||
6.20 | Updated Acquiror Reserve Report | A-52 | ||||
6.21 | Company Broker Warrants | A-53 | ||||
6.22 | Mutual Release | A-53 | ||||
ARTICLE 7 CONDITIONS PRECEDENT | ||||||
7.1 | Conditions to Each Party’s Obligation to Effect the Arrangement | A-53 | ||||
7.2 | Conditions to Obligations of Acquirors | A-54 | ||||
7.3 | Conditions to Obligations of the Company | A-56 | ||||
ARTICLE 8 TERMINATION AND AMENDMENT | ||||||
8.1 | Termination | A-56 | ||||
8.2 | Effect of Termination | A-58 | ||||
8.3 | Amendment | A-59 | ||||
8.4 | Amendment to the Plan of Arrangement | A-59 | ||||
8.5 | Extension; Waiver | A-59 | ||||
ARTICLE 9 GENERAL PROVISIONS | ||||||
9.1 | Non-Survival of Representations, Warranties and Agreements | A-60 | ||||
9.2 | Notices | A-60 | ||||
9.3 | Interpretation | A-60 |
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9.4 | Counterparts | A-61 | ||||
9.5 | Entire Agreement; No Third-Party Beneficiaries | A-61 | ||||
9.6 | Governing Law | A-61 | ||||
9.7 | Severability | A-61 | ||||
9.8 | Assignment | A-61 | ||||
9.9 | Submission to Jurisdiction | A-61 | ||||
9.10 | Enforcement | A-62 | ||||
9.11 | WAIVER OF JURY TRIAL | A-62 |
Exhibit A — | Form of Support Agreement | |||
Exhibit B — | Form of Plan of Arrangement | |||
Exhibit C — | Form of Exchangeable Share Support Agreement | |||
Exhibit D — | Form of Exchangeable Share Voting and Exchange Trust Agreement | |||
Exhibit E — | Form of Company U.S. Oil and Gas Interest Schedule |
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(a) | if to Acquiror or ExchangeCo, to |
777 Post Oak Blvd, Suite 650
Houston, Texas 77056
Attention: Paul M. Johnston,
Senior Vice President and General Counsel
FacsimileNo.: (832) 369-6992
Email Address: pjohnston@magnumhunterresources.com
2200 Ross Avenue, Suite 2800
Dallas, Texas75201-2784
FacsimileNo.: (214) 855-8200
Attention: David E. Morrison
Robert B. Hale
(b) | if to the Company, to |
2200, 444 — 5th Avenue S.W.
Calgary, Alberta T2P 2T8
Attention: Glenn Dawson
FacsimileNo.: (403) 920-0457
Email Address: glenn.dawson@nuloch.ca
with a copy (which shall not constitute notice) to
1900, 520 — 3rd Avenue SW
Calgary, Alberta T2P 0R3
Attention: Bruce Lawrence
FacsimileNo: (403) 266-1395
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By: | /s/ Gary C. Evans Name: Gary C. Evans Title: Chief Executive Officer |
By: | /s/ Gary C. Evans Name: Gary C. Evans Title: President |
By: | /s/ R. Glenn Dawson Name: R. Glenn Dawson Title: President and Chief Executive Officer |
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Business Corporations Act (Alberta)
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ARTICLES OF AMENDMENT
OF
MHR EXCHANGECO CORPORATION
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o | all share(s) represented by this certificate; or | |
o | share(s) only represented by this certificate. |
o | is | |
o | is not |
(Date) | (Signature of Shareholder) | (Guarantee of Signature) |
o | Please check box if the securities and any cheque(s) resulting from the retraction or purchase of the Retracted Shares are to be held forpick-up by the shareholder from the Transfer Agent, failing which |
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the securities and any cheque(s) will be mailed to the last address of the shareholder as it appears on the register. |
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BMO Capital Markets Corp. 700 Louisiana Street 21st Floor Houston, Texas 77002 |
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MAGNUM HUNTER RESOURCES CORPORATION 777 POST OAK BLVD SUITE 650 HOUSTON, TX 77056 VOTE BY INTERNET — www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE -1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: M32797-P10295 KEEPTHIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY MAGNUM HUNTER RESOURCES CORPORATION The Board of Directors recommends you vote FOR the following proposals: 2. To elect nine directors of Magnum Hunter to hold office until the 2012 annual meeting of stockholders of Magnum Hunter or until their respective successors are duly qualified and elected; Nominees: 1) Gary C. Evans 06) Gary L. Hall 2) Ronald D.Ormand 07) Joe L. McClaugherty 3) J. Raleigh Bailes, Sr. 08) Steven A. Pfeifer 4) Brad Bynum 09) Jeff Swanson 5) Victor G.Carrillo 1. To approve the issuance of shares of Magnum Hunter common stock (including shares of Magnum Hunter common stock issuable upon exchange of the exchangeable shares of M HR Exchangeco Corporation, a wholly owned Canadian subsidiary of Magnum Hunter, or Exchangeco), in connection with the transactions contemplated by the Arrangement Agreement, dated January 19, 2011, by and among Magnum Hunter, Exchangeco and NuLock Resources Inc, and the related Plan of Arrangement; 3. To approve an amendment to Magnum Hunter’s Certificate of Incorporation, as amended, that will increase the authorized number of shares of Magnum Hunter common stock to 250,000,000; 4. To approve an amendment to Magnum Hunter’s Certificate of Incorporation, as amended, that will increase the authorized number of shares of Magnum Hunter preferred stock to 15,000,000; 5. To approve an amendment to the Magnum Hunter Resources Corporation Amended and Restated Stock Incentive Plan to increase the aggregate number of shares of Magnum Hunter common stock that may be issued under the plan to 20,000,000; For Withhold For All All All Except For Against Abstain To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. For Against Abstain 6. To ratify the appointment of Hein & Associates LLP as Magnum Hunter’s independent registered public accounting firm for t he fiscal year ending December 31, 2011; 7. To cast an advisory vote on executive compensation; The Board of Directors recommends you vote 1 Year 2Years 3Years Abstain 3 vears on the following proposal: 8. To cast an advisory vote on the frequency of future advisory votes on executive compensation; For Against Abstain The Board of Directors recommends you vote FOR the following proposal: 9. To approve an adjournment of the Meeting, if necessary, to solicit any additional proxies in favor of the foregoing proposals; and NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date |
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Important Notice Regarding the Availability of Proxy Materials for the Annual and Special Meeting: The Notice & Proxy Statement, Annual Report, Form 10-K and Form 10-K/A are available at www.proxyvote.com. M32798-P10295 MAGNUM HUNTER RESOURCES CORPORATION Annual and Special Meeting of Stockholders April 29,2011 9:00 AM This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) Gary C. Evans and Ronald D. Ormand, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common stock of MAGNUM HUNTER RESOURCES CORPORATION that the stockholder(s) is/are entitled to vote at the Annual and Special Meeting of stockholder(s) to be held at 09:00 AM, CDT on 4/29/2011, at The Omni Hotels & Resorts, Grand Salon East, Four Riverway, Houston, Texas 77056, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations. Continued and to be signed on reverse side |
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MAGNUM HUNTER RESOURCES CORPORATION 777 POST OAK BLVD SUITE 650 HOUSTON, TX 77056 VOTE BY INTERNET — www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE -1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: M32799-P10295 KEEPTHIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY The Board of Directors recommends vou vote FOR the followina proposal: For Against Abstain 4. To approve an amendment to Magnum Hunter’s Certificate of Incorporation, as amended, that will increase the authorized number of shares of Magnum Hunter preferred stock to 15,000,000; NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date |
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Important Notice Regarding the Availability of Proxy Materials for the Special Meeting: The Notice & Proxy Statement, Annual Report, Form 10-K and Form 10-K/A are available at www.proxyvote.com. M32800-P10295 MAGNUM HUNTER RESOURCES CORPORATION Special Meeting of Preferred Stockholders Series C Cumulative Perpetual Preferred Stock April 29,2011 9:00 AM This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) Gary C. Evans and Ronald D. Ormand, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Series C Cumulative Perpetual Preferred Stock of MAGNUM HUNTER RESOURCES CORPORATION that the stockholder(s) is/ are entitled to vote at the Special Meeting of preferred stockholder(s) to be held at 09:00 AM, CDT on 4/29/2011, at The Omni Hotels & Resorts, Grand Salon East, Four Riverway, Houston, Texas 77056, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations. Continued and to be signed on reverse side |
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MAGNUM HUNTER RESOURCES CORPORATION 777 POST OAK BLVD SUITE 650 HOUSTON, TX 77056 VOTE BY INTERNET — www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE -1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: M32801-P10295 KEEPTHIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY MAGNUM HUNTER RESOURCES CORPORATION The Board of Directors recommends you vote FOR the following proposal: For Against Abstain 4. To approve an amendment to Magnum Hunter’s Certificate of Incorporation, as amended, that will increase the authorized number of shares of Magnum Hunter preferred stock to 15,000,000; NOTE: Such other business as may properly come before the meeting or any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date |
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Important Notice Regarding the Availability of Proxy Materials for the Special Meeting: The Notice & Proxy Statement, Annual Report, Form 10-K and Form 10-K/A are available at www.proxyvote.com. M32802-P10295 MAGNUM HUNTER RESOURCES CORPORATION Special Meeting of Preferred Stockholders Series D Cumulative Preferred Stock April 29,2011 9:00 AM This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) Gary C. Evans and Ronald D. Ormand, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Series D Cumulative Preferred Stock of MAGNUM HUNTER RESOURCES CORPORATION that the stockholder(s) is/are entitled to vote at the Special Meeting of preferred stockholder(s) to be held at 09:00 AM, CDT on 4/29/2011, at The Omni Hotels & Resorts, Grand Salon East, Four Riverway, Houston, Texas 77056, and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations. Continued and to be signed on reverse side |