SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
MAYNARD OIL COMPANY
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(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] 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 $.10 per share
(2) Aggregate number of securities to which transaction applies:
4,880,368 shares of common stock
(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):
$17.00 per share. The filing fee is based on a total of 4,880,368
shares currently outstanding.
(4) Proposed maximum aggregate value of transaction:
$82,966,256.00
(5) Total fee paid: $16,593.26
[ ] Fee paid previously with preliminary materials.
[ ] 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:
MAYNARD OIL COMPANY
MAYNARD OIL COMPANY
SUITE 660
DALLAS, TEXAS 75206
[__________], 2002
Dear Maynard Oil Stockholder:
You are cordially invited to attend a special meeting of Stockholders
of Maynard Oil Company to be held at the offices of the Company, 8080 N. Central
Expressway, Dallas, Texas, on __________ , 2002 at 9:30 a.m., local time.
At the special meeting, you will be asked to vote on a proposal to
approve the Agreement and Plan of Merger dated as of April 25, 2002 by and among
Maynard Oil Company, Plantation Petroleum Holdings, LLC, and Plantation
Petroleum Acquisition Corp., a newly formed subsidiary of Plantation Petroleum
Holdings.
If Maynard Oil's Stockholders approve the merger agreement, the
Plantation subsidiary will be merged with and into Maynard Oil, and each
outstanding share of Maynard Oil common stock will be converted into the right
to receive $17.00 in cash, without interest. As a result of the merger, Maynard
Oil will become a wholly owned subsidiary of Plantation. You will not become a
stockholder of Plantation as a result of the merger. Information concerning the
merger is in the accompanying proxy statement, and a copy of the merger
agreement is attached as Annex A. We urge you to read these documents carefully.
Approval of the merger agreement requires the affirmative vote of a majority of
the outstanding shares of Maynard Oil common stock. The proxy statement and
enclosed form of proxy are first being mailed to Stockholders on or about
__________, 2002.
Your board of directors, after careful consideration, has unanimously
approved the merger and adopted the merger agreement and has determined that the
merger is advisable and fair to and in the best interests of Maynard Oil and
Maynard Oil's Stockholders. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
Whether or not you plan to attend the special meeting, we urge you to
complete, sign and return the enclosed proxy card as soon as possible to ensure
that your shares will be voted at the special meeting. If you attend the special
meeting, you may vote in person, even if you have submitted a proxy. Your vote
is important regardless of the number of shares that you own.
Sincerely yours,
James G. Maynard
Chairman
MAYNARD OIL COMPANY
8080 N. CENTRAL EXPRESSWAY
SUITE 660
DALLAS, TEXAS 75206
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________, 2002
To the Stockholders of Maynard Oil Company:
A special meeting of Stockholders of Maynard Oil Company will be held
at 9:30 a.m., local time, on _________, 2002 at 8080 N.
Central Expressway, Suite 660, Dallas, Texas, for the following purposes:
1. To vote on the Agreement and Plan of Merger dated as of April 25,
2002 among Maynard Oil, Plantation Petroleum Holdings, and
Plantation Petroleum Acquisition, a newly formed subsidiary of
Plantation Petroleum Holdings, pursuant to which each outstanding
share of Maynard Oil common stock will be converted into the right
to receive $17.00 in cash, without interest; and
2. To transact any other business that may properly come before the
special meeting or any adjournment of the special meeting.
The board of directors has fixed the close of business on __________,
2002 as the record date for determining the Stockholders entitled to notice of,
and to vote at, the special meeting or any adjournment of the meeting. Only
Stockholders of record on the record date are entitled to notice of, and to vote
at, the special meeting or any adjournment of the meeting.
The accompanying proxy statement describes the proposed merger and the
merger agreement in more detail. A copy of the merger agreement is attached as
Annex A. We encourage you to read these documents carefully.
The board of directors has unanimously approved the merger and adopted
the merger agreement and has determined that the merger is advisable and fair to
and in the best interests of Maynard Oil and its Stockholders. THE BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER.
Your vote is important regardless of the number of shares that you own.
The affirmative vote of the holders of a majority of the outstanding shares of
Maynard Oil common stock is required for approval of the merger and the merger
agreement. Even if you plan to attend the special meeting in person, please sign
and return the enclosed proxy card as soon as possible to ensure that your
shares will be represented at the special meeting if you cannot attend. If you
attend the special meeting and wish to vote in person, you may withdraw your
proxy and vote in person.
By Order of the Board of directors,
Linda K. Burgess
Secretary
Dallas, Texas
__________, 2002
TABLE OF CONTENTS
Questions and Answers About the Merger and the Special Meeting...............iii
Summary of the Proxy Statement.................................................1
The Parties.................................................................1
Overview....................................................................1
What Stockholders Will Receive in the Merger (see page 6)...................1
Federal Income Tax Consequences (see page 11)...............................1
Board Recommendation (see page 6)...........................................1
Interests of Certain Persons in the Merger (see page 11)....................2
Opinion of the Company's Financial Advisor (see page 16)....................2
Special Meeting of Stockholders (see page 4)................................2
Record Date for Voting; Required Vote (see page 5)..........................2
Conditions to Completion of the Merger (see page 26)........................2
Termination of the Merger Agreement (see page 26)...........................2
Dissenters' Rights (see page 12)............................................3
Special Meeting of Maynard Oil Stockholders....................................4
General.....................................................................4
Date, Time and Place of the Special Meeting.................................4
Purpose of the Special Meeting..............................................4
Proxies.....................................................................4
How to Vote Stockholders' Shares............................................4
Solicitation of Proxies.....................................................4
Record Date and Voting Rights...............................................5
How to Revoke a Stockholder's Proxy.........................................5
Quorum......................................................................5
Required Vote...............................................................5
Recommendation of the Maynard Oil Board.....................................6
The Merger.....................................................................6
Effects of the Merger.......................................................6
What Stockholders Will Receive in the Merger................................6
Maynard Oil After the Merger................................................6
Background of the Merger....................................................6
Recommendation of Maynard Oil's Board of Directors and Reasons
for the Merger.........................................................9
Federal Income Tax Consequences............................................11
Interests of Certain Persons in the Merger.................................12
Accounting Treatment.......................................................12
Regulatory Approval........................................................12
Dissenters' Rights.........................................................13
Completion and Effectiveness of the Merger.................................15
Payment of Cash for Maynard Oil Stock......................................16
Delisting of Maynard Oil Common Stock After the Merger.....................16
Financing for the Merger...................................................16
Opinion of William Blair & Company, L.L.C..................................17
The Merger Agreement..........................................................22
Representations and Warranties.............................................22
Covenants..................................................................24
Conditions to the Merger...................................................26
Termination of the Merger Agreement........................................26
Effect of Termination......................................................27
Extension, Amendment and Waiver of the Merger Agreement....................27
Information About Maynard Oil company.........................................27
The Company................................................................27
Market Price...............................................................28
Maynard Oil's Board of Directors and Management............................29
Ownership of Principal Stockholders and Management of Maynard Oil..........30
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Information About Plantation Petroleum Holdings, LLC..........................31
Forward-Looking Statements....................................................32
Other Information.............................................................33
Where Stockholders Can Find More Information...............................33
Stockholder Proposals......................................................33
Other......................................................................34
Index to Financial Statements................................................F-1
Merger Agreement.............................................................A-1
Voting Agreement.............................................................B-1
Opinion of William Blair & Company, L.L.C....................................C-1
Section 262 of the Delaware General Corporation Law..........................D-1
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Q: IF THE MERGER IS COMPLETED, WHAT WILL I RECEIVE FOR MY MAYNARD OIL
COMMON STOCK? (SEE PAGE 6)
A: You will receive $17.00 in cash, without interest, for each
share of Maynard Oil Company common stock that you own
immediately before the merger.
Q: WHAT IS THE DATE, PLACE AND TIME OF THE SPECIAL MEETING? (SEE PAGE 4)
A: The special meeting of Stockholders will take place on
__________, 2002 at 8080 N. Central Expressway, Dallas,
Texas, at 9:30 a.m., local time.
Q: WHO CAN VOTE AT THE SPECIAL MEETING? (SEE PAGE 5)
A: You can vote at the special meeting, if you owned Maynard Oil
Company common stock at the close of business on
__________, 2002.
Q: HOW DO I VOTE? (SEE PAGE 4)
A: After you have read this proxy statement, you may grant a
proxy by completing, signing and returning the proxy card in
the enclosed envelope or by attending the special meeting and
voting in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES? (SEE PAGES 4)
A: Your broker will vote your shares only if you provide
instructions on how to vote. You should instruct your broker
how to vote your shares by following the directions your
broker provides to you. Without instructions, your broker is
not entitled to vote your shares and your shares will not be
voted.
Q: CAN I CHANGE MY VOTE AFTER I HAVE SENT MY PROXY CARD? (SEE PAGE 5)
A: Yes. You may change your proxy instructions at any time before
the vote at the special meeting for shares held directly in
your name. You may do this by completing a new proxy card. You
may also change your vote by attending the special meeting and
voting in person. However, merely attending the special
meeting will not cause your previously granted proxy to be
revoked, unless you vote in person at the meeting. For shares
held in "street name," you may change your vote by timely
submitting new voting instructions to your broker or nominee.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS? (SEE PAGE 12 AND ANNEX C).
A: Yes. As a Maynard Oil Stockholder, you have the right to
dissent from the merger and seek an appraisal of the fair
value of your shares. If you wish to do so, you must strictly
follow certain procedures
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED? (SEE PAGE 21)
A: We hope to complete the merger as soon as practical after the
special meeting, assuming the required Stockholder
approval and other conditions to the merger are obtained or
met.
Q: IS THERE A CHANCE THE MERGER WON'T BE COMPLETED EVEN IF THE
STOCKHOLDERS APPROVE IT? (SEE PAGE 21)
A: Yes. The merger is subject to other conditions in addition to
approval and adoption of the merger agreement by Maynard Oil's
Stockholders.
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Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW? (SEE PAGE 15)
A: No. Do not send in your stock certificates now. After the
merger is completed, you will receive written instructions for
exchanging your Maynard Oil Company stock certificates for
cash.
Q: WHAT IF I SELL MY MAYNARD OIL COMPANY STOCK BEFORE THE MERGER IS
COMPLETED? (SEE PAGE 15)
A: The record date for the special meeting is __________, 2002.
If you hold your Maynard Oil Company shares on the record
date, but subsequently transfer your Maynard Oil Company
shares after the record date but before the merger, you will
retain your right to vote at the special meeting, but not the
right to receive the merger consideration. The right to
receive the merger consideration will pass to the person to
whom you transferred your shares.
Q: WHO CAN I CONTACT FOR MORE INFORMATION? (SEE PAGE 32)
A: If you have additional questions about the merger or anything
discussed in this proxy statement, you should contact:
Maynard Oil Company
8080 N. Central Expressway
Suite 660
Dallas, Texas 75206
Attention: Linda K. Burgess
Telephone: (214) 891-8880
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SUMMARY OF THE PROXY STATEMENT
This summary highlights selected information contained elsewhere in
this proxy statement. This summary does not contain all of the information that
is important to Stockholders. To better understand the merger, Maynard Oil urges
its Stockholder to carefully read this entire proxy statement, the annexes
attached to this proxy statement, and the other documents referred to in this
proxy statement.
THE PARTIES
Maynard Oil Company is engaged in the exploration, development and
production of oil and natural gas in the United States. The Company's common
stock is traded over the counter under the Nasdaq symbol MOIL.
Plantation Petroleum Holdings, LLC is a privately owned exploration and
production company formed to acquire, develop and produce oil and gas
properties. Plantation Petroleum Acquisition Corp. is a subsidiary of Plantation
Petroleum Holdings, LLC, that was formed specifically to merge into Maynard Oil.
OVERVIEW
Maynard Oil Company, Plantation Petroleum Holdings and Plantation
Petroleum Acquisition Corp., which is a wholly owned subsidiary of Plantation
Petroleum Holdings, LLC, entered into a merger agreement on April 25, 2002. The
full text of the merger agreement is attached as Annex A. The merger agreement
provides that, upon completion of the merger, Maynard Oil will become a wholly
owned subsidiary of Plantation Petroleum Holdings. Whether or not the merger
takes place, Stockholders will not become stockholders of Plantation Petroleum
Holdings or Plantation Petroleum Acquisition. Completion of the merger requires
that holders of a majority of the outstanding Maynard Oil common stock vote to
approve and adopt the merger agreement. Holders of approximately 56% of the
outstanding Maynard Oil common stock have agreed with Plantation Petroleum
Holdings to vote to approve the merger agreement. The full text of the voting
agreement is attached as Annex B.
WHAT STOCKHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 6)
If the merger is completed, Stockholders will receive $17.00 in cash,
without interest, for each share of Maynard Oil common stock that the
Stockholder owns immediately before the merger. There will no longer be a public
market for Maynard Oil's common stock after the Merger. It will no longer be
listed on Nasdaq or any stock exchange.
FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 11)
The receipt of cash in exchange for shares of Maynard Oil common stock
will be a taxable event for federal income tax purposes for Maynard Oil
Stockholders. It may also be a taxable transaction under applicable foreign,
state and local income tax laws. Generally, for federal income tax purposes,
Maynard Oil Stockholders will recognize capital gain or loss in an amount equal
to the difference between the cash that each Maynard Oil Stockholder receives in
the merger and the adjusted tax basis in the shares of Maynard Oil common stock
that the Stockholder surrenders in the merger.
The tax consequences of the merger to each Stockholder will depend on
each particular situation. Maynard Oil urges its Stockholders to consult their
tax advisors for a full understanding of the tax consequences of the merger to
each individual Stockholder.
BOARD RECOMMENDATION (SEE PAGE 6)
The board of directors, after careful consideration, has unanimously
approved and adopted the merger agreement and has determined that the merger is
advisable and fair to and in the best interests of Maynard Oil and Maynard Oil's
Stockholders. THE MAYNARD OIL BOARD OF DIRECTORS RECOMMENDS THAT ITS
STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 11)
Stockholders should note that some members of Maynard Oil's board of
directors and management have interests in the merger that may be different
from, or in addition to, the interests of Maynard Oil Stockholders. These
interests include their receipt of cash payments under specified circumstances.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR (SEE PAGE 16)
William Blair & Company, L.L.C. acted as financial advisor to Maynard
Oil in connection with the Company's exploration of strategic alternatives,
including the proposed merger with Plantation. On April 23, 2002, William Blair
delivered its opinion to Maynard Oil's board of directors that, as of that date
and based upon and subject to the assumptions and qualifications stated in its
opinion, the merger consideration to be paid to the Company's Stockholders in
the merger pursuant to the merger agreement is fair to the Company's
Stockholders from a financial point of view. The full text of William Blair's
written opinion is attached as Annex C.
SPECIAL MEETING OF STOCKHOLDERS (SEE PAGE 4)
The special meeting of Maynard Oil's Stockholders will take place on
__________, 2002 at 8080 N. Central Expressway, Suite 660, Dallas, Texas, at
9:30 a.m., local time. At the meeting, Stockholders will vote on a proposal to
approve and adopt the merger agreement and the merger.
RECORD DATE FOR VOTING; REQUIRED VOTE (SEE PAGE 5)
Stockholders can vote at the special meeting, if they were Stockholders
of record of Maynard Oil common stock at the close of business on __________,
2002. As of that date, 4,880,368 shares of Maynard Oil common stock were
outstanding.
Each Stockholder is entitled to one vote per share on each matter
presented for a stockholder vote at the special meeting. The approval of a
majority of the outstanding shares of Maynard Oil common stock is required to
approve and adopt the merger agreement and the merger. Stockholders holding
approximately 56% of the outstanding shares have entered into an agreement with
Plantation to vote to approve and adopt the merger agreement and the merger. The
full text of the voting agreement is attached as Annex B.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 26)
The obligations of Maynard Oil and Plantation to complete the merger
are subject to the following conditions:
0 our Stockholders must approve and adopt the merger agreement; and
0 no temporary restraining order, decree, ruling or injunction or
other order of a court or other governmental entity or can be in
effect directing that the merger not be completed or making the
merger illegal or which would materially limit or restrict the
ownership or operation of Maynard Oil after the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 26)
Either Maynard Oil or Plantation may terminate the merger agreement in
any of the following circumstances:
0 at any time before the merger by mutual written consent;
0 if the merger has not been completed by October 31, 2002, unless
the party asking to terminate the merger agreement has breached
the merger agreement; and
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0 if any law or regulation makes completion of the merger illegal or
if the merger is prohibited by any judgment, injunction, order or
decree and no appeal of the judgment, injunction, order or decree
is possible.
Plantation may terminate the merger agreement in any of the following
circumstances:
0 if Maynard Oil breaches any of its covenants, obligations or other
agreements or Maynard Oil's representations are no longer true and
correct in a way that would have a material adverse effect on
Maynard Oil, although Maynard Oil has the ability to cure breaches
in some situations within fifteen (15) days of Plantation's notice
to use of the breach; or
0 if Maynard Oil's board of directors notifies Plantation of its
intention to pursue a superior acquisition proposal and does not
withdraw the notice within three business days. Termination under
these circumstances would entitle Plantation to a $1,500,000
termination fee.
Maynard Oil may terminate the merger agreement in any of the following
circumstances:
0 if Plantation breaches any of its covenants, obligations or other
agreements or its representations are no longer true and correct
in a way that would have a material adverse effect on Plantation,
although Plantation has the ability to cure breaches in some
situations within fifteen (15) days of Maynard Oil's notice to
Plantation of the breach; or
0 if Maynard Oil's board of directors terminates the merger
agreement to pursue a superior acquisition proposal and pays
Plantation a $1.5 million termination fee.
DISSENTERS' RIGHTS (SEE PAGE 12)
Maynard Oil Stockholders have the right under Delaware law to dissent
from the merger and seek an appraisal of the fair value of their shares. Any
Maynard Oil Stockholder wishing to do so must strictly follow certain
procedures. For a description of these procedures, see "Dissenters' Rights"
beginning on page 12, as well as Annex D to this proxy statement.
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SPECIAL MEETING OF MAYNARD OIL STOCKHOLDERS
GENERAL
This proxy statement is first being mailed to Maynard Oil's
Stockholders on or about __________, 2002, and is accompanied by the notice of
the special meeting of Maynard Oil Stockholders and a proxy card being solicited
by Maynard Oil's board of directors for use at the special meeting.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting of Maynard Oil's Stockholders will be held at 8080
N. Central Expressway, Suite 660, Dallas, Texas 75206, on __________, 2002, at
9:30 a.m., local time.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, Stockholders will vote on a proposal to approve
and adopt the merger agreement and the merger. Stockholders could be asked to
consider and vote on any other matters that are properly submitted for
stockholder action at the special meeting. Additionally, Stockholders could be
asked to vote on a proposal to adjourn the special meeting. An adjournment could
be used for the purpose of allowing us more time to solicit additional votes to
approve the merger agreement.
Maynard Oil does not know of any matters other than those described in
the notice of special meeting of Stockholders that are to come before the
special meeting. If any other matter is presented for action at the special
meeting, the persons named in the enclosed form of proxy will have discretion to
vote on the matters in accordance with their judgment.
The matters to be considered at the special meeting are important to
you. Accordingly, Maynard Oil urges the Stockholders to read and carefully
consider the information presented in this proxy statement.
PROXIES
The accompanying form of proxy is for use at the special meeting. To
ensure that the shares of the Stockholders are represented at the special
meeting, Maynard Oil urges the Stockholders to sign and return the proxy card in
the enclosed envelope as soon as possible, regardless of whether the
Stockholders will be able to attend the special meeting. All shares of Maynard
Oil common stock represented by properly authorized proxies will, unless the
proxies previously have been revoked, be voted in accordance with the
instructions indicated in the proxies. If no instructions are indicated, shares
of Maynard Oil common stock represented by proxies will be voted "FOR" approval
and adoption of the merger agreement and the merger.
HOW TO VOTE YOUR SHARES
Stockholders may vote their shares either in person at the special
meeting or by a duly authorized proxy. Stockholders may grant a proxy by
completing, signing and returning the proxy card in the enclosed envelope. If
their shares are held in "street name" by a broker, their broker will vote their
shares only if Stockholders provide instructions on how to vote. Stockholders
should instruct their brokers how to vote their shares by following the
directions provided by their broker.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of Maynard Oil's board of
directors. Stockholders will bear all expenses in connection with the
solicitation of proxies. In addition to solicitation by use of the mails,
Maynard Oil's directors, officers and employees may solicit proxies from holders
of Maynard Oil common stock by telephone, in person or through other means of
communication. Maynard Oil's directors, officers and employees will not be
additionally compensated for, but may be reimbursed by us for out-of-pocket
expenses incurred in connection with, the solicitation.
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In addition, arrangements will be made with brokerage firms and other
custodians, nominees and fiduciaries to forward proxy solicitation materials to
the beneficial owners of shares of Maynard Oil common stock and secure their
voting instructions, if necessary. Maynard Oil will reimburse these record
holders for their reasonable out-of-pocket expenses in doing so.
RECORD DATE AND VOTING RIGHTS
Only holders of Maynard Oil common stock at the close of business on
__________, 2002, the record date, are entitled to notice of and to vote at the
special meeting. As of the record date, there were 4,880,368 shares of Maynard
Oil common stock issued and outstanding, each entitled to one vote.
HOW TO REVOKE YOUR PROXY
Stockholders may change their voting instructions or revoke their
proxies at any time before their proxy is voted at the special meeting. If
Stockholders have given a proxy by using the enclosed proxy card, Stockholders
can write to Maynard Oil's corporate secretary stating that they wish to revoke
their proxies and that they need another proxy card. A Stockholder's last proxy
will determine how his shares will be voted. If Stockholders attend the meeting,
they may vote in person and cancel any previous proxy. However, mere attendance
at the special meeting will not by itself have the effect of revoking a
Stockholder's proxy. If a Stockholder's broker has been instructed to vote his
shares, the Stockholder must follow directions received from his broker to
change his vote.
QUORUM
A majority of the outstanding shares will constitute a quorum for
purposes of the special meeting. For purposes of determining whether a quorum is
present, the inspectors of election will include shares that are present or
represented by proxy, even if the holders of the shares abstain from voting on
any particular matter.
The Stockholders present at the special meeting, in person or by proxy,
may by a majority vote adjourn the meeting despite the absence of a quorum. If
there is not a quorum at the meeting, Maynard Oil expects that the meeting will
be adjourned, so Maynard Oil can solicit additional proxies.
REQUIRED VOTE
Approval of the merger agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Maynard Oil common stock. The
merger agreement provides that approval of Maynard Oil's Stockholders is a
condition to completion of the merger. The inspectors of election appointed for
the special meeting will tabulate votes cast by proxy or in person at the
special meeting.
Since approval and adoption of the merger agreement is based on the
number of outstanding shares, rather than the number of shares that actually
vote on the merger agreement, failures to vote, abstentions and broker non-votes
will have the effect of a "no" vote on the proposal to approve the merger
agreement. A Stockholder's broker will vote shares only if the Stockholder
provides instructions on how to vote by following the information provided by
the broker.
If a Stockholder votes against the merger agreement by proxy and a
proposal to adjourn the meeting for the purpose of soliciting additional votes
in favor of the merger agreement is presented, the persons named in the enclosed
form of proxy will not vote his or her shares in favor of the adjournment
proposal.
On the date of this proxy statement, Maynard Oil's directors and
officers beneficially owned a total of 2,765,796 shares of Maynard Oil common
stock, or approximately 56.67% of the shares of Maynard Oil common stock issued
and outstanding on that date. Maynard Oil expects that all of these persons will
vote for approval of the merger agreement. James G. Maynard, his wife and a
corporation owned by Mr. Maynard have entered into a voting agreement with
Plantation under which they have agreed to vote 2,756,596 shares (56.48%) for
approval of the merger agreement. The full text of the voting agreement is
attached as Annex B. The shares covered by this voting agreement are included in
the total of shares owned by officers and directors of the Company.
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RECOMMENDATION OF THE MAYNARD OIL BOARD
Maynard Oil board of directors, after careful consideration, has
unanimously adopted the merger and the merger agreement and has determined that
the merger is advisable and fair to and in the best interests of Maynard Oil and
Maynard Oil's Stockholders and recommends that the Shareholders vote "FOR"
approval and adoption of the merger agreement and the merger.
THE MERGER
The following discussion summarizes the proposed merger and related
matters. This discussion does not, however, contain a complete explanation of
the merger. See "THE MERGER AGREEMENT" beginning on page 22. A copy of the
merger agreement is attached as Annex A.
EFFECTS OF THE MERGER
The merger agreement provides that Plantation Petroleum Acquisition
will be merged with and into Maynard Oil. Maynard Oil will survive the merger
and will be a wholly owned subsidiary of Plantation Petroleum Holdings.
Plantation Petroleum Holdings will be the only stockholder of Maynard Oil
immediately after the merger is completed. A Stockholder will no longer be a
stockholder of Maynard Oil after the merger. Stockholders will not become
stockholders of Plantation Petroleum Holdings or Plantation Petroleum
Acquisition as a result of the merger.
WHAT STOCKHOLDERS WILL RECEIVE IN THE MERGER
Under the terms of the merger agreement, Stockholders will receive
$17.00 in cash, without interest, in exchange for each share of Maynard Oil
common stock owned immediately before the completion of the merger.
MAYNARD OIL AFTER THE MERGER
Maynard Oil has been informed that Plantation Petroleum Holdings, LLC
currently intends to maintain Maynard Oil as an operating subsidiary.
The officers and directors of Plantation Petroleum Acquisition
immediately before completion of the merger will become the officers and
directors of Maynard Oil following the merger. The merger agreement provides
that all of Maynard Oil's current directors and officers will resign as of the
effective time of the merger.
BACKGROUND OF THE MERGER
As part of Maynard Oil's strategic planning, Maynard Oil continually
reviews trends and strategic opportunities in the oil and gas industry. In the
past several years, this planning has focused on growing primarily through
developmental drilling and opportunistic acquisitions of properties in Oklahoma
and West Texas for Maynard Oil's own account and the subsequent development,
operation and exploitation of these properties.
In late May 2001, Maynard Oil was approached on an unsolicited basis
concerning a possible sale of Maynard Oil. On June 11, 2001 the board of
directors met to discuss the unsolicited inquiry and determined to actively
explore strategic alternatives available to Maynard Oil, including a possible
sale of Maynard Oil. The board was counseled on its legal duties by McDermott,
Will & Emery, who along with John L. Roach, Inc., would provide legal advice
during the process. Maynard Oil retained William Blair to evaluate strategic
alternatives to maximize stockholder value. Maynard Oil entered into an
agreement with William Blair, which provided that William Blair would provide
certain financial advisory services in connection with the evaluation of
strategic alternatives, including the possible sale of Maynard Oil.
Maynard Oil met with representatives of the potential acquiror
regarding its unsolicited expression of interest at $23 per share. At that
point, the party executed a confidentiality agreement and was provided with
certain non-public information relating to the Company. Subsequent to this
review, the party declined to increase its cash
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offer to a level deemed at the time to be pre-emptive and negotiations were
discontinued. This party never met with management to review the business and
chose not to participate in the sale process.
On July 13, 2001, Maynard Oil was approached on an unsolicited basis by
a publicly-held corporation expressing interest in a cash acquisition of Maynard
Oil common stock. This corporation executed a confidentiality agreement and
conducted a due diligence investigation. The publicly-held corporation expressed
interest in the range of $25.00 cash per share which would be reduced
significantly by transaction expenses and retention bonus arrangements for
employees and was subject to adjustment for changes in the price of oil. The
parties exchanged drafts, but were unable to reach agreement on a letter of
intent that would preempt a general solicitation of interest from all parties
for the potential acquisition of Maynard Oil.
On July 23, 2001, Maynard Oil publicly announced its intention to
explore strategic alternatives, including the possible sale of Maynard Oil. From
the public announcement of its intention to consider strategic alternatives
through the execution of the merger agreement with Plantation on April 25, 2002,
William Blair held discussions with 70 potential acquirors, 44 of whom signed a
confidentiality agreement and reviewed the offering memorandum and related
materials. Fourteen submitted initial expressions of interest and of these 10
reviewed the data room materials. Nine parties submitted a bid, and Maynard Oil
reviewed the terms of a merger agreement with 3 of these parties.
Maynard Oil and William Blair continued to have discussions with the
publicly-held corporation, looking to negotiate a letter of intent. During this
time, Maynard Oil, its legal advisors and William Blair prepared confidential
offering materials concerning Maynard Oil, its oil and gas assets and
operations. Maynard Oil also prepared a reserve report relating to its proved
reserves as of June 30, 2001 which was audited by Netherland Sewell &
Associates, Inc. On August 2, 2001, the board held a meeting by telephone to
update the status of negotiations with the publicly-held corporation and to
discuss other candidates who might be interested in acquiring Maynard Oil. Given
the current status of negotiations, the board authorized a general mailing of a
confidential offering memorandum to potentially interested parties. William
Blair began contacting the interested parties on August 6, 2001.
On August 7, 2001, the board reviewed a draft merger agreement proposed
by the publicly-held corporation. Following meetings on August 8 and 10, 2001,
the publicly-held corporation raised a variety of valuation issues related to
Maynard Oil's reserves and stated it would materially reduce its proposed per
share price. Maynard responded that if the price were materially reduced, it
would no longer be viewed as pre-emptive. William Blair was subsequently
informed by the publicly-held corporation's advisor that a formal revision in
the proposal, if made, would have been below $20 per share. The board of
directors met by telephone on August 14, 2001 to discuss the publicly-held
corporation's valuation and analysis, as well as the second quarter results and
Maynard Oil's Form 10-Q filing.
On August 22, 2001, the board of directors of Maynard Oil met by
telephone to review the status of the potential offer from the publicly-held
corporation. The board determined that, although they would keep the lines of
communication open, this potential acquiror had lost interest in pursuing a
transaction. The board authorized management to pursue other contacts. The board
also approved retention bonus arrangements for management and some employees of
the Company in the aggregate amount of $5,092,205.
During August and September 2001, Maynard Oil assembled a "data room"
at its headquarters in Dallas where potentially interested financiers, buyers or
combination candidates could, upon signing a confidentiality agreement and
making an acceptable initial proposal for acquiring the Company, review
technical and other relevant information about the company, its oil and gas
assets and operations.
At a meeting of the board of directors on October 18, 2001, the board
reviewed the status of the general solicitation process and initial indications
of interest from various parties. The board authorized due diligence sessions
with management in Dallas with five parties. On November 8, 2001, William Blair
sent out a request for proposals to the five interested parties including a
proposed form of acquisition agreement.
On November 30, 2001, Maynard Oil received proposals from three of the
five parties who had expressed interest. In each case, the per share price was
meaningfully below the party's initial indication of value and each
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was below the price of the Maynard Oil's stock as quoted on Nasdaq. On December
4, 2001, the board met to review the proposals and determined to go back to the
two other parties who had conducted a further due diligence investigation, but
had not submitted a response to the request for proposals. Plantation was one of
those parties and on December 10, 2001, Plantation submitted a proposal at
$14.25. Following further discussions, on December 7, 2001, Plantation increased
its offer to $15.00 per share, and began negotiating a merger agreement with the
Company's legal counsel. During this time, the Company received an expression of
interest from a publicly-held corporation which had not been among the five
asked to respond to the request for proposals. This corporation was invited in
to review data room materials. On December 12, 2001, the board met in Dallas to
discuss the status of proposals and further due diligence being conducted, as
well as the potential for contacting new parties. On December 14, after
continued discussions, Plantation orally increased its offer to $15.25 per
share, and continued to negotiate terms of a merger agreement.
On December 20, 2001, Maynard Oil publicly announced receipt of
expressions of interest from a number of strategic buyers regarding the possible
acquisition of the Maynard Oil's stock. In addition, the press release indicated
that, while the board of directors found the valuations disappointing, the board
had instructed management to continue discussions regarding the possible sale or
merger of Maynard Oil. The price per share was $19.74 prior to the release and
$20.50 at the close of trading on the day of the release.
On January 9, 2002, the Company received a proposal at $14.65 per share
from the other privately-held corporation which had not responded on the
November 30, 2001 request for proposals deadline. On January 14, 2002,
Plantation confirmed in writing that it had increased its proposal to $15.25.
From January through March Maynard Oil continued to work with this party and
Plantation, as well as provide information and due diligence opportunities to
other interested parties. Maynard Oil also prepared its year end audited reserve
report and financial statements.
On March 8, 2002 the other interested party increased its offer to
$15.00 per share, if the Company would enter into a pricing hedge on over half
of its oil and gas production. On March 18, 2002, Plantation reiterated its
proposed $15.25 per share proposal, but added the condition that Maynard Oil
needed to enter into a pricing hedge on price of over half of its oil and gas
production.
On April 1, 2002, the Company issued its 2001 earnings release. In the
release was a statement that the Company would continue its evaluation of
strategic alternatives, including discussions regarding the possible acquisition
of the Company's stock, and a notation that the proposals by potential acquirors
were at a price to Stockholders below the recent trading range for Maynard Oil's
stock. The trading price per share of the Company's common stock was $19.50
prior to the release and $19.49 at the close of trading on the day of the
release.
On April 3, 2002, the board met to discuss the four privately-held and
one publicly-held candidates that had expressed the most recent serious interest
in acquiring Maynard Oil. The board authorized William Blair to request that
each submit its best and final offer by April 8, 2001. On April 9, 2002, the
board discussed revised expressions of interest received from four
privately-held companies and one publicly-held company. Plantation stood by its
prior offer of $15.25 per share. The offer from the publicly-held corporation
was at $18.94 per share and consisted of 60-70% stock and 30-40% cash, and did
not submit a proposed form of merger agreement. The board determined this
proposal to be less attractive and more uncertain of completion than the all
cash proposals. The board authorized management to work with the highest bidder
with the proposed per share price of $19.53 and a pricing hedge on Maynard Oil's
production. The board noted that this bidder had not finished its due diligence
investigation nor had they submitted a proposed form of agreement. Maynard Oil
and its legal counsel met with this bidder to negotiate a more fully formed
offer. On April 11, 2002, Plantation submitted a revised offer of $16.50 per
share with a $1.5 million termination fee and no hedge. Plantation had also
negotiated a form of merger agreement with the Maynard Oil's representatives. On
April 12, 2002 following a rapid, significant drop in the price per barrel of
oil, the party expressing interest at $19.53, although still interested, advised
that it would reduce its price.
William Blair advised the three interested parties that had finished
their due diligence investigations, had formally submitted preliminary thoughts
on a proposed form of agreement and had held contract negotiations with Maynard
Oil and its counsel, to submit their best and final offer, including comments on
Maynard Oil's proposed form of merger agreement, by April 18, 2002. All three of
these corporations submitted bids. One bid was at $16.15, but did not submit a
final form of merger agreement and was subject to implementation of an
acceptable
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hedge arrangement on Maynard Oil's oil and gas production, as well as a
significantly higher break up fee payable upon any termination of the merger
agreement. Another privately-held corporation submitted a bid of $17.05, but did
not submit a form of merger agreement as to terms and conditions, and required a
hedge and a break-up fee of $3.5 million. Plantation submitted a bid of $17.00,
with a negotiated agreement acceptable to Maynard Oil and which did not require
a hedge and provided for a break-up fee of only $1.5 million. On April 19 and
thereafter, the Company met with representatives of Plantation to finalize the
merger agreement. Several drafts of the merger agreement were circulated and
reviewed. Throughout the negotiations of the merger agreement, Plantation
continued its due diligence investigation of Maynard Oil and Maynard Oil
prepared and delivered certain documents and other information to Plantation and
its advisors.
On April 23, 2002, Maynard Oil's board of directors held a special
meeting to review and discuss with Maynard Oil's management and legal and
financial advisors the terms of the proposed acquisition and the merger
agreement. William Blair joined for a portion of this meeting to review with the
board its financial analysis of the consideration payable in the merger. In
addition to its presentation, William Blair rendered a written opinion to the
board, that based upon and subject to certain matters stated in the opinion, the
cash consideration of $17.00 per share of common stock to be received in the
merger by Stockholders was fair, from a financial point of view, to those
holders. For a discussion of the other factors considered by the board of
directors in approving the merger at this meeting, see "Recommendation of
Maynard Oil's Board of Directors and Reasons for the Merger," below. For a
discussion of William Blair's fairness opinion, see "Opinion of William Blair &
Company, L.L.C." beginning on page 11. At the meeting, the board of directors
determined that the proposed merger agreement was fair to and in the best
interests of Maynard Oil and the Stockholders and determined to recommend that
Stockholders vote in favor of approval of the merger agreement. The board also
acknowledged that James G. Maynard and his wife, as trustees, and a corporation
owned by Mr. Maynard would enter into a voting agreement with Plantation to vote
their shares of Maynard Oil common stock to approve and adopt the merger
agreement. On April 24, 2002, the board met by telephone to discuss the status
of finalizing the merger agreement and to authorize the press release. In
addition, the board authorized management to enter into a hedge of up to 75% of
Maynard Oil's Oil and Gas Production, if requested following execution of the
merger agreement. Maynard Oil prepared the disclosure schedules to complete the
merger agreement.
On April 25, 2002, the merger agreement was executed and delivered.
Also on April 25, 2002, James G. Maynard, as trustee of a trust for his benefit,
Joan B. Maynard, spouse of James G. Maynard, as trustee of a trust for her
benefit, and a corporation controlled by James G. Maynard, entered into a voting
agreement with Plantation agreeing to vote their 2,756,596 shares of Maynard Oil
common stock for the approval and adoption of the merger agreement and the
merger. Maynard Oil issued a press release announcing the execution of the
merger agreement and the voting agreement.
RECOMMENDATION OF MAYNARD OIL'S BOARD OF DIRECTORS AND REASONS FOR THE MERGER
Our board of directors has determined that the terms of the merger
agreement are advisable and fair to and in the best interests of Maynard Oil and
its Stockholders. In reaching this determination, the board consulted with
management, as well as the Company's financial advisors and legal counsel, and
considered many factors, including the following:
0 the public announcement of Maynard Oil's intention to evaluate
strategic alternatives, including the possible sale of Maynard
Oil;
0 the public manner in which Maynard Oil broadly solicited interest
from and responded to a substantial number of parties likely to
have an interest in a potential transaction;
0 information regarding historical market prices for Maynard Oil
common stock;
0 the financial and other terms and conditions of the merger
agreement, including the likely timing of the merger;
0 the competitive environment in which Maynard Oil operates;
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0 that the $17.00 per share price to be received by the Company's
Stockholders in the merger would be payable in cash, thus
eliminating any uncertainties in valuing the consideration to be
received by Maynard Oil's Stockholders;
0 that the merger would not be subject to any financing condition
and Plantation represented that commitments for a credit facility
with Bank of Texas, N.A. and for equity investments by EnCap
Energy Capital Fund IV, L.P. and EnCap Energy Capital Fund IV-B,
L.P., along with its available cash resources, would provide the
funds necessary to consummate the merger;
0 that the merger agreement did not require entering into a futures
contract or a hedge of Maynard Oil's oil and gas production;
0 the opinion of William Blair that the $17.00 per share to be
received by the holders of the Company's common stock in the
merger is fair to Stockholders from a financial point of view;
0 management's discussions with other potential interested parties
concerning possible business combinations;
0 that Maynard Oil may terminate the merger agreement to pursue an
acquisition proposal with terms more favorable to Maynard Oil's
Stockholders than the merger upon the payment of a $1.5 million
termination fee;
0 the low trading volume for Maynard Oil's common stock which
suggested that there was not an active market of buyers and
sellers, and that the current market prices for Maynard Oil common
stock may not be a reliable indication of fair value;
0 a comparison of selected recent acquisitions and merger
transactions in the oil and gas industry;
0 the board's knowledge of Maynard Oil's business, operations,
properties, assets, financial condition, operating results,
sources of capital and access to capital markets, prospects and
strategic alternatives and their view that the merger represents
the best alternative for maximizing the value of the Stockholder's
investment in Maynard Oil common stock;
0 the volatility of the current market price for oil;
0 that Stockholders who do not support the merger will be entitled
to seek dissenters' rights under Delaware law (see "Dissenters'
Rights" beginning on page 12); and
0 that the merger agreement could not be terminated based upon the
number of persons seeking dissenter's rights.
Our board of directors also considered many potentially negative
factors relating to the merger, including:
0 that the price was below the per share price quoted on Nasdaq;
0 that Stockholders will not be able to participate in any future
growth of Maynard Oil;
0 that the merger will result in a taxable gain to the Stockholders;
0 that some members of the board of directors and senior management
have interests in the merger that are different from the other
Stockholders (see "Interests of Certain Persons in the Merger"
beginning on page 11);
0 that Maynard Oil's employees may be concerned about their
employment status;
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0 the possible distraction of the management from day-to-day
operations while the merger is pending;
0 the necessity of granting Plantation the right to conduct a
further review of Maynard Oil's oil and gas properties, with the
right to terminate the merger agreement if they discovered more
than $2.5 million of deficiencies prior to June 20, 2002; and
0 the conditions required in connection with the merger, as well as
the risks, costs, uncertainties and possible delays associated
with completion of the merger.
The board of directors believes that the potential benefits of the
merger outweigh these negative factors, and that the merger is fair to and in
the best interests of Maynard Oil and its Stockholders. ACCORDINGLY, THE MAYNARD
OIL BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE MERGER.
The foregoing discussion concerns the main factors considered by
Maynard Oil's board. In view of the wide variety of factors considered, the
board did not find it practicable to quantify, or attempt to assign relative
weights to, the various factors that it considered.
FEDERAL INCOME TAX CONSEQUENCES
This section summarizes the material United States federal income tax
consequences of the merger. This discussion does not address the consequences of
the merger under state, local or foreign law, nor does it address all aspects of
federal income taxation that may be relevant to a particular Stockholder in
light of his particular circumstances. Each Stockholder should consult his own
tax advisor about the specific tax consequences to him of the proposed merger,
including the application and effect of state, local, foreign and other tax
laws, changes in tax laws and tax return reporting requirements. Special tax
consequences not described in this proxy statement may apply to a particular
class of taxpayers, such as financial institutions, insurance companies,
broker-dealers, individuals and entities who are not citizens or residents of
the United States, tax-exempt entities, persons holding Maynard Oil stock as
part of an integrated investment composed of Maynard Oil stock and one or more
other positions, and Stockholders who acquired their Maynard Oil common stock
through the exercise of an employee stock option or otherwise as compensation.
The receipt of cash in exchange for shares of Maynard Oil common stock
will be a taxable transaction for federal income tax purposes under the Internal
Revenue Code, and also may be a taxable transaction under applicable state,
local, foreign and other laws. Generally, for federal income tax purposes, a
Stockholder will recognize gain or loss in an amount equal to the difference
between the amount of cash that the Stockholder receives in the merger and his
adjusted basis in the shares of Maynard Oil common stock that he surrenders in
the merger. For federal income tax purposes, any gain or loss will be capital
gain or loss to the Stockholder if his Maynard Oil common stock was held as a
capital asset. It will be long-term capital gain or loss if the Stockholder held
his shares of Maynard Oil stock for more than one year. Long-term capital gain
of individuals will be subject to federal income tax at a maximum rate of 20%.
Payments to a Stockholder in connection with the merger may be subject
to 30% "backup withholding" unless the Stockholder provides (see "Payment of
Cash For Maynard Oil Stock" beginning on page 25) a taxpayer identification
number or social security number and certifies that the number is correct or
properly certifies that the Stockholder has applied for and is waiting for a
number. Certain holders (including all corporations and certain foreign
individuals) are not subject to these backup withholding requirements. If backup
withholding applies to a Stockholder, Plantation will be required to withhold
30% of any payments made in the merger to that Stockholder. Backup withholding
is not an additional tax; it is an advance tax payment and is subject to refund
if it results in an overpayment of tax.
The receipt of cash in cancellation of compensatory stock options (for
example, nonqualified stock options under Section 83 of the Internal Revenue
Code and incentive stock options under Section 422 of the Internal
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Revenue Code) will be taxable to the recipient as ordinary income. Cash payments
in cancellation of the stock options and restricted stock may be subject to
income and employment tax withholding.
This discussion is based on the Internal Revenue Code of 1986, as
amended, applicable Treasury Department regulations, judicial authority and
current administrative ruling and practice, all as in effect as of the date of
this proxy statement. Future legislative, judicial or administrative changes or
interpretations could change the statements and conclusions above, and could
have retroactive effect. Maynard Oil disclaims any obligation to update this
discussion as a result of these changes or interpretations.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
You should be aware that some members of Maynard Oil's board and
management have interests in the merger that may be different from the interests
of Maynard Oil's Stockholders generally. These interests could influence their
decisions in voting on the merger. The Company has agreed to pay incentive and
retention compensation to directors, other than James G. Maynard, and employees
pursuant to the incentive bonus letters and management retention agreements in
the approximate amount of $5.1 million. Maynard Oil's board of directors was
aware of these interests before adopting the merger agreement.
Indemnification; Directors and Officers Insurance. After the merger,
Plantation will cause Maynard Oil to indemnify and hold harmless all of Maynard
Oil's past and present officers, directors and employees against all losses,
claims, damages, expenses or liabilities arising out of any actions or
omissions, or alleged actions or omissions, occurring at or before the effective
time of the merger. This indemnification will be to the same extent and on the
same terms and conditions currently provided by Maynard Oil. Maynard Oil expects
to continue the current directors and officers insurance policy. In addition,
each of the four directors has an indemnification agreement with Maynard Oil
pursuant to which Maynard Oil is obligated to provide indemnification as
described above and to advance expenses. These agreements provide for an escrow
of up to $500,000 per director to assure coverage of expenses and liabilities
incurred.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of
accounting in accordance with generally accepted accounting principles. Under
this method of accounting, the purchase price will be allocated to assets
acquired and liabilities assumed based on their estimated fair values.
REGULATORY APPROVAL
Maynard Oil and Plantation have determined that no material
governmental or regulatory approvals are required for the merger to occur. In
particular, a filing is not required under Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, because the merger is exempt under a rule
which exempts certain purchases of oil and gas reserves.
However, at any time before or after consummation of the merger, the
Department of Justice, the Federal Trade Commission or any state or foreign
governmental authority could take such action under the antitrust laws as it
deems necessary or desirable in the public interest. Private parties may also
seek to take legal action under the antitrust laws under certain circumstances.
Maynard Oil and Plantation believe that the merger will be effected in
compliance with federal, state and foreign antitrust laws. However, there can be
no assurance that a challenge to the consummation of the merger on antitrust
grounds will not be made or that, if such a challenge were made, Maynard Oil and
Plantation would prevail.
The merger agreement provides that Maynard Oil and Plantation will use
their reasonable best efforts to cause the merger to be completed, including
obtaining all necessary waivers, authorizations, orders and consents of third
parties. Except for filing the certificate of merger with the State of Delaware
after Stockholder approval of the merger agreement and compliance with federal
and state securities laws, neither Maynard Oil nor Plantation
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is aware of any material U.S. federal, state or foreign regulatory requirements
that must be complied with, or approvals that must be obtained, in order to
complete the merger.
DISSENTERS' RIGHTS
Maynard Oil is a Delaware corporation. Section 262 of the Delaware
General Corporation Law provides appraisal rights (sometimes referred to as
"dissenters' rights") under some circumstances to stockholders of a Delaware
corporation that is involved in a merger.
Record holders of Maynard Oil common stock who follow the appropriate
procedures are entitled to appraisal rights under Section 262 in connection with
the merger.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO APPRAISAL RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW AND IS
QUALIFIED IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 262, WHICH IS REPRINTED IN
ITS ENTIRETY AS ANNEX D TO THIS DOCUMENT. ALL REFERENCES IN SECTION 262 AND IN
THIS DISCUSSION TO A "STOCKHOLDER" OR "RECORD HOLDER" ARE TO THE HOLDERS OF
RECORD OF MAYNARD OIL COMMON STOCK IMMEDIATELY BEFORE THE EFFECTIVE TIME OF THE
MERGER AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
Eligible Stockholders. If the merger proposals are approved by the
required vote of Maynard Oil Stockholders and the merger agreement is not
abandoned or terminated, Maynard Oil Stockholders who did not vote in favor of
the merger agreement may, by complying with Section 262 of the Delaware General
Corporation Law, be entitled to appraisal rights as described in Section 262. If
a Maynard Oil Stockholder has a beneficial interest in shares of Maynard Oil
common stock that are held of record in the name of another person, such as a
broker or nominee, and the Stockholder desires to perfect whatever appraisal
rights the beneficial stockholder may have, the beneficial stockholder must act
promptly to cause the holder of record to timely and properly follow the steps
summarized below. A VOTE IN FAVOR OF THE MERGER AGREEMENT BY A MAYNARD OIL
STOCKHOLDER WILL RESULT IN A WAIVER OF THE STOCKHOLDER'S APPRAISAL RIGHTS.
Exercising Procedures. Under the Delaware General Corporation Law,
record holders of Maynard Oil common stock that follow the procedures set forth
in Section 262 and that have neither voted in favor of the approval and adoption
of the merger agreement, nor consented to it in writing, will be entitled to
have their shares of common stock appraised by the Delaware Court of Chancery
and to receive payment of the "fair value" of their shares, exclusive of any
element of value arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, as determined by the Delaware Court of
Chancery.
Under Section 262, where a merger agreement is to be submitted for
approval and adoption at a meeting of Stockholders, as in the case of the
special meeting of Maynard Oil Stockholders, not less than 20 days prior to the
meeting, Maynard Oil must notify each of its Stockholders as of the record date,
who are entitled to appraisal rights that appraisal rights are available and
include in the notice a copy of Section 262. THIS DOCUMENT CONSTITUTES SUCH
NOTICE TO MAYNARD OIL STOCKHOLDERS. Any Maynard Oil Stockholder who wishes to
exercise appraisal rights or wishes to preserve the holder's right to do so
should review the following discussion and Annex D carefully. Failure to timely
and properly comply with the procedures specified in Section 262 will result in
the loss of appraisal rights under the Delaware General Corporation Law.
A Maynard Oil Stockholder wishing to exercise appraisal rights must
deliver to Maynard Oil, before the vote on the approval and adoption of the
merger agreement at the special meeting of Maynard Oil Stockholders, a written
demand for appraisal of the Stockholder's Maynard Oil common stock, which must
reasonably inform Maynard Oil of the identity of the holder of record, as well
as the intention of the holder to demand an appraisal of the fair value of the
shares held. In addition, a Maynard Oil Stockholder wishing to exercise
appraisal rights or wishing to preserve the Stockholder's right to do so must
hold of record the shares on the date the written demand for appraisal is made,
must continue to hold the shares through the effective time of the merger, and
must either vote against or abstain from voting for the approval and adoption of
the merger agreement.
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Only a record holder of Maynard Oil common stock is entitled to assert
appraisal rights for the Maynard Oil common stock registered in the holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record, fully and correctly, as the holder's name appears on the holder's stock
certificates, and must state that the holder intends to demand appraisal of the
holder's shares of Maynard Oil common stock. A PROXY OR VOTE AGAINST THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR
APPRAISAL.
If the shares of Maynard Oil common stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and, if the shares of Maynard Oil
common stock are owned of record by more than one person, as in a joint tenancy,
or tenancy in common, the demand should be executed by or on behalf of all joint
owners. An authorized agent, including one or more joint owners, may execute a
demand for appraisal on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for the owner or owners. A record holder, such as a broker who holds
Maynard Oil common stock as nominee for several beneficial owners, may exercise
appraisal rights with respect to the shares of Maynard Oil common stock held for
one or more beneficial owners while not exercising appraisal rights with respect
to the shares of Maynard Oil common stock held for other beneficial owners. In
such case, however, the written demand should set forth the number of shares of
Maynard Oil common stock as to which appraisal is sought. If no number of shares
of Maynard Oil common stock is expressly mentioned, the demand will be presumed
to cover all Maynard Oil common stock held in the name of the record holder.
Holders of Maynard Oil common stock who hold their shares in brokerage accounts
or other nominee forms and who wish to exercise appraisal rights are urged to
consult with their brokers to determine the appropriate procedures for the
making of a demand for appraisal by the nominee.
All written demands for appraisal of Maynard Oil common stock should be
mailed or delivered to Maynard Oil at 8080 N. Central Expressway. Suite 660,
Dallas, Texas 75206, Attention: Linda Burgess, Secretary, so as to be received
before the vote on the approval and adoption of the merger agreement at the
special meeting of Maynard Oil Stockholders.
Within ten days after the effective time of the merger, Plantation must
send a notice as of the effective date of the merger to each person that
satisfied the appropriate provisions of Section 262. Within 120 days after the
effective time of the merger, but not after that date, Plantation, or any
Maynard Oil Stockholder entitled to appraisal rights under Section 262 and who
has complied with the foregoing procedures, may file a petition in the Delaware
Court of Chancery demanding a determination of the fair value of such shares.
Plantation is not under any obligation, and has no present intention, to file a
petition with respect to the appraisal of the fair value of the Maynard Oil
common stock. Accordingly, it is the obligation of the Maynard Oil Stockholder
to initiate all necessary action to perfect the Stockholder's appraisal rights
within the time prescribed in Section 262.
Within 120 days after the effective time of the merger, any record
holder of Maynard Oil common stock that has complied with the requirements for
exercise of appraisal rights will be entitled to request in writing a statement
from Plantation, setting forth the aggregate number of shares of Maynard Oil
common stock not voted in favor of the merger with respect to which demands for
appraisal have been received and the aggregate number of holders of the shares.
The statement must be mailed within ten days after the written request has been
received by Plantation, or within ten days after expiration of the period for
delivery of demands for appraisal, whichever is later.
If a holder of Maynard Oil common stock timely files a petition for
appraisal and serves a copy of the petition upon Plantation, Plantation will
then be obligated, within 20 days, to file with the Delaware Register in
Chancery a duly verified list containing the names and addresses of all Maynard
Oil Stockholders who have demanded an appraisal of their shares and with whom
agreements as to the value of their shares have not been reached. After notice
to the Maynard Oil Stockholders as required by the Delaware Court of Chancery,
the Delaware Court of Chancery is empowered to conduct a hearing on the petition
to determine those Maynard Oil Stockholders that have complied with Section 262
and that have become entitled to appraisal rights. The Delaware Court of
Chancery may require the holders of shares of Maynard Oil common stock that
demanded payment for their shares to submit their stock certificates to the
Delaware Register in Chancery for notation of the pendency of the appraisal
proceeding. If any Maynard Oil Stockholder fails to comply with the direction,
the Delaware Court of Chancery may dismiss the proceedings as to that
Stockholder.
-14-
Fair Value Determination. After determining the holders of Maynard Oil
common stock entitled to appraisal, the Delaware Court of Chancery will appraise
the fair value of their shares of Maynard Oil common stock, exclusive of any
element of value arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. Maynard Oil Stockholders considering seeking
appraisal should be aware that the fair value of their Maynard Oil common stock
as determined under Section 262 could be more than, the same as or less than the
value of the merger consideration, and that investment banking opinions as to
fairness from a financial point of view are not opinions as to fair value under
Section 262. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods that are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings. More specifically, the Delaware Supreme Court has stated
that: "Fair value, in an appraisal context, measures `that which has been taken
from the stockholder, viz., his proportionate interest in a going concern.' In
the appraisal process the corporation is valued `as an entity,' not merely as a
collection of assets or by the sum of the market price of each share of its
stock. Moreover, the corporation must be viewed as an on-going enterprise,
occupying a particular market position in the light of future prospects." In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may or may not be a stockholder's exclusive
remedy. The Delaware Court of Chancery will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Maynard Oil common stock have been appraised.
Costs. The costs of the action may be determined by the Delaware Court
of Chancery and taxed upon the parties as the Delaware Court of Chancery deems
equitable. The Delaware Court of Chancery may also order that all or a portion
of the expenses incurred by any Maynard Oil Stockholder in connection with an
appraisal, including reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged PRO RATA against the
value of all of the shares of Maynard Oil common stock entitled to appraisal.
Voting Rights; Dividends. Any Maynard Oil Stockholder that has duly
demanded an appraisal in compliance with Section 262 will not, from and after
the effective time of the merger, be entitled to vote the Stockholder's shares
of Maynard Oil common stock subject to the demand for any purpose or be entitled
to the payment of dividends or other distributions on those shares.
Withdrawal; Loss of Appraisal Rights. If any Maynard Oil Stockholder
that demands appraisal of shares of Maynard Oil common stock under Section 262
fails to perfect, or effectively withdraws or loses the right to appraisal, as
provided in the Delaware General Corporation Law, the Maynard Oil common stock
of the Stockholder will be converted into the merger consideration in accordance
with the merger agreement (without interest), as more fully described under "The
Merger Agreement -- The Merger -- Conversion of Securities in the Merger." A
Maynard Oil Stockholder will fail to perfect, or will effectively lose, the
right to appraisal, if no petition for appraisal is filed within 120 days after
the effective time of the merger. A Maynard Oil Stockholder may withdraw a
demand for appraisal by delivering to Maynard Oil a written withdrawal of the
demand for appraisal and acceptance of the terms of the merger. Any attempt to
withdraw made more than 60 days after the effective time of the merger will,
however, require the written approval of Plantation. Further, once a petition
for appraisal is filed, the appraisal proceeding may not be dismissed as to any
Maynard Oil Stockholder absent court approval.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS, IN WHICH EVENT THE
HOLDER OF MAYNARD OIL COMMON STOCK WILL BE ENTITLED TO RECEIVE ONLY THE
CONSIDERATION SET FORTH IN THE MERGER AGREEMENT FOR EACH SHARE OF MAYNARD OIL
COMMON STOCK ISSUED AND OUTSTANDING IMMEDIATELY BEFORE THE EFFECTIVE TIME OF THE
MERGER OWNED BY THE MAYNARD OIL STOCKHOLDER.
COMPLETION AND EFFECTIVENESS OF THE MERGER
Completion of the merger will occur as soon as practicable after all of
the conditions to the merger are satisfied or waived. The merger will become
effective when a certificate of merger is filed with the Delaware Secretary of
State. Maynard Oil and Plantation are working toward completing the merger as
quickly as possible and hope to complete the merger shortly after the special
meeting. However, as discussed in "Conditions to the
-15-
Merger" beginning on page 26, there are several conditions that must be
satisfied or waived before the merger can occur. Maynard Oil cannot assure the
Stockholders that the merger will occur.
PAYMENT OF CASH FOR MAYNARD OIL STOCK
Under the merger agreement, upon completion of the merger, each share
of Maynard Oil common stock outstanding immediately before the merger (with
certain exceptions) will automatically be converted into the right to receive
$17.00 in cash, without interest. Each holder of a certificate representing
shares of Maynard Oil common stock will no longer have any rights with respect
to the shares of Maynard Oil common stock, except the right to receive $17.00 in
cash, without interest, for each share.
If Stockholders sell their Maynard Oil common stock prior to the
merger, the right to receive the $17.00 in cash will pass to the person to whom
the Stockholder transferred the shares. Promptly after the merger is completed,
Maynard Oil's exchange agent will mail to each Stockholder of record as of the
completion of the merger a letter of transmittal and instructions for
surrendering Maynard Oil stock certificates in exchange for cash. When a
Stockholder surrenders Maynard Oil stock certificates to the exchange agent,
together with a properly completed letter of transmittal and any other required
documents, the Maynard Oil stock certificates will be canceled and the
Stockholder will receive $17.00 in cash, without interest, for each share of
Maynard Oil common stock owned as of the effective time of the merger.
After completion of the merger, there will be no more transfers on
Maynard Oil's records or on Maynard Oil's transfer agent's records of
certificates representing shares of Maynard Oil common stock. If certificates
are presented to Maynard Oil or Maynard Oil's transfer agent for transfer, the
certificates will be canceled and in exchange the holder will receive $17.00 in
cash, without interest, for each share of Maynard Oil common stock represented
by the certificate. Until surrendered, each certificate formerly representing
shares of Maynard Oil common stock will be deemed after completion of the merger
to represent only the right to receive $17.00 in cash, without interest, upon
surrender of the certificate. No interest or other payment will be paid or will
accrue on the cash payment.
Stockholders should not send Maynard Oil stock certificates to the
exchange agent until they have received transmittal forms. Stockholders should
not return their Maynard Oil stock certificates with the enclosed proxy card.
DELISTING OF MAYNARD OIL COMMON STOCK AFTER THE MERGER
Maynard Oil common stock is currently listed on Nasdaq. Since all of
the Maynard Oil common stock outstanding immediately before the merger will be
cancelled in exchange for the right to receive cash, Maynard Oil common stock
will be delisted from Nasdaq market, if the merger is completed.
Maynard Oil common stock is currently registered under the Securities
Exchange Act of 1934. Plantation intends to terminate the registration of
Maynard Oil common stock under the Securities Exchange Act promptly after the
merger. The termination of the registration of Maynard Oil common stock under
the Securities Exchange Act will mean that Maynard Oil will no longer be
required to file various reports, such as Forms 10-K and 10-Q, with the SEC.
FINANCING FOR THE MERGER
The funds to pay the total amount of the merger consideration to
Maynard Oil's Stockholders and pay estimated fees, expenses and other
transaction costs of Plantation Petroleum Holdings and Plantation Petroleum
Acquisition in connection with the merger will come from Plantation's available
cash resources and commitments for a credit facility with Bank of Texas, N.A.
and for equity investments by EnCap Energy Capital Fund IV, L.P. and EnCap
Energy Capital Fund IV-G, L.P.
-16-
OPINION OF WILLIAM BLAIR & COMPANY, L.L.C.
William Blair & Company, L.L.C. acted as financial advisor to Maynard
Oil in connection with the Company's exploration of strategic alternatives
including a possible transaction with Plantation. As part of its engagement,
Maynard Oil asked William Blair to render a fairness opinion relating to the
merger. On April 23, 2002, William Blair delivered an oral opinion, later
confirmed in writing as of that date, to Maynard Oil's board of directors that,
as of that date and based upon and subject to the assumptions and qualifications
stated in its opinion, the merger consideration to be paid to the Company's
Stockholders in the merger pursuant to the merger agreement is fair to the
Company's Stockholders from a financial point of view.
THE FULL TEXT OF WILLIAM BLAIR'S WRITTEN OPINION, DATED APRIL 23, 2002
IS ATTACHED AS ANNEX C TO THIS PROXY STATEMENT AND IS INCORPORATED IN THIS
DOCUMENT BY REFERENCE. THE STOCKHOLDERS ARE URGED TO READ THE ENTIRE OPINION
CAREFULLY TO LEARN ABOUT THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED, AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY WILLIAM BLAIR
IN RENDERING ITS OPINION. WILLIAM BLAIR'S OPINION RELATES ONLY TO THE FAIRNESS
AS OF THE DATE OF THE OPINION AND FROM A FINANCIAL POINT OF VIEW, TO THE MAYNARD
OIL STOCKHOLDERS, OF THE MERGER CONSIDERATION TO BE PAID TO THE MAYNARD OIL
STOCKHOLDERS IN THE MERGER PURSUANT TO THE MERGER AGREEMENT AND WILLIAM BLAIR'S
OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF MAYNARD OIL
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE APPROVAL OF THE
MERGER. THE FOLLOWING SUMMARY OF WILLIAM BLAIR'S OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. WILLIAM BLAIR'S OPINION
WAS DIRECTED TO THE COMPANY'S BOARD OF DIRECTORS FOR ITS BENEFIT AND USE IN
EVALUATING THE FAIRNESS OF THE MERGER CONSIDERATION. MAYNARD OIL URGES THE
STOCKHOLDERS TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with rendering this opinion, William Blair reviewed the
following:
0 the financial terms and conditions set forth in a draft of the
merger agreement;
0 the audited financial statements of Maynard Oil for the years
ended December 31, 1999, 2000, and 2001;
0 certain internal business, operating and financial information and
forecasts for Maynard Oil prepared by senior management of the
Company;
0 the Company's 2001 year-end reserve engineering report, prepared
by the Company's management and audited by Netherland, Sewell &
Associates, Inc., an independent petroleum consulting firm,
relating to estimates of the proved oil and gas reserves of the
Company, as of December 31, 2001;
0 current and historical market prices and trading volumes of the
Maynard Oil's common stock;
0 historical, current and projected oil and gas commodity prices;
0 financial and stock market information on selected public equity
securities of businesses William Blair deemed relevant;
0 publicly available financial terms of certain recently completed
corporate transactions and asset sales William Blair deemed
relevant;
0 the financial position and operating results of the Company
compared with those of certain other publicly traded companies
William Blair deemed relevant; and
0 such other materials and information as William Blair deemed
relevant.
-17-
William Blair also conducted such other financial studies, analyses and
investigations and reviewed such other factors as William Blair deemed
appropriate for the purposes of rendering its opinion. In rendering its opinion,
William Blair assumed and relied upon the accuracy and completeness of the
financial and other information obtained from public sources or provided to it
by the Company, and did not attempt to verify independently any of such
information, nor did it make or obtain an independent valuation or appraisal of
any of the assets or liabilities of the Company. William Blair held discussions
with members of senior management of the Company concerning the Company's
historical and current operations, financial condition and prospects. William
Blair assumed that the proposed transaction would be consummated upon the terms
set forth in the draft merger agreement without material alteration thereof. In
addition, William Blair assumed that the historical financial statements of
Maynard Oil reviewed by it had been prepared and fairly presented in accordance
with U.S. generally accepted accounting principles consistently applied and that
the estimates of proved developed oil and gas reserves were prepared in
accordance with generally accepted petroleum engineering and evaluation
principles. William Blair was advised by the senior management of the Company
that the business, operating and financial information of the Company, and the
other information and data provided to, or otherwise reviewed by, discussed
with, or examined by William Blair, had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the senior
management of the Company and/or its engineering consultants. William Blair's
opinion is necessarily based solely upon information available to it and
business, market, economic and other conditions as they existed on, and could be
evaluated as of, the date of its opinion.
William Blair believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by it,
without considering all of the facts and analyses, could create a misleading
view of the process underlying its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. In its analysis, William Blair made assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the Company's control. Any estimates
contained in William Blair's analyses are not necessarily indicative of future
results or actual values, which may be significantly more or less favorable than
such estimates. Estimates of values of companies or assets do not purport to be
appraisals or necessarily reflect the price at which companies or assets may
actually be sold.
The following is a summary of the material factors considered and
principal financial analyses performed by William Blair to arrive at its
opinion. William Blair performed certain procedures, including each of the
financial analyses described below, and reviewed with Maynard Oil's management
and board of directors the assumptions upon which such analyses were based, as
well as other factors. Although the summary does not purport to describe all of
the analyses performed or factors considered by William Blair in this regard, it
does set forth those considered by William Blair to be material in arriving at
its opinion.
Process Review. William Blair considered the events that resulted in
the negotiation of the merger agreement, including the 10-month process that was
undertaken by Maynard Oil's board of directors and Maynard Oil's legal and
financial advisors to identify and negotiate with prospective purchasers of the
Company. William Blair also considered the Company's several public disclosures
regarding the initiative Maynard Oil board of directors was undertaking to
maximize shareholder value. In connection with this process, William Blair held
discussions with 70 potential parties regarding the sale of the Company, and of
those parties, 44 entered into confidentiality agreements with the Company and
reviewed summary due diligence materials about the Company's operations and
financial condition. Of these 44 parties, 10 also reviewed data room materials
about the Company's operations and financial condition. In addition, William
Blair reviewed the provisions contained in the draft merger agreement which
permit the Company to terminate the merger agreement in connection with a
superior proposal upon the payment of a break-up fee. William Blair also
reviewed break up fees as a percentage of transaction values of certain recently
completed corporate merger transactions considered comparable in size to the
merger.
Comparable Public Company Analysis. William Blair selected a comparable
group of publicly-traded oil and gas companies with the following
characteristics: (i) market capitalization between $50 million and $200 million,
(ii) operating locations in West Texas, Gulf Coast Onshore in Texas, and/or
Oklahoma, and (iii) at least 40% of reserves in oil. These regions were selected
because they were deemed by William Blair to be representative of elements of
Maynard Oil's oil and gas asset base. Regional analysis is important because
-18-
hydrocarbon producing properties differ with respect to quantitative factors
such as reserve life, realized commodity prices and the predominant type and
quality of hydrocarbon produced.
In total William Blair analyzed the following seven companies: Carrizo
Oil & Gas, Clayton Williams Energy, EXCO Resources, Goodrich Petroleum, Mission
Resources, Parallel Petroleum, and Wiser Oil. Although William Blair compared
the trading multiples of the selected companies at the date of William Blair's
opinion to the merger multiples of Maynard, none of the selected companies is
identical to Maynard Oil.
Among the information William Blair considered were "Discretionary Cash
Flow" (defined as net income plus deferred taxes, depreciation, depletion and
amortization and other non- cash or extraordinary items), earnings before
interest, taxes, depreciation, depletion and amortization and exploration
expense ("EBITDAX"), "After-tax PV-10 Proved Reserves" (defined as the value of
future net cash flows from proved reserves after taxes discounted at 10% at
December 31, 2001), total proved reserves, oil reserves as a percentage of total
reserves, year-end proved reserves divided by the prior year's production
("Reserve/Production Ratio"), EBITDAX margins, and average production costs per
net equivalent barrel of oil ("NEB"). The multiples and ratios for the
comparable companies were based on the most recent publicly-available financial
information and on consensus Discretionary Cash Flow estimates for 2002 and were
based on the closing share prices as of April 18, 2002.
Information regarding the multiples implied by the terms of the merger
compared to the multiples derived from William Blair's analysis of selected
comparable companies are set forth in the following table. LTM refers to the
latest twelve months. TEV refers to Total Enterprise Value, which is defined as
market value plus total debt less cash and, in the case of Maynard, plus amounts
owed under existing management agreements.
Maynard Implied Comparable Companies
-----------------------------------
Multiple Merger Multiple Range Mean Median
- ------------------------------------------------ ---------------- --------------- ------- ---------
Market Value/LTM Discretionary Cash Flow 3.0 x 1.5 x - 6.3 x 3.9 x 4.1 x
Market Value/Calendar '02 Discretionary Cash
Flow Estimate 3.5 x 2.4 x - 8.4 x 5.4 x 5.1 x
TEV/LTM EBITDAX 3.1 x 2.3 x - 6.4 x 5.2 x 5.5 x
TEV/Fiscal Year 2001 Total Proved Reserves
($/NEB) $6.1 $4.6 - $10.5 $7.2 $7.8
TEV/Fiscal Year 2001 After-tax PV-10 Proved
Reserves 138% 79% - 157% 123% 118%
The multiple implied by the terms of the merger was in each case within
the range implied by the comparable public company analysis. William Blair noted
that while many of the multiples implied by the terms of the merger were below
the mean and median for the selected comparable companies this was likely due to
the fact that several of Maynard Oil's operating statistics were below the mean
and median operating statistics for the selected comparable companies.
Information regarding the operating statistics of Maynard Oil compared
to the operating statistics derived from William Blair's analysis of selected
comparable companies are set forth in the following table.
Maynard Comparable Companies
----------------------------------------
Operating Statistic Operating Range Mean Median
Statistic
- ------------------------------------------------ ------------------- ---------------- ---------- ------------
% Oil of Total Reserves 68% 43%- 84% 59% 59%
Reserve/Production Ratio 7.1 x 5.1 x- 24.1 x 12.5 x 10.9 x
LTM EBITDAX Margin 58.9% 50.0%- 71.5% 62.2% 62.0%
Fiscal Year 2001 Average Production Costs
($/NEB) $7.91 $4.62- $8.09 $6.28 $5.74
Last Three Years Average Production Costs
($/NEB) $6.88 $4.08- $7.18 $5.30 $4.82
Comparable Corporate Transactions Analysis. William Blair selected a
comparable group of 100% control transactions involving publicly-traded oil and
gas companies with the following characteristics (i) total enterprise value
between $50 million and $300 million, (ii) operating locations in West Texas,
Gulf Coast Onshore in Texas, and/or Oklahoma, and (iii) at least 40% of reserves
in oil. In total, William Blair analyzed seven corporate transactions that were
announced since January 1, 2000. The selected corporate transactions were not
intended to be
-19-
representative of the entire range of possible transactions in the industry.
Although William Blair compared the transaction multiples of these transactions
to the implied merger multiples of Maynard Oil, none of the selected corporate
transactions is identical to the proposed merger. The corporate transactions
were (target/acquiror):
0 Synergy Oil & Gas, Inc./Penn Virginia Corporation
0 Cody Energy Company/Cabot Oil & Gas Corp.
0 Bargo Energy Company/Bellwether Exploration C.
0 Pontotoc Production, Inc./Ascent Energy Inc.
0 Texoil, Inc./Ocean Energy, Inc.
0 Southern Mineral Corp./PetroCorp Inc.
0 Home-Stake Oil & Gas Company/Cortez Oil & Gas, Inc.
Among the information William Blair considered were Discretionary Cash
Flow and total proved reserves. Information regarding the multiple implied by
the terms of the merger compared to the transaction multiples from William
Blair's analysis is set forth in the following table.
Maynard Implied Comparable Transactions
---------------------------------
Multiple Merger Multiple Range Mean Median
- ---------------------------------------------- ---------------- --------------- ------- -------
TEV/Total Proved Reserves ($/NEB) $6.1 $4.0 - $11.4 $6.2 $5.0
Market Value/LTM Discretionary Cash Flow 3.0 x 2.6 x - 13.5 x 5.9 x 4.6 x
The multiple implied by the terms of the merger was in each case within
the range implied by the comparable corporate transactions analysis.
Comparable Asset Transactions Analysis. William Blair selected a
comparable group of asset sales with the following characteristics: (i) total
enterprise value between $50 million and $300 million, (ii) operating locations
in West Texas, Gulf Coast Onshore in Texas, and/or Oklahoma, and (iii) at least
40% of reserves in oil. In total, William Blair analyzed eight asset
transactions that were announced since January 1, 2000. The selected asset
transactions were not intended to be representative of the entire range of
possible transactions in the industry. Although William Blair compared the
transaction multiples of these asset sales to the multiple implied by the terms
of the merger, none of the selected asset sales is identical to the proposed
transaction. The asset transactions were (target/acquiror):
0 First Permian, L.L.C., Parallel Petroleum Corp./Energen
Corporation, Energen Resources Corporation
0 Conoco Inc./Encore Acquisition Company
0 Parker & Parsley Limited Partnerships/Pioneer Natural Resources
Co., Pioneer Natural Resources USA Inc.
0 Apache Corp./Prize Energy Corp.
0 Undisclosed/Denbury Resources, Inc.
0 Texaco Exploration & Production, Inc./EnerVest Energy, L.P.
0 Texaco, Inc./Bargo Energy Company
0 USX-Marathon Group/Santa Fe Snyder Corporation
Among the information William Blair considered was estimated reserve
value and total proved reserves. Information regarding the multiple implied by
the terms of the merger compared to the merger multiples from William Blair's
analysis is set forth in the following table.
Maynard Implied Comparable Transactions
---------------------------------
Multiple Merger Multiple Range Mean Median
- ---------------------------------------------- ---------------- --------------- ------- -------
Reserve Value/Total Proved Reserves ($/NEB) $5.7 $3.0 $6.7 $5.0 $5.1
The multiple implied by the terms of the merger was within the range
implied by this comparable asset transactions analysis.
-20-
All multiples for each of the selected corporate transactions and
selected asset transactions were based on John S. Herold Inc. data and public
information available at the time of announcement of those transactions, without
taking into account differing commodity and financial market and other
conditions during the two and one-quarter year period during which these
transactions occurred.
Discounted Cash Flow Analysis. William Blair utilized management
projections of future cash flows for the period from 2002 to 2022, which
considered: (i) current reserves and projected production levels; (ii) oil and
gas prices as of April 18, 2002, adjusted for decrement levels provided by
management; (iii) management estimates of direct and indirect expenses including
production and ad-valorem taxes; depreciation, depletion and amortization;
direct operating expenses; and general & administrative expenses; (iv) a 34% tax
rate; and (v) management's estimates of future investments. William Blair
discounted these future cash flows using a discount rate range of 8.0% to 10.0%
based on its judgment of the weighted average cost of capital of comparable
public companies. Additionally, William Blair utilized a range of oil prices
(from $20.00 to $30.00) to determine the change in the discounted cash flows
based on variations in the commodity price. This analysis resulted in a range of
estimated total enterprise values, from which William Blair deducted net debt
(total debt less cash) and the value of management agreements to arrive at an
estimated equity value per share. Based on an oil price of $26.18 and gas price
of $3.485 as of April 18, 2002, the discounted cash flow analysis resulted in a
price per Maynard share of $14.11 at a 9.0% discount rate. The $17.00 merger
price represented a 20.5% premium to such price. The range of values indicated
by the sensitivity analysis was $8.03 to $18.48 per share.
Stock Price and Volume Analysis. William Blair examined the history of
the trading prices and volume for the Company's common stock and the
relationship between movements of such common stock and movements in common
stock of the comparable group of publicly-traded oil and gas companies
identified in the Comparable Public Company Analysis. William Blair noted
Maynard Oil had relatively low trading volumes and limited public float relative
to the comparable group. In addition, William Blair noted that the comparable
group's stock price on April 18, 2002 was on average 11.1% lower than five years
ago, while the $17.00 offer price for Maynard Oil was 38.8% higher than the
Maynard Oil stock price five years ago. Similarly, William Blair noted that the
comparable group's stock price on April 18, 2002 was on average 29.8% lower than
a year ago, while the $17.00 offer price was 0.4% higher than the Maynard Oil
stock price a year ago.
General. This summary is not a complete description of the analysis
performed by William Blair but contains all material elements of the analysis.
The preparation of a fairness opinion involves determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances. Therefore, such an opinion is not
readily susceptible to summary description. The preparation of a fairness
opinion does not involve a mathematical evaluation or weighing of the results of
the individual analyses performed, but requires William Blair to exercise its
professional judgment, based on its experience and expertise in considering a
wide variety of analyses taken as a whole. Each of the analyses conducted by
William Blair was carried out in order to provide a different perspective on the
merger and add to the total mix of information available. William Blair did not
form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness. Rather, in
reaching its conclusion, William Blair considered the results of the analyses in
light of each other and ultimately reached its opinion based on the results of
all analyses taken as a whole. William Blair did not place particular reliance
or weight on any particular analysis, but instead concluded its analyses, taken
as a whole, supported its determination. Accordingly, notwithstanding the
separate factors summarized above, William Blair believes that its analyses must
be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, may
create an incomplete view of the evaluation process underlying its opinion. No
company or transaction used in the above analyses as a comparison is directly
comparable to Maynard Oil or the merger. In performing its analyses, William
Blair made numerous assumptions with respect to industry performance, commodity
prices, business and economic conditions, and other matters. The analyses
performed by William Blair are not necessarily indicative of future actual
values and future results, which may be significantly more or less favorable
than suggested by such analyses.
William Blair is a nationally recognized firm and, as part of its
investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with merger transactions and other
types of strategic combinations and acquisitions. William Blair acted as Maynard
Oil's financial advisor in connection with, and participated in certain of the
negotiations leading to, the merger agreement. In the ordinary course of its
-21-
business, William Blair and its affiliates may trade shares of the Company's
common stock for their own accounts and for the accounts of their customers and
accordingly may hold a long or short position in these securities.
Maynard agreed to pay William Blair a fee equal to 1.25% of the
transaction value paid in the merger. A significant portion of that fee is
contingent upon completion of the merger. $500,000 of this fee was paid to
William Blair after it delivered its fairness opinion to Maynard Oil's board of
directors. Also, Maynard Oil agreed to indemnify William Blair and its
affiliates against certain liabilities, including liabilities arising under
applicable securities laws and its out-of-pocket expenses.
William Blair was not retained as an advisor or agent to Maynard Oil's
Stockholders or any other person other than as an advisor to Maynard Oil's board
of directors. Maynard Oil's board of directors and Plantation determined the
proposed transaction in arms'-length negotiations in which William Blair advised
Maynard Oil's board of directors. The Company's board of directors did not
impose any restrictions or limitations upon William Blair with respect to the
investigations made or the procedures that William Blair followed in rendering
its opinion.
THE MERGER AGREEMENT
The following discussion summarizes the material terms of the merger
agreement. The discussion does not, however, contain a complete statement of all
provisions of the merger agreement and is qualified in its entirety by reference
to the merger agreement. A copy of the merger agreement is attached as Annex A
to this proxy statement and is incorporated in this proxy statement by
reference. Stockholders should read the merger agreement because it, and not
this proxy statement, is the legal document that governs the merger.
In addition to providing for the merger of Plantation Petroleum
Acquisition into Maynard Oil and the conversion of Maynard Oil common stock into
cash, the merger agreement contains many other provisions, some of which are
discussed in this section.
REPRESENTATIONS AND WARRANTIES
Maynard Oil, Plantation Petroleum Holdings and Plantation Petroleum
Acquisition each made a number of representations and warranties in the merger
agreement regarding various aspects of their respective businesses and other
facts relevant to the merger .
Representations and Warranties of Maynard Oil. Maynard Oil's
representations and warranties include representations as to:
0 Maynard Oil's corporate organization and good standing;
0 Maynard Oil's capital structure and capitalization;
0 Maynard Oil's subsidiary;
0 the authorization and enforceability of the merger agreement;
0 the absence of a conflict with any charter document, agreement,
law or governmental order applicable to us;
0 regulatory filings, consents or approvals required to complete the
merger;
0 Maynard Oil's SEC filings;
0 Maynard Oil's business and any changes in Maynard Oil's business
since December 31, 2001;
0 this proxy statement;
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0 Maynard Oil's compliance with laws;
0 Maynard Oil's taxes;
0 Maynard Oil's liabilities and obligations;
0 Maynard Oil's litigation;
0 Maynard Oil's employee benefit plans, employees and labor matters;
0 Maynard Oil's broker, William Blair & Company, L.L.C.;
0 payments required to be made by us to brokers and agents as a
result of the merger;
0 Maynard Oil's board's adoption of the merger and the merger
agreement;
0 the Stockholder vote required to approve the merger and the merger
agreement;
0 Maynard Oil's environmental compliance;
0 Maynard Oil's contracts;
0 Maynard Oil's oil and gas properties;
0 Maynard Oil's intellectual property rights;
0 the estimates of Maynard Oil's oil and gas reserves contained in
Maynard Oil's reserve report;
0 Maynard Oil's drilling obligations; and
0 Maynard Oil's wells.
Representations and Warranties of Plantation Petroleum Holdings and
Plantation Petroleum Acquisition. The representations and warranties of
Plantation Petroleum Holdings and Plantation Petroleum Acquisition include
representations as to:
0 their corporate organization, power and authority;
0 the authorization and execution of the merger agreement and
related matters;
0 the absence of a conflict with any charter document, agreement,
law or governmental order applicable to Plantation Petroleum
Holdings or Plantation Petroleum Acquisition;
0 Plantation's financial statements;
0 Plantation's business and any changes in their business since
April 23, 2002;
0 information supplied by Plantation Petroleum Holdings in this
proxy statement;
0 Plantation's business and absence of changes from April 22, 2002;
0 the lack of any other activities by Plantation Petroleum
Acquisition since its formation;
0 Plantation's litigation;
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0 payments required to be made by Plantation Petroleum Holdings to
brokers and agents as a result of the merger;
0 the availability of funds to complete the merger;
0 the fact that neither of them own any Maynard Oil stock; and
0 Plantation's fair market value determination of Maynard Oil's oil
and gas reserves.
The representations and warranties of Maynard Oil, Plantation Petroleum
Holdings and Plantation Petroleum Acquisition will expire upon the completion of
the merger.
COVENANTS
The merger agreement contains a number of covenants, most of which
provide limitations within which we will operate Maynard Oil's business until
the merger is completed. These covenants include the following.
Conduct of Maynard Oil's Business Pending the Merger. From the date of
the merger agreement until completion of the merger we will:
0 operate in the ordinary and usual course of business as we have in
the past twelve months, in compliance with applicable laws.
From the date of the merger agreement until completion of the merger,
without the consent of Plantation, we will not, and will not authorize, commit
or agree to:
0 split, combine or reclassify any of Maynard Oil's stock;
0 declare, set aside or pay any dividends on, or make any other
distributions on Maynard Oil's stock;
0 issue, deliver, sell, transfer, pledge or subject to any lien any
shares of stock, warrants, options or other securities of Maynard
Oil;
0 amend Maynard Oil's charter or bylaws;
0 merge, liquidate, consolidate or reorganize Maynard Oil or Maynard
Oil's subsidiary;
0 acquire or agree to acquire any other business or company or their
assets, which are worth more than $50,000 individually or $100,000
in the aggregate;
0 sell,lease, license, farm out, mortgage or encumber or subject to
any lien or otherwise dispose of any of Maynard Oil's material oil
and gas properties;
0 make any change in Maynard Oil's method of accounting;
0 make any material tax election, compromise or settle any tax
liability, or amend any tax return;
0 incur any indebtedness or guarantee any indebtedness of another
business;
0 issue or sell any debt securities, warrants, calls or other rights
to acquire any debt securities of Maynard Oil or any of its
subsidiaries or any debt securities of another company;
0 increase Maynard Oil's debt, make any loans, advances or capital
contributions to, or investments in, any other business, or enter
into any commodity price hedging agreements;
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0 pay, discharge, settle or satisfy any material claims,
liabilities, obligations or litigation;
0 adopt a plan of liquidation, merger, recapitalization or other
plan to acquire Maynard Oil's shares;
0 enter into, adopt or amend in any material respect or terminate
any employee benefit plan or similar policy or agreement;
0 except for normal increases, increase the compensation of any
director, officer, employee or agent or consultant or pay any
benefit not required by an employee benefit plan or other
arrangement;
0 modify, amend, alter or change terms, provisions or rights and
obligations of any material contracts;
0 allow any insurance policy naming Maynard Oil or Maynard Oil's
subsidiary as beneficiary or loss payee to be cancelled or
terminated;
0 settle or compromise any pending or threatened litigation;
0 enter into any contract or agreement that materially limits
Maynard Oil's ability to engage in or compete in any business or
in any geographic area; or
0 enter into any contract or agreement to do any of the above
activities.
Access to Information. Upon reasonable notice, we have agreed to give
Plantation and its representatives access to Maynard Oil's properties, books,
records, employees and other service providers.
Stockholder Meeting. Maynard Oil has agreed to call a Stockholder
meeting to vote on the merger agreement, and recommend approval of the merger
agreement to Maynard Oil's Stockholders. Subject to its fiduciary duties,
Maynard Oil's board has agreed not to withdraw or modify its recommendation of
the merger.
Acquisition Proposals. Until completion of the merger, Maynard Oil has
agreed not to:
0 directly or indirectly initiate, solicit, encourage or knowingly
facilitate any inquiries or the making of any acquisition proposal
or offer with respect to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Maynard
Oil, any purchase or sale of Maynard Oil's assets or securities,
or any tender or exchange offer; or
0 directly or indirectly, have any discussion with or provide any
confidential information or data to any third party relating to an
acquisition proposal, or engage in any negotiations concerning an
acquisition proposal, or knowingly facilitate any effort or
attempt to make or implement an acquisition proposal or accept an
acquisition proposal.
However, in response to an acquisition proposal from a third party, we
may furnish information to, and negotiate, explore or otherwise engage in
substantive discussions with that third party, only if Maynard Oil's board of
directors concludes in good faith, after consultation with Maynard Oil's
financial advisors and legal counsel, that the acquisition proposal may
reasonably be expected to lead to a transaction that is more favorable to
Maynard Oil's Stockholders from a financial point of view than the transactions
contemplated by the merger agreement.
If Maynard Oil's board determines that in response to a superior
acquisition proposal we must withdraw or modify Maynard Oil's recommendation
that the Stockholders approve and adopt the merger agreement, we may do so, but
we must give Plantation at least three business days written notice of the
proposal, specifying the company making the proposal and the terms and
conditions of the proposal. If the merger agreement is terminated because of
Maynard Oil's determination to pursue a superior acquisition proposal, Maynard
Oil must pay Plantation $1,500,000.
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Maynard Oil has not received any acquisition proposals from third
parties since we entered into the merger agreement.
Employee Benefit Matters. Maynard Oil has agreed, prior to the
effective time of the merger, to take all necessary action so that employees of
the Company before the merger remain employees of the Company after the merger.
Public Announcements. Maynard Oil and Plantation have agreed to
consult with each other concerning press releases and other similar
communications.
Expenses. All expenses relating to the merger will be paid by the party
incurring the expense, except the corporation surviving the merger will pay all
applicable property or transfer taxes.
Indemnification of Maynard Oil's Officers, Directors and Employees. For
a discussion of the provisions of the merger agreement concerning
indemnification of Maynard Oil's officers, directors and employees, see
"Indemnification; Directors and Officers Insurance" on page 17.
CONDITIONS TO THE MERGER
Due Diligence Investigation of Oil and Gas Properties. The merger
agreement permitted Plantation to do additional due diligence investigations of
title, environmental matters and material contracts related to Maynard Oil's oil
and gas properties. Plantation had until June 20, 2002 to advise us of the
existence of $2.5 million or more of undisclosed defects in order to terminate
the merger agreement. Plantation did not provide notice of defects prior to the
June 20 deadline. [Proxy Statement will not be mailed until the deadline has
passed.]
Conditions to Completion of the Merger. The obligations of Maynard Oil,
Plantation Petroleum Holdings, LLC and Plantation Petroleum Acquisition to
complete the merger are subject to the following conditions:
0 the Stockholders must approve and adopt the merger agreement; and
0 no temporary restraining order, decree, ruling or injunction or
other order of a court or other governmental entity or can be in
effect directing that the merger not be completed or making the
merger illegal.
TERMINATION OF THE MERGER AGREEMENT
Either Maynard Oil or Plantation may terminate the merger agreement in
any of the following circumstances:
0 at any time before the merger by mutual written consent of
Plantation Petroleum Holdings, Plantation Petroleum Acquisition
and Maynard Oil;
0 if the merger has not been completed October 31, 2002, with some
exceptions; and
0 if any law or regulation makes completion of the merger illegal or
if the merger is prohibited by any judgment, injunction, order or
decree and no appeal of this judgment, injunction, order or decree
is possible.
Plantation Petroleum Holdings may terminate the merger agreement in any
of the following circumstances:
0 if Maynard Oil breaches any of Maynard Oil's covenants,
obligations or other agreements or Maynard Oil's representations
are no longer true and correct in a way that would have a material
adverse effect on Maynard Oil, although Maynard Oil has the
ability to cure breaches in some situations within fifteen (15)
days of Plantation's notice to use of the breach; or
-26-
0 if Maynard Oil's board of directors notifies Plantation of its
intention to pursue a superior acquisition proposal and does not
withdraw the notice within three business days. Termination under
these circumstances would entitle Plantation to the $1,500,000
termination fee.
We may terminate the merger agreement in any of the following
circumstances:
0 if Plantation Petroleum Holdings or Plantation Petroleum
Acquisition breaches any of their covenants, obligations or other
agreements or their representations are no longer true and correct
in a way that would have a material adverse effect on Plantation,
although Plantation Petroleum Holdings or Plantation Petroleum
Acquisition have the ability to cure breaches in some situations
within fifteen (15) days of or notice to Plantation of the breach;
or
0 if Maynard Oil's board of directors terminates the merger
agreement to pursue a superior acquisition proposal and pays
Plantation a $1,500,000 termination fee.
The termination fee provisions permit Maynard Oil's board to terminate
the merger agreement and pursue a superior acquisition proposal, subject to
paying Plantation a $1,500,000 termination fee. However, the existence of a
termination fee provision also may reduce the amount that a third party would be
willing to pay to acquire Maynard Oil's company. The amount of the termination
fee was reached through arm's length negotiations with Plantation and was in the
lower range of termination fees in similar transactions with which Maynard Oil
was familiar.
EFFECT OF TERMINATION
If the merger agreement is terminated, the merger will be abandoned and
the merger agreement will be void, except that agreements concerning
confidentiality, payment of expenses and representations and warranties
concerning brokers and investment bankers will remain in effect. The termination
of the merger agreement will not result in liability on the part of any party or
its affiliates, directors, officers or Stockholders, except for payment of the
$1,500,000 termination fee in certain circumstances.
EXTENSION, AMENDMENT AND WAIVER OF THE MERGER AGREEMENT
The merger agreement provides that Plantation and Maynard Oil may agree
to:
0 amend the merger agreement before the approval of Maynard Oil's
Stockholders has been obtained;
0 extend the time for the performance of any of the obligations or
other acts of the other parties to the merger agreement;
0 waive any inaccuracies in the representations and warranties
contained in the merger agreement or in any document delivered
pursuant to the merger agreement; or
0 waive compliance with any of the agreements or conditions
contained in the merger agreement.
INFORMATION ABOUT MAYNARD OIL COMPANY
THE COMPANY
Maynard Oil Company is a Delaware corporation which was organized in
1971 to continue the oil and gas operations conducted on an individual basis by
its founders, including Mr. James G. Maynard, its Chairman of the Board and
Chief Executive Officer. Maynard Oil's principal executive office is located at
8080 N. Central, Ste. 660, Dallas, Texas 75206, and its telephone number is
(214) 891-8880.
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Maynard Oil's principal line of business is the production and sale of,
and exploration and development of crude oil and natural gas. Maynard Oil's oil
and gas operations are conducted exclusively in the United States, primarily in
the states of Texas, Oklahoma, Louisiana, New Mexico and Arkansas.
Further information on Maynard Oil's business and operations, including
financial information and oil and gas reserves, is contained in the Company's
annual report on Form 10-K for the year ended December 31, 2001 and Maynard
Oil's quarterly report for the three months ended March 31, 2002 on Form 10-Q,
copies of which are attached hereto beginning on page F-1.
During May, 2002, Maynard Oil entered into a derivative financial
instrument (collar) whereby Maynard Oil hedged 2,400 barrels of daily production
from June 1, 2002 through May 31, 2003 with a ceiling price of $29.19 per barrel
and a floor price of $20.00 per barrel. This agreement provides for monthly
financial settlements between the two parties should either the floor or ceiling
amounts be exceeded.
MARKET PRICE
Our common stock is quoted on Nasdaq under the ticker symbol "MOIL."
The following table lists the high and low sale prices for Maynard Oil's common
stock for the periods indicated, all as reported on Nasdaq:
HIGH LOW
---- ---
1999 Calendar Year
Quarter ended March 31 $ 8.6875 $ 7.00
Quarter ended June 30 $ 10.375 $ 8.25
Quarter ended September 30 $ 10.875 $ 9.375
Quarter ended December 31 $ 12.00 $ 9.50
2000 Calendar Year
Quarter ended March 31 $ 26.125 $ 9.875
Quarter ended June 30 $ 19.1875 $ 10.125
Quarter ended September $ 22.875 $ 14.75
Quarter ended December 31 $ 23.125 $ 15.25
2001 Calendar Year
Quarter ended March 31 $ 19.00 $ 15.75
Quarter ended June 30 $ 21.50 $ 15.25
Quarter ended September 30 $ 25.07 $ 18.75
Quarter ended December 31 $ 24.00 $ 17.40
2002 Calendar Year
Quarter ended March 31 $ 22.00 $ 17.50
Quarter through June $ $
On April 25, 2002, the last trading day before announcement of the
merger agreement, the closing price of Maynard Oil common stock as reported by
Nasdaq was $18.20 per share. On __________, 2002, the closing price of Maynard
Oil common stock as reported on Nasdaq was $_____ per share. Maynard Oil urges
Stockholders to obtain current market quotations before voting on the merger
agreement.
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MAYNARD OIL'S BOARD OF DIRECTORS AND MANAGEMENT
Information about each director of Maynard Oil is set forth below.
POSITION WITH MAYNARD OIL COMPANY, BUSINESS
NAME AGE EXPERIENCE AND OTHER DIRECTORSHIPS
- ---- --- ----------------------------------
Ralph E. Graham 82 Director of the Company since 1993.
Independent oil and gas producer
James G. Maynard 76 Chief Executive Officer and Chairman of the
board of the Company since its
incorporation in 1971.
Robert B. McDermott 74 Director of the Company since 1971.
Business consultant.
Fred L. Oliver 78 Director of the Company since 2001.
Independent consulting geologist and
engineer.
Information about the executive officers of Maynard Oil is set forth
below.
EXECUTIVE OFFICERS OF MAYNARD OIL COMPANY
NAME POSITION AGE SINCE
- ---- -------- --- -----
James G. Maynard Chairman of the Board, Chief Executive 76 1971
Officer and Treasurer
Glenn R. Moore President and Chief Operating Officer 64 1982
L. Brent Carruth Executive Vice President of Operations 68 1984
Kenneth W. Hatcher Executive Vice President of Finance 58 1983
Linda K. Burgess Vice President of Accounting and 53 1984
Corporate Secretary
Cassondra Foster Vice President of Land 59 1999
Jerry G. Keen Vice President of Engineering 53 1999
Mr. Maynard has been a director since 1971 and engaged in oil and gas
exploration as an independent operator and private investor for the past 40
years.
Mr. Moore has over 35 years experience in domestic and foreign oil and
gas exploration and production. Prior to joining Maynard Oil in November, 1982,
Mr. Moore served as President of Shannon Oil and Gas, Inc. and Hanover Petroleum
Corporation.
Mr. Carruth has over 35 years of petroleum engineering experience.
Prior to joining Maynard Oil in January, 1984, he served for one year as Vice
President of Operations of Cordova Resources. Preceding that, Mr. Carruth was a
petroleum consultant for three years and served as Manager of Engineering of
Texas Pacific Oil Company for eight years.
Mr. Hatcher has over 35 years of finance and accounting experience in
the oil and gas industry and is a Certified Public Accountant. Prior to joining
Maynard Oil in February, 1983, Mr. Hatcher served as Controller and
-29-
Vice President of Finance of Shannon Oil and Gas, Inc. for three years and as
Controller and Vice President of Hanover Petroleum Corporation for four years.
Ms. Burgess has in excess of 30 years of oil and gas accounting
experience. Prior to joining Maynard Oil in May, 1984, Ms. Burgess served as
Controller for Trans-Western Exploration Inc. for four years and as Controller
for Energy Resources Oil and Gas for three years.
Ms. Foster has over 30 years of petroleum land management experience,
joining Maynard Oil Company's Land Department in 1974. Prior to that Ms. Foster
was a Title Analyst for Texas Oil & Gas.
Mr. Keen has over 30 years of petroleum engineering experience and has
been employed by Maynard Oil Company since 1984.
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT OF MAYNARD OIL
The table below sets forth each Stockholder who, based on public
filings, is known to Maynard Oil to be the beneficial owner of more than 5% of
the Company's common stock as of April 15, 2002. On the date of this proxy
statement, 4,880,368 shares of the Company's common stock were issued and
outstanding.
NAME OF BENEFICIAL OWNER NUMBER OF SHARES(1) PERCENT OF CLASS
- ------------------------ ------------------- ----------------
James G. Maynard 2,756,596(2) 56.48
9933 Lawler Avenue
Suite 344
Skokie, IL 60077
Franklin Resources, Inc.(3) 465,000 9.53
777 Mariners Island Blvd.
San Mateo, CA 94404
Dimensional Fund Advisors Inc.(4) 394,000 8.07
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
FMR Corp.(5) 488,000 10.00
82 Devonshire Street
Boston, MA 02109
Robert B. McDermott 5,000 0.10
Ralph E. Graham 2,200 0.05
Fred L. Oliver 2,000 0.04
Glenn R. Moore -- --
L. Brent Carruth -- --
Kenneth W. Hatcher -- --
Jerry G. Keen -- --
All directors and executive officers 2,765,796 56.67
as a group (10 persons)
- ------------------
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(1) In accordance with regulations of the Securities and Exchange Commission,
stock ownership reflects shares with respect to which the director,
nominee, principal stockholder or executive officer has voting power or
investment power, or has a right to acquire such power. Each director,
nominee, principal stockholder or executive officer has both sole voting
power and sole investment power with respect to the shares set forth in
the table. Beneficial ownership is disclaimed by each director, nominee,
principal stockholder or executive officer of shares listed of which he or
it would not, but for Rule 13d-3 under the Securities Exchange Act of
1934, be deemed to be the beneficial owner.
(2) Includes 300,000 shares held of record by a corporation controlled by Mr.
Maynard; 10,000 shares held of record by Joan B. Maynard, spouse of James
G. Maynard, as trustee of a trust for her benefit; and 2,446,596 shares
held of record by Mr. Maynard, as trustee of a trust for his benefit.
(3) According to a Form 13G dated February 2, 2001 filed with the Securities
and Exchange Commission, these shares are beneficially owned by one or
more open or closed-end investment companies or other managed accounts
which are advised by direct and indirect investment advisory subsidiaries
of Franklin Resources, Inc. Advisory contracts grant to the advisory
subsidiaries all investment and/or voting power over the securities owned
by such advisory clients, and therefore, the advisory subsidiaries may be
deemed to be the beneficial owner of the shares listed above.
Additionally, Charles B. Johnson and Rupert H. Johnson, Jr. each own in
excess of 10% of the outstanding common stock of Franklin Resources and
are the principal stockholders of Franklin Resources and may be deemed to
be the beneficial owner of shares held by persons and entities advised by
Franklin Resources subsidiaries.
(4) According to a Form 13G dated January 30, 2002 filed with the Securities
and Exchange Commission, Dimensional Fund Advisers, Inc., a registered
investment adviser, furnishes investment advice to four investment
companies and serves as investment manager to certain other investment
vehicles, including commingled group trusts and separate accounts(these
investment companies, trusts, and accounts are the "Funds"). In its role
as investment adviser or manager, Dimensional possesses both voting and/or
investment power over the shares owned by the Funds and may be deemed to
be the beneficial owner of such shares.
(5) According to a Form 13G dated February 14, 2002 filed with the Securities
and Exchange Commission, FMR Corp. is the parent holding company which has
the right to receive or the power to direct the receipt of dividends or
the proceeds from the sale of the above referenced securities through its
wholly-owned subsidiary Fidelity Management & Research Company, on behalf
of Fidelity Low-Priced Stock Fund, a registered investment company, and as
such, FMR and Fidelity may be deemed to be the beneficial holder's of such
shares. Additionally, Edward C. Johnson, 3d, Abigail P. Johnson, and
members of the Edward C. Johnson, 3d family are the predominant owners of
common stock of FMR Corp. and may be deemed to be the beneficial owners of
shares held by persons and/or entities advised by FMR Corp.
SUMMARY OF FEES BILLED TO MAYNARD OIL BY INDEPENDENT ACCOUNTANTS
AUDIT FEES
The aggregate fees billed by PricewaterhouseCoopers LLP for
professional services rendered in connection with (I) the audit of Maynard Oil's
annual financial statements set forth in the Report on Form 10-K for the year
ended December 31, 2001, and (ii) the review of the Company's quarterly
financial statements set forth in the Company's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 2001, June 30, 2001 and September 30, 2001,
were approximately $70,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed to Maynard Oil by PricewaterhouseCoopers LLP
in this category for the most recent fiscal year.
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ALL OTHER FEES
The aggregate fees for all other services rendered by
PricewaterhouseCoopers LLP for Maynard Oil's most recent fiscal year were
estimated to be approximately $22,000. These fees include work performed by the
independent accountants with respect to income tax compliance and consultation
in connection with the potential merger.
INFORMATION ABOUT PLANTATION PETROLEUM HOLDINGS, LLC
Plantation Petroleum Holdings, a Delaware limited liability company, is
a privately owned exploration and production company that is actively engaged in
acquiring, developing and producing oil and gas properties. Plantation Petroleum
Holdings was formed in anticipation of entering into the merger agreement with
Maynard Oil and has not conducted any business operations. The principal
executive offices of Plantation Petroleum Holdings are located at 14520
Wunderlich, Suite 200, Houston, Texas 77069, telephone (281) 444-3156.
Plantation Petroleum Acquisition is a newly formed Delaware
corporation, and wholly owned subsidiary of Plantation Petroleum Holdings.
Plantation Petroleum Acquisition was formed solely for the purpose of entering
into the merger agreement with Maynard Oil and has not conducted any business
operations. The principal executive offices of Plantation Petroleum Acquisition
are located at 14520 Wunderlich, Suite 200, Houston, Texas 77069, telephone
(281) 444-3156.
FORWARD-LOOKING STATEMENTS
This proxy and the documents that are attached or incorporated by
reference in this proxy statement contain statements that are not historical
facts. These statements are called "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements involve important known and
unknown risks, uncertainties and other factors and can be identified by phrases
using "estimate," "anticipate," "believe," "project," "expect," "intend,"
"predict," "potential," "future," "may," "should" and similar expressions or
words.
Maynard Oil's future results, performance or achievements may differ
materially from the results, performance or achievements discussed in the
forward-looking statements. There are numerous factors that could cause actual
results to differ materially from the results discussed in forward-looking
statements, including the impact that the following factors can have on Maynard
Oil's business and the energy resource industry in general:
0 Lack of geographical diversity: due to Maynard Oil's concentration
in Oklahoma and West Texas, Maynard Oil is susceptible to regional
factors that may place us at a disadvantage relative to Maynard
Oil's competitors; these regional factors include: regional
disasters, such as tornadoes, floods and wind storms; or
particularly harmful changes in state or local laws.
0 Changes in competition and pricing environments: if competition
increases in segments of the energy resource industry, larger
companies with greater capital reserves and greater
diversification may have more options at their disposal for
handling increased competition than we do.
0 Risks incident to the drilling and operation of natural gas and
oil wells.
0 Changes in future production development costs.
0 Inaccuracies inherent in modern methods of estimating underground
reserves: differences between these estimates and the actual
amount of reserves could impair any plans or forecasts that we
made based on the estimates.
0 Changes in existing energy resource industry laws or the
introduction of new laws, regulations or policies that could
affect Maynard Oil's business practices: these laws, regulations
or policies could impact the energy industry as a whole, or could
impact only those portions of the energy resource
-32-
industry in which we are currently active, for example, laws
regulating natural gas; in either case, Maynard Oil's
profitability could be injured due to an industry-wide market
decline or due to Maynard Oil's inability to compete with other
energy resource industry companies that are unaffected by these
laws, regulations or policies.
0 Changes in environmental laws and regulations could be harmful if
they:
o impact the energy resource industry as a whole, causing market
decline;
o impact those segments of the economy on which we rely heavily,
such as natural gas; or
o are concentrated in Oklahoma and West Texas, within which we
conduct a large percentage of Maynard Oil's business.
0 Prices of relevant commodities: these prices can, of course, be
affected not only by matters outside of Maynard Oil's control, but
also by matters entirely outside of the control of the United
States, such as actions of the Organization of Petroleum Exporting
Countries.
This list provides examples of factors that could affect the results
described by forward-looking statements contained in this proxy statement.
However, this list is not intended to be exhaustive; many other factors could
impact Maynard Oil's business and it is impossible to predict with any accuracy
which factors could result in which negative impacts. Although we believe that
the forward-looking statements contained in this proxy statement are reasonable,
Maynard Oil cannot provide the Stockholders with any guarantee that the
anticipated results will be achieved. All forward-looking statements in this
proxy statement are expressly qualified in their entirety by the cautionary
statements contained in this section and the Stockholders are cautioned not to
place undue reliance on the forward-looking statements contained in this proxy
statement. In addition to the risks listed above, other risks may arise in the
future, and Maynard Oil disclaims any obligation to update information contained
in any forward-looking statement.
As noted throughout this proxy statement, the merger will not occur
unless Maynard Oil's Stockholders approve the merger agreement. Furthermore,
even if Maynard Oil's Stockholders approve the merger agreement, the merger is
subject to conditions in addition to Stockholder approval. These conditions are
discussed under the heading "Conditions to the Merger" beginning on page ___.
Because of these conditions, Maynard Oil cannot assure the Stockholders that the
merger will occur.
OTHER INFORMATION
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
Maynard Oil files annual, quarterly and other current reports, proxy
statements and other information with the SEC. Stockholders may read and copy
these reports, proxy statements and other information at the public reference
rooms of the SEC located at:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 450 Fifth Street, NW Suite 1400
Washington, D.C. 20549 13th Floor New York, New York 10048
Chicago, Illinois 60661
Copies of these materials also can be obtained from the SEC Public
Reference Section at the Washington, D.C. address noted above at prescribed
rates. Information regarding the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that
contains reports, proxy statements and other information regarding us. The
address of the website is http://www.sec.gov.
-33-
Copies of these materials (other than certain exhibits to them) are
also available without charge to each person to whom this proxy statement is
delivered, upon written or oral request to: Secretary, Maynard Oil Company, 8080
North Central Expressway, Suite 660, Dallas, Texas 75206.
STOCKHOLDER PROPOSALS
If We Complete the Merger. If Maynard Oil completes the merger, Maynard
Oil will no longer have public Stockholders. Accordingly, neither Maynard Oil's
2002 annual meeting of Stockholders, nor any subsequent annual meetings, will be
held.
If We Do Not Complete the Merger. If Maynard Oil does not complete the
merger, we will hold an annual meeting of Stockholders in 2002. In that case, if
a Stockholder is still a Stockholder of record as of the record date for that
meeting, Stockholders would be entitled to attend and vote at that meeting.
If Maynard Oil does not complete the merger and, as a result, call an
annual meeting of Stockholders in 2002, the deadline for submitting Stockholder
proposals is a reasonable time before we begin printing and mailing the proxy
statement and form of proxy relating to that meeting.
Stockholder proposals intended for inclusion in the proxy statement and
form of proxy statement relating to that meeting (if there is one) should be
made in accordance with Rule 14a-8 under the Securities Exchange Act of 1934.
All Stockholder proposals should be addressed to the attention of the Secretary
of Maynard Oil Company, 8080 North Central Expressway, Suite 660, Dallas, Texas
75206.
OTHER
We have not authorized anyone to give any information or to make any
representation other than contained in this proxy statement in connection with
the merger and related transactions. If anyone gives any information or makes
representations, you must not regard it as having been authorized by us or
Plantation. The delivery of this proxy statement shall not under any
circumstances, create an implication that there has been no change in the facts
set forth in this proxy statement since the date of this proxy statement. This
proxy statement does not constitute an offer or a solicitation to buy securities
where, or to any person to whom, it is unlawful to make an offer or
solicitation.
By Order of the Board of Directors
James G. Maynard, Chairman
June __, 2002
-34-
INDEX TO MAYNARD OIL
FINANCIAL STATEMENTS
PAGE
----
1. Maynard Oil 10-K...................................................F-2
2. Maynard Oil 10-K (Amendment No. 1).................................F-46
3. Maynard Oil 10-Q...................................................F-54
F-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to
---------- --------
Commission file number 0-5704
------
MAYNARD OIL COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1362284
- ------------------------------------------------- ---------------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8080 N. Central Expressway, Suite 660, Dallas, TX 75206
- ------------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214)891-8880
----------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.10 Par Value
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
While it is difficult to determine the number of shares owned by non-affiliates
(within the meaning of the term under the applicable regulations of the
Securities and Exchange Commission), the Registrant estimates that the aggregate
market value of its Common Stock held by non-affiliates on March 18, 2002 was
$41,090,752 (based upon an estimate that 43.4% of the shares are so owned by
non-affiliates and upon the closing price for the Common Stock as reported by
NASDAQ (NMS)).
The number of shares outstanding of the Registrant's $.10 par value common stock
as of March 18, 2002 was 4,880,368 shares.
The following documents are incorporated into this Form 10-K by reference: Proxy
Statement for Annual Meeting of Stockholders - Part III of Form 10K.
-1-
PART I.
ITEM 1. BUSINESS
THE COMPANY
Maynard Oil Company is a Delaware corporation which was organized in
1971 to continue the oil and gas operations conducted on an individual basis by
its founders, including Mr. James G. Maynard, its Chairman of the Board and
Chief Executive Officer. The Company's principal executive office is located at
8080 N. Central, Ste. 660, Dallas, Texas 75206, and its telephone number is
(214) 891-8880. Unless the context requires otherwise, as used herein, the term
"Company" refers to Maynard Oil Company and its wholly-owned subsidiary.
The Company's principal line of business is the production and sale of,
and exploration and development of crude oil and natural gas. The Company's oil
and gas operations are conducted exclusively in the United States, primarily in
the states of Texas, Oklahoma, Louisiana, New Mexico and Arkansas.
POSSIBLE SALE OF THE COMPANY
In July 2001, the Board of Directors announced that it was exploring
strategic alternatives, including a potential merger or sale of the Company. It
retained William Blair & Company as its financial advisor and McDermott, Will &
Emery as its legal counsel to assist in the evaluation of strategic
alternatives.
The Company contacted potential acquirors in the oil and gas industry
and provided information to parties expressing interest in a business
combination transaction. In December 2001, the Board of Directors announced that
it had received expressions of interest from a number of strategic buyers
regarding the possible acquisition of the Company. While the Board found the
valuations disappointing, the Board authorized continued exploration of a
possible sale or merger of the Company.
As of March 31, 2002, the Company was engaged in discussions concerning
a possible merger of the Company, although the proposals by potential acquirors
involve a price to the Company's stockholders below the recent trading range for
the Company's stock.
The Company's Board of Directors cautions that there can be no
guarantee that the Company would enter into a transaction to sell Maynard Oil or
any other transaction.
RECENT ACQUISITION ACTIVITIES
Since January 1, 2001, the Company has spent approximately $12.9
million increasing its working interest position in the Tex-Mex field
-2-
located in Gaines County, Texas. The Company estimates that approximately
1,056,000 barrels of oil and 1.5 bcf of gas were added to its hydrocarbon
reserve base through these transactions.
OIL AND GAS OPERATIONS
The Company is an independent oil and gas company, engaged primarily in
the production and exploration phases of the oil and gas business. Company
operations include acquiring, exploring, developing, and operating crude oil and
natural gas properties.
The Company seeks to accomplish its overall goal of increasing
hydrocarbon reserves and cash flow by selectively acquiring and exploiting
producing oil and gas properties. When possible, the Company acquires producing
properties on which it can act as operator, and thus, supervise production and
development activities.
A total of forty-nine wells were drilled in 2001, one of which was an
exploratory well operated by Maynard, which failed to find commercial quantities
of hydrocarbons. Another eight wells were completed as injection wells on
waterflood projects operated by other companies. Additionally, the Company
participated in drilling forty productive development wells, seven completed as
gas producers and thirty-three as successful oil wells. Maynard served as
operator on fourteen of these forty wells.
Prices realized from the sale of oil and gas from the Company's wells
depend on numerous factors beyond the control of the Company, including the
amount of domestic production, the importation of oil, the proximity of the
Company's property to natural gas pipelines and the capacity of such pipelines,
the market for other competitive fuels, fluctuations in seasonal demand, and
governmental regulations relative to hydrocarbon production and pricing. The
production of oil and gas is also subject to the laws of supply and demand, and
therefore, is subject to purchaser cutbacks and price reductions during periods
of oversupply. At December 31, 2001, approximately 68% of the Company's
estimated proved reserves and 64% of the 2001 production, were attributable to
crude oil and condensate on a net equivalent barrel basis (net equivalent barrel
"NEB" uses a conversion ratio of six thousand cubic feet of gas (MCF) to one net
equivalent barrel of oil) and consequently, the Company is primarily impacted by
oil markets.
As described above, the Company was successful in adding to its
hydrocarbon reserve base, the underlying asset for an oil and gas company,
through current year producing property acquisitions and development drilling on
existing Company properties. Because of these acquisitions and drilling
activities, oil production volumes rose approximately 6% and gas production
increased almost 26% over the prior year. Average gas prices experienced a
modest increase from $3.90 per mcf in 2000 to $4.00 per mcf in 2001. However,
oil prices fell an average of $4.10 per barrel (from an average of $27.36 per
barrel received in 2000 to an average of $23.26 per barrel in 2001), once again
-3-
illustrating the challenges and volatility experienced by the domestic oil and
gas business and how it is affected by conditions beyond the control of the
Company.
During the year ended December 31, 2001, two purchasers accounted for
approximately 17% and 13%, respectively, of consolidated revenues. The Company
does not believe it would be adversely affected by the loss of its oil or gas
purchasers due to large numbers of available purchasers.
The market price for natural gas has also fluctuated significantly from
month to month and year to year for the past several years. Like the oil market,
the Company cannot predict gas price movements with any certainty.
Except for curtailed exploration and production activity occasionally
experienced in severe weather and normal curtailments of gas sales in summer
months, the Company does not consider its business to be seasonal and does not
carry significant amounts of inventory.
GENERAL
The oil and gas business involves intense competition in all of its
phases and, because of its size, the Company is not a significant competitive
factor in the industry. In its efforts to acquire property rights, the Company
competes with many companies having access to substantially greater financial
resources and larger technical staffs.
The Company's oil and gas exploration efforts often involve exploratory
drilling on unproven acreage involving high risks. There is no assurance that
any oil or gas production will be obtained, or that such production, if
obtained, will be profitable. The cost of drilling, completing and operating
wells is often uncertain. Drilling may be curtailed or delayed as a result of
many factors, including title problems, weather conditions, and shortages of
pipe and equipment.
The Company's operations are subject to potential hazards inherent in
the exploration for and production of hydrocarbons, including blowouts and
fires. These and other events can cause a suspension of drilling operations,
severe damage to equipment or surrounding property, personal injury, and perhaps
even a loss of life. The Company may be subject to liability for pollution and
other damages and is subject to statutes and regulations relating to
environmental and other matters. While the Company maintains insurance against
certain of these risks, there are certain risks against which it cannot insure,
or which it may elect not to insure due to premium costs or for other reasons.
Substantial uninsured liabilities to third parties may arise.
The oil and gas operations of the Company are subject to local, state
and federal environmental regulations. To date, compliance with these
regulations by the Company has had no material effect on the Company's capital
expenditures. Although the Company is unable to
-4-
assess or predict at this time the impact that compliance with such
environmental regulations may have on its future capital expenditures, earnings
and financial position, it does not anticipate making any material capital
expenditures for environmental control facilities during 2002.
Many facets of the Company's operations are subject to governmental
regulations. All of the Company's oil and gas properties are located in states
in which oil and gas production is regulated by state production and
conservation laws and regulations. These laws and regulations in many instances
also require permits for the drilling of wells, the spacing of wells, prevention
of waste, conservation of oil and natural gas and various other requirements.
The Company's activities are subject to taxation at numerous levels of
government, including taxes on income, severance of minerals, and payroll. Laws
governing taxation, protection of the environment, crude oil and natural gas
operations and production, and other crucial areas are all subject to
modification at any time.
At March 18, 2002 the Company employed 40 persons, including one
geologist and five petroleum engineers.
ITEM 2. PROPERTIES
The Company's executive offices are presently located at 8080 N.
Central, Ste. 660, Dallas, Texas occupying approximately 14,300 square
feet of space under a lease agreement which expires in April, 2005.
The Company's principal property holdings consist of leasehold
interests in oil and gas properties located solely in the United States,
primarily in Oklahoma, Texas, New Mexico, Louisiana and Arkansas. The leaseholds
remain in force so long as production from lands under lease is maintained. The
Company believes that it has satisfactory title to its oil and gas properties.
Such properties are subject to customary royalty interests, liens incident to
operating agreements, liens for current taxes, and other burdens and minor
encumbrances, easements, and restrictions. The Company believes such burdens do
not materially detract from the value of the properties or materially interfere
with their use in the operation of the Company's business. The Company has
pledged certain of its oil and gas properties to secure its term loan.
ESTIMATED PROVED RESERVES,
FUTURE NET REVENUES AND PRESENT VALUE
Reflected below are the estimated quantities of proved developed and
undeveloped reserves of crude oil and natural gas owned by the Company as of
December 31, 2001, 2000, and 1999. Such reserve information has been prepared by
the Company's staff of petroleum engineers and audited by the independent
petroleum consulting firm of Netherland, Sewell, and Associates, Inc. No reserve
reports with respect to the Company's proved net oil or gas reserves were filed
with
-5-
any federal authority or agency during the fiscal year ended December 31, 2001.
December 31
----------------------------------------------------------------------
2001 2000 1999
---------------------- ----------------------- ---------------------
Oil (MB) Gas (MMCF) Oil (MB) Gas (MMCF) Oil (MB) Gas (MMCF)
Proved Developed 9,423.2 27,524.7 11,085.4 29,362.1 10,072.7 28,917.2
Proved Undeveloped 1,577.1 3,294.7 2,524.9 2,715.6 1,447.3 3,009.7
-------- -------- -------- -------- -------- --------
Total Proved Reserves 11,000.3 30,819.4 13,610.3 32,077.7 11,520.0 31,926.9
======== ======== ======== ======== ======== ========
The following table summarizes the future net revenues, using current
prices and costs as of the dates indicated, as well as the present value,
discounted at 10%, of such future net revenues from estimated production of
proved reserves of crude oil and natural gas as of December 31, 2001, 2000, and
1999. Oil and gas prices used in the tabulation of the amounts below are based
on the price received for each lease at December 31 of the appropriate year. The
weighted average prices at December 31, 2001, 2000, and 1999, respectively, used
in the estimates were $17.62, $25.27, and $23.69 per barrel of oil and $2.49,
$9.72, and $2.04 per mcf of natural gas. Lease and well operating costs are
based upon actual operating expense records.
December 31
--------------------------------------------------------------------------
2001 2000 1999
------------------- --------------------- --------------------
Future Present Future Present Future Present
Net Value Net Value Net Value
Expressed in 000's Revenue @ 10% Revenue @ 10% Revenue @ 10%
------- ------- ------- ------- ------- -------
Proved Developed $117,355 $78,822 $383,769 $245,567 $171,425 $112,842
Proved Undeveloped 12,595 4,919 53,015 24,945 20,593 9,851
-------- ------- -------- -------- -------- --------
Total Proved Reserves $129,950 $83,741 $436,784 $270,512 $192,018 $122,693
======== ======= ======== ======== ======== ========
Amounts presented in the tables above are before the effects of income taxes.
-6-
PRODUCTION, SALES PRICES AND COSTS
The following table sets forth the Company's net oil and gas production,
average sales prices and production costs for the three years ended December 31,
2001.
December 31
--------------------------------
2001 2000 1999
---- ---- ----
Production:
Oil (MB) 1,446.4 1,369.5 990.9
Gas (MMCF) 4,931.8 3,915.3 2,289.6
Average Sales Prices:
Oil (per BBL) $23.26 $27.36 $17.64
Gas (per MCF) $ 4.00 $ 3.90 $ 2.58
Average Production Costs:
Per net equivalent barrel of oil (1)(2) $ 7.91 $ 7.01 $ 5.71
(1) Six MCF of gas equals one net equivalent barrel ("NEB").
(2) Production costs are comprised of severance and advalorem taxes, if
applicable, and lease operating expenses, which include workover
costs.
PRODUCTIVE WELLS AND ACREAGE
As of December 31, 2001, the Company owned an interest in approximately
1,309 gross (525.3 net) wells, of which 1,211 gross (485.3 net) are oil wells
and 98 gross (40.0 net) are gas wells, located on approximately 51,871 gross
(24,255 net) producing acres.
UNDEVELOPED ACREAGE
The following table sets forth the Company's gross and net undeveloped
acreage as of December 31, 2001.
Undeveloped Acreage
-------------------
Gross Net
----- ---
Arkansas............................................... 420 88
Colorado............................................... 80 10
Louisiana.............................................. 436 136
Mississippi............................................ 160 6
Montana................................................ 7,291 160
New Mexico............................................. 1,280 47
North Dakota........................................... 62 4
Oklahoma............................................... 249 60
Texas.................................................. 19,322 3,121
Wyoming................................................ 5,253 843
------ ------
Total 34,553 4,475
======= ======
-7-
DRILLING ACTIVITY
The following table sets forth the results of the Company's drilling
activity during the three years ended December 31, 2001.
Exploratory Development Total
----------- ----------- -----
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
December 31, 2001
Productive 0 .000 40 14.199 40 14.199
Dry 1 .504 0 .000 1 .504
--- ----- --- ------ --- ------
Total 1 .504 40 14.199 41 14.703
=== ===== === ====== === ======
December 31, 2000
Productive 1 .400 22 8.096 23 8.496
Dry 0 .000 0 .000 0 .000
--- ----- --- ------ --- ------
Total 1 .400 22 8.096 23 8.496
=== ===== === ====== === ======
December 31, 1999
Productive 0 .000 5 1.888 5 1.888
Dry 2 .650 0 .000 2 .650
--- ----- --- ------ --- ------
Total 2 .650 5 1.888 7 2.538
=== ===== === ====== === ======
At December 31, 2001, the Company had two development wells being
drilled which have both been successfully completed during 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in minor lawsuits that have arisen in the
ordinary course of business. The Company does not expect any of these lawsuits
or other items to have a material adverse effect on the Company's consolidated
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's executive officers as of
March 18, 2002, is set forth in the table below.
Name Position Age Since
---- -------- --- -----
James G. Maynard Chairman of the Board, 75 1971
Chief Executive Officer
and Treasurer
Glenn R. Moore President and Chief 64 1982
Operating Officer
-8-
L. Brent Carruth Executive Vice President 68 1984
of Operations
Kenneth W. Hatcher Executive Vice President 58 1983
of Finance
Linda K. Burgess Vice President of 53 1984
Accounting and
Corporate Secretary
Cassondra Foster Vice President of Land 59 1999
Jerry G. Keen Vice President of Engineering 53 1999
Mr. Maynard has been a director since 1971 and engaged in oil and gas
exploration as an independent operator and private investor for the past 40
years.
Mr. Moore has over 35 years experience in domestic and foreign oil and
gas exploration and production. Prior to joining the Company in November, 1982,
Mr. Moore served as President of Shannon Oil and Gas, Inc. and Hanover Petroleum
Corporation.
Mr. Carruth has over 35 years of petroleum engineering experience.
Prior to joining the Company in January, 1984, he served for one year as Vice
President of Operations of Cordova Resources. Preceding that, Mr. Carruth was a
petroleum consultant for three years and served as Manager of Engineering of
Texas Pacific Oil Company for eight years.
Mr. Hatcher has over 35 years of finance and accounting experience in
the oil and gas industry and is a Certified Public Accountant. Prior to joining
the Company in February, 1983, Mr. Hatcher served as Controller and Vice
President of Finance of Shannon Oil and Gas, Inc. for three years and as
Controller and Vice President of Hanover Petroleum Corporation for four years.
Ms. Burgess has in excess of 30 years of oil and gas accounting
experience. Prior to joining the Company in May, 1984, Ms. Burgess served as
Controller for Trans-Western Exploration Inc. for four years and as Controller
for Energy Resources Oil and Gas for three years.
Ms. Foster has over 30 years of petroleum land management experience,
joining Maynard Oil Company's Land Department in 1974. Prior to that Ms. Foster
was a Title Analyst for Texas Oil & Gas.
Mr. Keen has over 30 years of petroleum engineering experience and has
been employed by Maynard Oil Company since 1984.
Each officer's term of office expires on the date of the next annual
meeting of the Board of Directors, or until his earlier resignation or removal.
There are no family relationships among the executive officers listed, and there
are no arrangements or understandings pursuant to which any of them were elected
or appointed as officers.
-9-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market,
NASDAQ trading symbol "MOIL". The high and low sales prices for each quarterly
period during the two years ended December 31, 2001, were as follows:
2001 High Low 2000 High Low
---- ---- --- ---- ---- ---
First Quarter $19.000 $15.875 First Quarter $26.125 $ 9.875
Second Quarter 21.500 15.250 Second Quarter 19.187 10.125
Third Quarter 25.070 18.750 Third Quarter 22.875 14.750
Fourth Quarter 24.000 17.400 Fourth Quarter 23.125 15.250
As of March 18, 2002, the Company had approximately 723 shareholders of
record.
The Company has not paid any dividends on its Common Stock in the past,
nor does it plan to pay dividends in the foreseeable future. The Company's
ability to pay dividends is currently restricted under its Loan Agreement with
Bank One, Texas.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data to
highlight significant trends in the Company's financial condition and operating
results for the periods indicated. The selected financial information presented
should be read in conjunction with the consolidated financial statements and
related notes appearing elsewhere in this Report and the Management's Discussion
and Analysis of Financial Condition and Results of Operations set forth under
Item 7 below. All amounts are expressed in thousands, except per share
information.
December 31
--------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Oil and gas sales
and royalties 53,363 $52,739 $23,392 $16,166 $26,477
Income (loss) before
income taxes (1) 12,457 22,273 7,148 (11,897) 6,613
Net income (loss) (1) 7,954 14,103 4,355 (7,816) 4,455
Per share income
(loss) (1)(2) 1.63 2.89 .89 (1.60) .91
Total assets 07,234 107,858 94,708 60,363 78,286
Long-term debt 17,213 24,863 32,513 6,250 11,250
Shareholders' equity 72,039 64,087 49,991 45,647 53,509
Net working capital 8,080 14,151 8,321 16,448 17,503
Net cash provided by
operating activities 26,370 26,795 9,661 5,025 11,250
-10-
(1) Includes effect of 2001 and 1998 impairment of oil and gas properties
amounting to $3,382,741 and $8,754,846 respectively.
(2) Basic and diluted earnings (loss) per share were the same for all years
presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000
- ----------------------------------------------------------
OVERVIEW
- --------
The Company continued its strategy for growth through the acquisition
of producing properties in calendar 2001. A total of $12.9 million was spent on
acquisitions this year. All of these funds were expended for additional
interests in the Tex-Mex Field located in Gaines County, Texas. In addition to
these acquisition dollars, the Company incurred capital expenditures which
totaled an additional $12.9 million, which was spent on the 49 new wells drilled
this year, as well as recompleting and installing equipment on other wells.
Once again, the Company, like others in the oil and gas industry, dealt
with the roller coaster effect from the crude oil markets. The West Texas
Intermediate posting for crude began the year averaging approximately $26.40 per
barrel, hovered at $23.35 to $24.49 per barrel for much of the year before
declining to $16.28 during the last two months of 2001. Obviously, these price
reductions negatively impacted the Company's 2001 revenues and cash flow by
approximately $5.6 million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents totaled $14.3 million and $21.2 million at
December 31, 2001 and December 31, 2000, respectively, decreasing approximately
$6.9 million during 2001.
Cash flow from operations approximated $26.4 million and was utilized
as follows:
Property acquisitions $12.9 million
Drilling of 49 wells and other
capitalized workover activities 12.9 million
Repayment of debt 7.6 million
Proceeds from sale of property,
net of miscellaneous expenditures (.1) million
Cash decrease (6.9) million
----
Total $26.4 million
=====
Company management plans on utilizing cash generated from operations
and additional bank debt, if necessary, to fund future oil and gas activities.
Any future product price reductions could dictate reductions in planned capital
expenditures. Since the Company serves as operator on 46% of its wells, it can
exercise judgment about which projects are performed.
-11-
As discussed in Note 3 to the 2001 Consolidated Financial Statements,
the Company has entered into contracts with its employees which provide
incentive payments of approximately $5.1 million to be paid within a year should
a merger agreement be signed. Additionally, the Company is committed to making
cash payments on two other types of contracts, note agreements and leases.
Maynard Oil has no off-balance sheet financing arrangements or any other such
unrecorded obligations, and the Company has not guaranteed the debt of any other
party.
Presently, the Company anticipates the following transactions for 2002:
Oil and gas revenues, net of
lease operating expenses $23.6 million
Capital expenditure
commitment (6.5) million
Repayment of debt (7.7) million
Lease payments (.4) million
----
Available cash $ 9.0 million
=====
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 2001 COMPARED TO DECEMBER 31, 2000
- ----------------------------------------------------------
During 2001, the Company earned $1.63 per share, or $7,953,823 compared
to 2000 earnings of $2.89 per share, or $14,103,093.
REVENUES
Oil and gas revenue remained almost constant between 2001 and 2000
increasing approximately 1% over the prior year. Higher sales volumes made up
for the loss of crude oil revenues during the current year. The table below
reflects the differentials by product:
Avg. Avg.
Oil Price Gas Price
Bbls Bbl MCF MCF
---- ----- --- -----
Twelve months 2001 1,446,375 $23.26 4,931,751 $4.00
Twelve months 2000 1,369,456 27.36 3,915,325 3.90
Interest income declined approximately $442,000 due to lower investable
cash balances and due to lower rates paid in the investment markets.
Additionally, the disposition of assets yielded a minor gain for the current
year while prior year dispositions reflected a minor loss.
COSTS AND EXPENSES
On a net equivalent barrel basis (NEB), lease operating expenses rose
ninety cents per NEB from $7.01 per NEB in 2000 to $7.91 per NEB in 2001.
Expense workovers represented 36% of the cost increases, all other lease
operating items such as labor, saltwater disposal, and
-12-
plugging charges accounted for an additional 79% of the cost increases while
regulatory costs, which include severance taxes and advalorem taxes, declined
for the year and reduced this category by 15%.
Exploration, dry holes, and abandonments fell $192,591 due to
reductions in acreage impairments over the prior year. One exploratory well was
drilled and included in this category during the current year.
The general and administrative (G&A) expense category reflects a
nominal increase of $128,967. However, the prior year G&A expense was abnormally
high, having been adjusted upward $1,020,023 to account for the phantom stock
activity last year. During 2001, the remaining 11,000 phantom stock units were
exercised and G&A was charged an additional $93,500. In July, 2001, the Company
announced that it was pursuing strategic alternatives and has spent
approximately $586,000 pursuant to sale or merger strategies. Additionally,
other G&A items have risen during 2001 to accommodate the growth of the Company
from $60.3 million in assets at September 30, 1999 (prior to the Questar
acquisition) to $107.2 million in assets currently.
On a net equivalent barrel basis, the current depreciation and
amortization rate increased approximately 24% from $5.01 per NEB in 2000 to
$6.21 per NEB during 2001. Under the successful efforts method of accounting,
costs of oil and gas properties are amortized on a unit of production method
based upon estimated proved reserves. These estimates of proved reserves can
fluctuate from one accounting period to the next because of product pricing and
its effect on the recoverability of these hydrocarbon reserves. During 2001,
there were downward revisions in estimated volumes of oil reserves of
approximately 2.5 million barrels which resulted in increased depreciation and
amortization expense.
Maynard Oil also recognized non-cash impairment charges of $3,382,741
to the carrying value of its oil and gas properties. Although the reduction in
oil pricing impacted this evaluation, the specific properties involved in the
writedown had minimal hydrocarbons attached and little chance of recovery from
future price increases.
Interest expense decreased $1,189,473 between 2000 and 2001 because of
reductions in the outstanding bank loan due to scheduled loan repayments and
lower interest rates. Offsetting this decreased interest expense in the current
year was a bad debt allowance of $259,949 attributable to the downturn in the
oil and gas industry. Not only were Maynard's oil and gas revenues negatively
impacted by price reductions, its joint interest partners' revenues were also
negatively affected by price which resulted in slower pay on the Company's
accounts receivable.
Income tax expense for 2001 reflects an effective tax rate of 36.1%
which differs from the corporate rate of 34% for Maynard Oil's pre-tax income
level. The primary reason for this difference relates to income taxes assessed
at the state level.
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999
- ----------------------------------------------------------
During 2000, the Company earned $2.89 per share compared to 1999
earnings of $.89 per share.
-13-
REVENUES
Oil and gas revenue more than doubled during 2000, rising from $23.3
million a year ago to $52.7 million during 2000. Higher sales volumes accounted
for 57% of the revenue increase and pricing differentials the remaining 43%. The
table below reflects these differences by product:
Avg. Avg.
Oil Price Gas Price
Bbls Bbl MCF MCF
---- --- --- ---
Twelve months 2000 1,369,456 $27.36 3,915,325 $3.90
Twelve months 1999 990,877 17.64 2,289,563 2.58
Interest income rose approximately $347,000 between 1999 and 2000 due
to increased average cash balances. Additionally, the disposition of assets
reflects a loss for the current year while the prior year dispositions yielded a
gain to the Company.
COSTS AND EXPENSES
On a net equivalent barrel (NEB) basis, lease operating expenses
increased $1.30 per NEB from $5.71 per NEB to $7.01 per NEB. Approximately 46%
of this increase was due to higher severance taxes, which are directly
proportional to sales values; 18% of the lease operating expense increase was a
result of expense workovers; 12% was attributable to greater advalorem taxes,
which are also functions of pricing; and 25% was attributable to all other lease
operating items such as labor and salt water disposal.
The exploration, dry holes, and abandonments category decreased $84,520
during 2000 because no unsuccessful exploratory wells were drilled, while two
such dry holes were drilled and expensed in 1999. A substantial portion of this
expense category for 2000 is represented by the impairment of acreage for which
the Company abandoned future drilling plans. The one successful exploratory well
drilled in 2000 was capitalized as oil and gas property.
The general and administrative (G&A) expense category reflects an
increase of $1,604,659 between 1999 and 2000, primarily the result of phantom
stock adjustments which occur because of stock price fluctuations. Since the
phantom stock units were originally awarded in 1989, the Company's G&A expense
has experienced a great deal of volatility as the stock price has risen and
fallen and the related charges and credits for phantom stock have been recorded.
At December 31, 1999, the closing stock price was $9.75, and the Company had
accrued a liability of $449,625 for this phantom stock obligation on its balance
sheet with $214,875 of this amount recorded in 1999 G&A expense. On September
28, 2000 the Company's Board of Directors approved an amendment to the employee
incentive plan which originally awarded these phantom stock units. On this date,
the Company's stock price had risen to $20.81 per share, so the Company accrued
an additional $934,773 to 2000 G&A expense for the 84,500 phantom stock units
that were exercised under the plan amendment. At December 31, 2000, the Company
also had a
-14-
remaining liability of approximately $136,000 attributable to the remaining
11,000 stock participation units, $85,250 of which is also reflected in 2000 G&A
expense. The remainder of 2000 G&A expense increase represents costs to manage
the growth of the Company from approximately $60.3 million in assets at
September 30, 1999-prior to the Questar acquisition-to $107.8 million in assets
at December 31, 2000.
On a net equivalent barrel basis, the depreciation and amortization
rate increased approximately 18% from $4.26 per NEB during 1999 to $5.01 per NEB
during 2000. Under the successful efforts method of accounting, costs of oil and
gas properties are amortized on a unit of production method based upon estimated
proved reserves. The Company calculates and applies this rate on a property by
property basis. Fluctuations in depreciation and amortization expense can be
caused by variations in the performance of the oil and gas property, the amount
invested in the property and the hydrocarbon reserves ultimately recoverable
from the property. As the oil and gas properties and their associated reserves
age within a company, these rates become more predictable and have less
variance.
Interest expense increased over 200% due to a full annual period having
lapsed under the term loan agreement put in place in November, 1999 in
connection with the Questar acquisition.
Income tax expense for 2000 reflects an effective tax rate of 36.7%
which differs from the corporate rate of 35% for Maynard Oil's pre-tax income
level. The primary reason for this difference relates to income taxes assessed
at the state level.
CRITICAL ACCOUNTING MATTERS
- ---------------------------
The Company follows the "successful efforts" method of accounting for
its oil and gas properties. Under this method of accounting, the capitalized
costs of unproven leases are periodically assessed to determine whether their
value has been impaired below the capitalized cost, and if such impairment is
indicated, a loss is recognized in exploration, dry holes, and abandonment
expense. The Company makes these assessments based on estimates of future oil
and gas prices and considers such other factors as future drilling plans and any
lease expiration terms.
The Company's financial position and results of operations are
materially effected by changes in oil and gas prices. The Company makes
estimates of future oil and gas prices to determine the need for an impairment
of capitalized costs of proved oil and gas properties under Statement of
Accounting Standards No.121(SFAS 121).
Under SFAS 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of", the Company assesses the need for an
impairment of capitalized costs of proved oil and gas properties on a field by
field basis. Applying SFAS 121, the Company recognized a non-cash property
impairment of $3,382,741 in December 2001 to account for those properties whose
investment would not be recoverable under current pricing assumptions. Fair
value of the
-15-
property is estimated by the Company using the present value of future cash
flows discounted at 10%.
At December 31, 2001, the average oil and gas prices used for
assessment purposes were $21.92 per barrel and $3.16 per mcf, respectively.
Accordingly, a significant reduction in oil and gas prices used to estimate
future oil and gas revenues for impairment purposes could materially impact
impairment expense.
The Company uses estimates of oil and gas reserve quantities to
estimate depreciation and amortization expense using the unit of production
method of accounting. The estimates of proved oil and gas reserve quantities are
also effected by estimates of future oil and gas prices along with other
reservoir engineering estimates. Accordingly, a significant reduction in oil and
gas reserve quantities could materially impact depreciation and amortization
expense.
The Company periodically enters into hedging arrangements with respect
to portions of its oil and gas production to achieve a more predictable cash
flow and to reduce exposure to price fluctuations. Net income and cash flow can
be significantly effected by the Company's hedging activities if oil and gas
prices change significantly during the hedging period.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement No. 141 (SFAS 141), "Business Combinations", and also
Statement No. 142 (SFAS 142), "Goodwill and Other Intangible Assets."
SFAS 141 requires all business combinations, as defined by the
standard, initiated after June 30, 2001 to be accounted for using the purchase
method. Companies may no longer use the pooling method to account for future
combinations.
SFAS 142 is effective for fiscal years beginning after December 15,
2001 and will be adopted by the Company as of January 1, 2002. SFAS 142 requires
that goodwill no longer be amortized over an estimated useful life as previously
required. Instead, goodwill amounts will be subject to a fair-value-based annual
impairment assessment. The standard also requires acquired intangible assets to
be recognized separately and amortized as appropriate. The Company expects that
the adoption of SFAS 142 will not have a significant impact on the Company's
future financial statements.
In July 2001, the FASB issued SFAS 143 "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets". SFAS 143 is effective for
fiscal years beginning after June 15, 2002, and early adoption is permitted. The
Company is currently assessing the new standard and has not determined the
impact on its consolidated results of operations, cash flows or financial
position.
-16-
In August, 2001, the FASB issued SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001, and early adoption is permitted.
The Company expects that the adoption of SFAS No. 144 will not have a
significant impact on the Company's future financial statements.
CERTAIN FACTORS THAT COULD AFFECT FUTURE OPERATIONS
- ---------------------------------------------------
Certain information contained in this report, as well as written and
oral statements made or incorporated by reference from time to time by the
Company and its representatives in other reports, filings with the Securities
and Exchange Commission, press releases, conferences, teleconferences or
otherwise, may be deemed to be 'forward-looking statements' within the meaning
of Section 21E of the Securities Exchange Act of 1934 and are subject to the
'Safe Harbor' provisions of that section. Forward-looking statements include
statements concerning the Company's and management's plans, objectives, goals,
strategies and future operations and performance and the assumptions underlying
such forward-looking statements. When used in this document, the words
"anticipates," "estimates," "expects," "believes," "intends," "plans" and
similar expressions are intended to identify such forward-looking statements.
Actual results and developments could differ materially from those expressed in
or implied by such statements due to these and other factors.
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY RISK
- --------------
The Company's primary commodity market risk exposure is to changes in
the pricing applicable to its oil production, which is normally priced with
reference to a defined benchmark, such as light, sweet crude oil (WTI) traded on
the New York Mercantile Exchange (NYMEX). Actual prices received vary from the
benchmark depending on quality and location differentials. The markets for crude
oil historically have been volatile and are likely to continue to be volatile in
the future.
From time to time, the Company enters into financial market
transactions, including collars, with creditworthy counterparties, primarily to
reduce the risk associated with the pricing of a portion of the oil and natural
gas that it sells. The policy is structured to underpin the Company's planned
revenues and results of operations and the ultimate cash flow realized by the
Company.
During 2001, the Company entered into a derivative financial instrument
whereby the Company hedged 2,000 barrels of daily production from March 1, 2001
through February 28, 2002 with a ceiling price of $28.18/bbl and a floor price
of $24.00/bbl. The Company exercised its right to terminate this contract during
March, 2001 via payment of $803,000 which reduced oil and gas revenue for the
first quarter of 2001.
The Company is not currently a party to any derivative instrument.
-17-
INTEREST RATE RISK
- ------------------
While the Company does have interest rate risk associated with its
outstanding borrowing as of December 31, 2001, we do not consider the risk to
have a material impact on the Company's operations. As such, the Company does
not hedge against interest rate risk exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is included on pages 22 through 42
of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
PART III
The information required by Part III (Items 10 through 13) is set forth
in the Company's Proxy Statement for the annual meeting of stockholders and is
incorporated herein by reference. Information with respect to the Company's
executive officers as of March 18, 2002, is set forth commencing on pages 8 and
9 thereof under the caption "Executive Officers of the Registrant".
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
FINANCIAL STATEMENTS AND SCHEDULES
See Index to Consolidated Financial Statements and Schedule on page 22
of this Report.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of 2001.
EXHIBITS
3.1 (a) Certificate of Incorporation, as amended, filed as
Exhibit 3.1 to the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 1980 (the
"1980 Form 10-K"), and incorporated herein by
reference.
(b) Certificate of Amendment of Certificate of
Incorporation dated May 19, 1981, filed as Exhibit
3.1(b) to the Company's Annual Report on Form 10-K
for its fiscal year ended December 31, 1981 (the
"1981 form 10-K"), and incorporated herein by
reference.
-18-
(c) Certificate of Amendment of Certificate of
Incorporation dated May 22, 1987, filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1987, and incorporated
herein by reference.
(d) Certificate of Amendment of Certificate of
Incorporation dated June 3, 1993, filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1993, and incorporated
herein by reference.
3.2 (a) By-Laws, as amended, filed as Exhibit 3.2(b) to the
1981 Form 10-K and incorporated herein by reference.
(b) Amendment to the By-Laws, filed as Exhibit 3.2(b) to
the 1981 Form 10-K and incorporated herein by
reference.
(c) Amendment to the By-Laws, filed as Exhibit 3.2(c) to
the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 1984, and incorporated
herein by reference.
(d) Amendment to the By-Laws, filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1987, and incorporated herein
by reference.
(e) Amendment to the By-Laws, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 1993 and incorporated herein
by reference.
(f) By-Laws, as amended, filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1999, and incorporated
herein by reference.
4.1 (a) Second Restated Loan Agreement, dated November 12,
1999 between Maynard Oil Company and Bank One, Texas,
N.A., filed as Exhibit 4.1 to the Company's Annual
Report on Form 10-K for its fiscal year ended
December 31, 1999 (the "1999 Form 10-K") and
incorporated herein by reference.
(b) First Amendment to Second Restated Loan Agreement
dated May 15, 2000 between Maynard Oil Company and
Bank One, Texas, N.A., filed as Exhibit 4.1 to the
Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 2000 (the "2000 Form 10-K")
and incorporated herein by reference.
10.1 1989 Stock Participation Plan, filed as Exhibit 10.1
to the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 1995 and incorporated
herein by reference.
-19-
10.2 Form of Retention Incentive Letter filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 2001 and
incorporated herein by reference.
10.3 Form of Management Retention Agreement filed as
Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the period ended September 30, 2001 and
incorporated herein by reference.
21.1 List of subsidiaries of the Company as of December
31, 2001, filed herewith.
-20-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MAYNARD OIL COMPANY
By \s\ James G. Maynard
------------------------
James G. Maynard
Chairman of the Board
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the date indicated in multiple counterparts with the same force and effect as
if each person executing a separate counterpart has joined in execution of the
same counterpart.
/s/ James G. Maynard Chairman of the Board, April 1, 2002
- ------------------------ Chief Executive Officer
James G. Maynard & Treasurer
/s/ Glenn R. Moore President and Chief April 1, 2002
- ------------------------ Operating Officer
Glenn R. Moore
/s/ Kenneth W. Hatcher Executive Vice President April 1, 2002
- ------------------------ of Finance(Principal
Kenneth W. Hatcher Financial and
Accounting Officer)
/s/ Robert B. McDermott Director April 1, 2002
- ------------------------
Robert B. McDermott
/s/ Ralph E. Graham Director April 1, 2002
- ------------------------
Ralph E. Graham
/s/ Fred L. Oliver Director April 1, 2002
- ------------------------
Fred L. Oliver
-21-
MAYNARD OIL COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements and Schedule
Page
----
Financial Statements:
Report of Independent Accountants 23
Consolidated Balance Sheets - December 31, 2001 and 2000
24
Consolidated Statements of Operations - Three years ended
December 31, 2001
25
Consolidated Statements of Changes in Shareholders'
Equity - Three years ended December 31, 2001 26
Consolidated Statements of Cash Flows - Three years
ended December 31, 2001 27
Notes to Consolidated Financial Statements 28
II - Valuation and Qualifying Accounts 42
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or Notes thereto.
-22-
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
Maynard Oil Company
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Maynard Oil Company and its subsidiary at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
Dallas, TX
March 27, 2002
-23-
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31,
-----------------------------
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14,277,119 $ 21,228,040
Accounts receivable, trade 6,457,897 8,773,669
Income taxes receivable 1,769,928 1,437,587
Other current assets 448,194 441,027
------------ -----------
Total current assets 22,953,138 31,880,323
------------ -----------
Property and equipment, at cost:
Oil and gas properties, successful
efforts method 188,246,168 162,572,339
Other property and equipment 491,699 450,885
------------ -----------
188,737,867 163,023,224
Less accumulated depreciation and
amortization (104,457,017) (87,045,360)
------------ -----------
Net property and equipment 84,280,850 75,977,864
------------ -----------
$ 107,233,988 $107,858,187
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt $ 7,650,000 $ 7,650,000
Accounts payable 5,962,824 8,350,643
Accrued expenses 746,806 927,828
Income taxes payable 513,352 800,799
------------ -----------
Total current liabilities 14,872,982 17,729,270
------------ -----------
Deferred income taxes 3,110,000 1,179,000
Long-term debt 17,212,500 24,862,500
Shareholders' equity:
Preferred stock of $.50 par value.
Authorized 1,000,000 shares; none
issued -- --
Common stock of $.10 par value.
Authorized 20,000,000 shares;
4,880,368 and 4,880,516 shares
issued and outstanding 488,037 488,051
Additional paid-in capital 18,831,138 18,831,138
Retained earnings 52,719,331 44,768,228
------------ -----------
Total shareholders' equity 72,038,506 64,087,417
------------ -----------
Contingencies and commitments (note 10)
$ 107,233,988 $107,858,187
============ ===========
See accompanying Notes to Consolidated Financial Statements.
-24-
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31,
-------------------------------------------
2001 2000 1999
---- ---- ----
Revenues:
Oil and gas sales and royalties $ 53,363,128 $ 52,738,994 $ 23,392,231
Interest and other 699,471 1,141,333 794,478
Gain (loss) on disposition of assets 96,027 (38,070) 312,746
------------ ------------ ------------
54,158,626 53,842,257 24,499,455
------------ ------------ ------------
Costs and expenses:
Operating expenses 17,953,047 14,168,808 7,839,205
Exploration, dry holes and
abandonments 256,497 449,088 533,608
General and administrative, net 3,970,886 3,841,919 2,237,260
Depreciation and amortization 14,079,545 10,120,721 5,848,272
Impairment of proved oil and gas
properties 3,382,741 -- --
Interest and other 2,059,087 2,988,628 893,475
------------ ------------ ------------
41,701,803 31,569,164 17,351,820
------------ ------------ ------------
Income before income taxes 12,456,823 22,273,093 7,147,635
Income tax expense 4,503,000 8,170,000 2,793,000
------------ ------------ ------------
Net income $ 7,953,823 $ 14,103,093 $ 4,354,635
============ ============ ============
Weighted average number of common
shares outstanding 4,880,401 4,880,749 4,883,536
============ ============ ============
Net income per common share
(basic and diluted) $ 1.63 $ 2.89 $ .89
============ ============ ============
See accompanying Notes to Consolidated Financial Statements.
-25-
MAYNARD OIL COMPANY
Consolidated Statements of Changes in Shareholders Equity
Three Years Ended December 31, 2001
Accumulated
Other Additional Common
Comprehensive Retained Comprehensiv Paid-in Common Stock
Total Income Earnings Income Capital Stock Shares
----- ------ -------- ------ ------- ----- ------
Balance at December 31, 1998 $45,646,943 $26,327,345 $18,831,138 $488,460 4,884,597
Net income 4,354,635 4,354,635 -- -- --
Purchase and retirement
of common stock (10,873) (10,502) -- (371) (3,710)
---------- ---------- ---------- ------- ---------
Balance at December 31, 1999 49,990,705 30,671,478 18,831,138 488,089 4,880,887
Net income 14,103,093 14,103,093 -- -- --
Purchase and retirement
of common stock (6,381) (6,343) -- (38) (371)
---------- ---------- ---------- ------- ---------
Balance at December 31, 2000 64,087,417 44,768,228 18,831,138 488,051 4,880,516
Comprehensive Income
Net Income 7,953,823 $7,953,823 7,953,823
Cumulative effect of adopting
SFAS 133 86,757 86,757 $86,757
Reclassification adjustments
for contract settlements (86,757) (86,757) (86,757)
---------
Comprehensive Income $7,953,823
=========
Purchase and retirement of
common Stock (2,734) (2,720) -- (14) (148)
---------- ---------- --------- ---------- ------- ---------
Balance at December 31, 2001 $72,038,506 $52,719,331 -- $18,831,138 $488,037 4,880,368
========== ========== ========= ========== ======= =========
See accompanying Notes to Consolidated Financial Statements.
-26-
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $ 7,953,823 $ 14,103,093 $ 4,354,635
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 14,079,545 10,120,721 5,848,272
Impairment of proved oil and gas
properties 3,382,741 -- --
Allowance for doubtful accounts 259,949 -- --
Deferred income tax expense 1,931,000 1,527,000 333,000
Exploration, dry holes and
abandonments 212,720 429,424 451,688
Current year costs of dry holes and
abandonments (213,599) 1,031 (424,077)
(Gain) loss on disposition of assets (96,027) 38,070 (312,746)
(Increase) decrease in current assets:
Accounts receivable 2,055,823 (2,744,481) (3,460,381)
Income taxes receivable (332,341) (687,587) 227,587
Other current assets (7,167) 395,527 (357,874)
Increase (decrease) in current liabilities:
Accounts payable (2,387,819) 4,100,919 1,666,367
Accrued expenses (181,022) (329,790) 415,250
Income taxes payable (287,447) (159,413) 919,413
------------ ------------ ------------
Net cash provided by operating
activities 26,370,179 26,794,514 9,661,134
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of assets 103,496 780,447 555,022
Additions to property and equipment (25,771,862) (13,513,361) (45,184,704)
------------ ------------ ------------
Net cash used by
investing activities (25,668,366) (12,732,914) (44,629,682)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- -- 32,000,000
Principal payments on long-term debt (7,650,000) (5,737,500) (5,000,000)
Purchase of common stock (2,734) (6,381) (10,873)
------------ ------------ ------------
Net cash provided (used) by
financing activities (7,652,734) (5,743,881) 26,989,127
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents (6,950,921) 8,317,719 (7,979,421)
Cash and cash equivalents at beginning
of year 21,228,040 12,910,321 20,889,742
------------ ------------ ------------
Cash and cash equivalents at end of year $ 14,277,119 $ 21,228,040 $ 12,910,321
============ ============ ============
See accompanying Notes to Consolidated Financial Statements
-27-
MAYNARD OIL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
Business Activity
-----------------
Maynard Oil Company (the Company) is engaged in the acquisition,
exploration, development, production and sale of crude oil and natural
gas in the Continental United States, primarily in the states of
Texas, Oklahoma, Louisiana, New Mexico and Arkansas.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Maynard
Oil Company and its wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Cash Equivalents
----------------
Cash equivalents are highly liquid investments purchased with an
original maturity of three months or less.
Property and Equipment
----------------------
The Company follows the successful efforts method of accounting for
its oil and gas properties. Intangible drilling and development costs
related to development wells and successful exploratory wells are
capitalized, whereas the costs of exploratory wells which do not yield
economic proved reserves are expensed. All geological and geophysical
costs not reimbursed are expensed as incurred. Costs of acquiring
unproved leases are evaluated for impairment until such time as the
leases are proved or abandoned. In addition, unamortized costs at a
field level are reduced to discounted fair value if the net book value
exceeds the sum of expected undiscounted future cash flows.
Depreciation and amortization of producing properties is computed
using the unit of production method based upon estimated proved
reserves. Depreciation of other property and equipment is calculated
using the straight-line method based upon estimated useful lives
ranging from two to ten years.
Maintenance and repairs are charged to expense as incurred. Renewals
and betterments are capitalized. When assets are sold, retired or
otherwise disposed of, the applicable costs and accumulated
depreciation and amortization are removed from the accounts, and the
resulting gain or loss is recognized.
-28-
Revenue Recognition
-------------------
The Company accounts for oil and gas sales from its interests in
producing wells under the sales method. Under the sales method, the
Company recognizes revenues based on the amount of natural gas sold to
purchasers, which may be different from the Company's entitled
production based on its interest in the properties. Gas balance
obligations as of December 31, 2001, 2000 and 1999 were not
significant.
Overhead Reimbursement Fees
---------------------------
The Company reduces general and administrative expenses by only the
amounts actually due from outside working interest owners for overhead
charges.
Deferred Income Taxes
---------------------
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the
tax and financial reporting bases of the Company's assets and
liabilities by applying enacted tax rates. A valuation allowance is
established to reduce deferred tax assets if it is more likely than
not that the related tax benefits will not be realized.
Derivative Financial Instruments
--------------------------------
The Company periodically enters into commodity hedge contracts,
including caps and floors which may require payments to (or receipts
from) counterparties based on the differential between a fixed price
and a variable price for a fixed quantity of crude oil or natural gas
without the exchange of underlying volumes. The notional amounts of
these derivative financial instruments are based on expected
production from existing wells. The Company uses these derivative
financial instruments to manage cash flow risks resulting from
fluctuations in commodity prices. The derivative financial instruments
held by the Company are not leveraged and are held for purposes other
than trading.
Correlation of the hedge contracts is determined by evaluating whether
hedge contract gains and losses will substantially offset the effects
of price changes on the underlying crude oil and natural gas sales
volumes. To the extent that correlation exists between the hedge
contracts and the underlying crude oil and natural gas sales volumes,
realized gains or losses and related cash flows arising from the hedge
contracts are recognized as a component of oil and natural gas sales
in the same period as the sale of the underlying volumes. To the
extent that correlation does not exist between the hedge contracts and
the underlying crude oil and the natural gas sales volumes, realized
gains or losses and related cash flows arising from the hedge
contracts are recognized in the period as a component of other income.
The fair market value of any hedge contract that does not meet the
correlation test outlined above is recorded as a deferred gain or loss
on the balance sheet and is
-29-
adjusted to current market value at each balance sheet date with any
deferred gains or losses recognized as a component of other income.
In the event that management decides to terminate a hedge contract,
generally accepted accounting principles require that any gains or
losses upon termination be carried forward and recognized as a
component of oil and natural gas sales in the period in which the
underlying volumes are sold.
The Company is not currently a party to any derivative instrument.
Income per Common Share
-----------------------
The Company does not have a complex capital structure, and
consequently, net income per common share is computed using the
weighted average number of common shares outstanding during each year.
Basic and diluted earnings per share were the same for 2001, 2000 and
1999 as the Company has no potentially dilutive securities.
Segment Information
-------------------
All of the Company's oil and gas properties and related operations are
located in the United States and management has determined that the
Company has one reportable segment.
The Use of Estimates in Preparing Financial Statements
------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,
liabilities, disclosures of gain and loss contingencies at the date of
the financial statements and reported amounts of revenues and expenses
during the reporting period. Since estimates are made based on all
information available at the time, it is reasonably possible in the
near term a change in an estimate may occur or actual amounts may
differ from estimated amounts.
Reclassifications
-----------------
Certain reclassifications of prior period statements have been made to
conform with the 2001 presentation.
Recent Accounting Pronouncements
--------------------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 (SFAS 141), "Business Combinations", and also
Statement No. 142 (SFAS 142), "Goodwill and Other Intangible
Assets."
SFAS 141 requires all business combinations, as defined by the
standard, initiated after June 30, 2001 to be accounted for using the
purchase method. Companies may no longer use the pooling method to
account for future combinations.
-30-
SFAS 142 is effective for fiscal years beginning after December 15,
2001 and will be adopted by the Company as of January 1, 2002. SFAS
142 requires that goodwill no longer be amortized over an estimated
useful life as previously required. Instead, goodwill amounts will be
subject to a fair-value-based annual impairment assessment. The
standard also requires acquired intangible assets to be recognized
separately and amortized as appropriate. The Company expects that the
adoption of SFAS 142 will not have a significant impact on the
Company's future financial statements.
In July 2001, the FASB issued SFAS 143 "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets". SFAS 143 is
effective for fiscal years beginning after June 15, 2002, and early
adoption is permitted. The Company is currently assessing the new
standard and has not determined the impact on its consolidated results
of operations, cash flows or financial position.
In August, 2001, the FASB issued SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and
early adoption is permitted. The Company expects that the adoption of
SFAS No. 144 will not have a significant impact on the Company's
future financial statements.
(2) Fair Value of Financial Instruments, Risk Management, and
---------------------------------------------------------
Concentrations of Credit Risk
-----------------------------
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, and accounts payable approximate fair value because of the
short maturity of these instruments. The carrying amount of long-term
debt, including the current portion, approximates fair value because
the interest rate on this instrument changes with market interest
rates.
Risk Management
---------------
Effective March 1, 2001, the Company entered into a derivative
financial instrument whereby 2,000 barrels of daily production was
hedged with a ceiling price of $28.18 per barrel and a floor price of
$24.00 per barrel. This hedging arrangement was due to expire on
February 28, 2002. However, the Company exercised its ability to
terminate the contract during March, 2001 via payment of $803,000,
which reduced oil and gas revenues for the first quarter of 2001.
During 2000, the Company entered into a derivative financial
instrument whereby the Company hedged 1,000 barrels of daily
production from September 1, 2000 through February 28, 2001 with a
ceiling price of $36.50/bbl and a floor price of $24.00/bbl. The
contract called for a monthly settlement such that if the average WTI
for the month was greater than $36.50/bbl, Maynard would remit to the
counterparty the excess multiplied by the number of barrels hedged
during the month. Conversely, if the average WTI for the
-31-
month was less than $24.00/bbl, the counterparty would pay Maynard for
the difference multiplied by the number of barrels hedged during the
month. If the average WTI for the month fell between $24.00/bbl and
$36.50/bbl, no settlement would be made. As a result of this
arrangement, no monies were exchanged.
A second derivative instrument was entered into effective October 1,
2000 through March 31, 2001 which mirrored the first except the
ceiling and floor amounts were $37.20 and $25.00 per barrel,
respectively. Over the life of this contract, average WTI fell between
$25.00 per barrel and $37.20 per barrel, so no cash was exchanged.
The Company adopted Statement of Financial Accounting Standard No. 133
(SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities", on January 1, 2001 and recorded a cumulative effect
adjustment of approximately $87,000 to earnings to recognize the fair
market value of all derivative instruments as a result of adopting
SFAS 133. The hedging related components of other comprehensive income
have been recorded net of income tax effects using the effective
income tax rate for 2001.
Concentration of Credit Risks
-----------------------------
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and cash
equivalents and accounts receivable. The Company places its cash and
cash equivalents with high credit quality institutions. With respect
to accounts receivable, these financial instruments primarily pertain
to oil and gas sales and joint interest billings. These accounts
receivable are due from small to mid-size companies engaged
principally in oil and gas activities. The Company performs ongoing
credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. Payment terms
are on a short-term basis and in accordance with industry standards.
During 2001, the Company recorded a bad dept allowance of $259,949 to
recognize potentially uncollectible accounts receivable.
During the year ended December 31, 2001, oil and gas sales to two
purchasers amounting to approximately $9,041,000 and $6,867,000 each
accounted for more than 10% of total consolidated revenues.
During the year ended December 31, 1999, oil and gas sales to three
customers, amounting to approximately $4,143,000, $2,868,000, and
$2,457,000 respectively, each accounted for more than 10% of total
consolidated revenues. During the year ended December 31, 2000, no
single purchaser accounted for 10% of consolidated revenues.
(3) Strategic Alternatives
----------------------
On July 23, 2001, the Company announced that it was exploring
strategic alternatives including the possible sale or merger of the
Company. In December, 2001, the Company reported that it had received
expressions of interest from a number of potential buyers,
-32-
but that the valuations were disappointing. Management was
instructed by the Board to continue to evaluate the proposals to
maximize shareholder value.
In connection with these transactions, the Company entered into
contracts with its personnel which provide incentive bonuses and
retention arrangements that total approximately $5,100,000 to be paid
out within one year after a merger agreement is signed.
(4) Impairment of Long-Lived Assets
-------------------------------
Oil prices fell from an average of $27.36 per barrel for 2000 to an
average of $23.26 per barrel for 2001, while gas prices averaged $4.00
per thousand cubic feet (mcf) for 2001 compared with $3.90 per mcf for
2000. Because the Company is significantly impacted by the crude oil
markets, the Company performed an impairment evaluation of its oil and
gas properties and recognized a non-cash impairment of $3,382,741 in
December 2001 to account for those properties whose investment would
not be recoverable under current pricing assumptions, as defined by
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of ("SFAS 121"). Although the reduction in oil pricing
impacted this evaluation, the specific properties involved in the
writedown had minimal volumes of hydrocarbons and little chance of
recovery from any future price increases. Because no event occurred in
2000 or 1999 which would trigger an impairment evaluation, no such
evaluation was performed for those years.
-33-
(5) Cash Flow Data
--------------
Supplemental cash flow information for the three years ended December
31, 2001 is summarized as follows:
2001 2000 1999
---- ---- ----
Cash paid for
Interest net of $65,314,
$28,448 and $7,954
capitalized $2,034,152 $3,015,276 $ 758,695
========= ========= =========
Income taxes $3,191,788 $7,490,000 $1,279,111
========= ========= =========
(6) Long-term Debt
--------------
Long-term debt at December 31, 2001 and 2000 is summarized as follows:
2001 2000
---- ----
Term note due in 20 equal quarterly
installments of $1,912,500 commencing
April 1, 2000. Interest paid quarterly
at varying rates. Certain oil and gas
properties are pledged as collateral. $24,862,500 $32,512,500
Less current installments 7,650,000 7,650,000
---------- ----------
Long-term debt $17,212,500 $24,862,500
========== ==========
The term note permits the Company to choose between three interest
rate options and to specify what portion of the loan is covered by a
specific interest rate option and the applicable funding period to
which the interest rate option is to apply. The interest rate options
are as follows:
(1) Bank's prime lending rate
(2) Bank's certificate of deposit rate
(3) London interbank eurodollar rate (Eurodollar)
At December 31, 2001 and 2000, interest on the bank term loan
approximated 3.67% and 8.05%, respectively.
The credit agreement contains various financial covenants related to
working capital, net worth, and cash flow, and places certain
limitations on the incurrence of additional debt and prohibits the
payment of dividends.
-34-
(7) Employee Incentive Plans
------------------------
During 2000, the Company's Board of Directors approved an amendment to
an employee incentive plan in which officers and key employees had
been awarded stock participation units in 1989 and 1993 that entitled
them to a cash payment equal to the excess of the fair market value of
one share of the Company's common stock over a specified share price
at the grant date times the number of vested shares. Under the
original terms of this plan, no units could be exercised until the
employee terminated his employment with the Company. Pursuant to terms
of the amended plan, each employee holding stock participation units
was given the opportunity to cash out all, or a portion, of the units
held. At the time of the plan amendment, there were a total of 95,500
stock participation units outstanding with option prices of $4.50 and
$5.625 per share. For 2000, general and administrative expense
includes $1,020,023 for the 95,500 stock participation units. A total
of 84,500 units were exercised under the amended plan at $20.81 per
share. As a result of the exercise of these units, the Company made a
cash payment of $1,332,835 to those electing employees. Additionally,
at December 31, 2000, the Company had a liability of approximately
$136,000 attributable to the remaining 11,000 stock participation
units.
In anticipation of a potential merger or sale of the Company, the
remaining 11,000 stock participation units were exercised at $26.00
per share with the Company making a cash payment of $230,313. For
2001, general and administrative expense includes $93,500 for these
remaining stock participation units and there is no remaining
financial liability in connection with this plan.
(8) Income Taxes
------------
Income tax expense consists of the following:
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Federal
Current $2,100,000 $5,898,000 $2,227,000
Deferred 1,931,000 1,527,000 333,000
State 472,000 745,000 233,000
--------- --------- ---------
$4,503,000 $8,170,000 $2,793,000
========= ========= =========
-35-
Income tax expense for the three years ended December 31, 2001 differs
from the amount computed by applying the applicable U.S. corporate
income tax rate of 34% in 2001 and 1999 and 35% in 2000 to income
before income taxes. The reasons for this difference are as follows:
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Income tax expense at
U.S. statutory rate $4,235,320 $7,795,583 $2,430,196
State income taxes net
of Federal income
tax effects 297,000 484,250 153,780
Allowable depletion in
excess of cost depletion (32,109) (8,750) (135,215)
Items not related to current
year earnings -0- (109,484) 305,751
All other items 2,789 8,401 38,488
-------- --------- ---------
Income tax expense $4,503,000 $8,170,000 $2,793,000
========= ========= =========
The components of the net deferred tax liability were as follows:
December 31,
2001 2000
---- ----
Oil and gas property assets $3,110,000 $1,227,000
Employee incentive plan -0- (48,000)
--------- ---------
Net deferred tax liability $3,110,000 $1,179,000
========= =========
(9) Employee Benefit Plans
----------------------
The Company adopted a noncontributory defined contribution retirement
plan for all full-time employees age 21 or older who have completed
one year of service. The plan provides for a minimum annual
contribution by the Company equal to 3% of an employee's base salary
plus overtime compensation. At its discretion, the Company may also
make supplemental contributions to the plan. For calendar 1999, 2000
and 2001, the Company elected to contribute 5% for each employee
covered by this plan. Under this plan, amounts equal to retirement
plan expense are funded annually, which amounted to $129,551,
$108,406, and $106,462, and respectively, for 2001, 2000 and 1999.
The Company also has a profit sharing plan pursuant to Section 401 of
the Internal Revenue Code, whereby participants may contribute a
percentage of their compensation up to 15%. The Plan provides for a
matching contribution by the Company equal to one-half of the
employee's percentage contribution up to 10% of the employee's
compensation. During 2001, 2000 and 1999, the Company's matching
portion amounted to $113,281, $97,228 and $93,823 respectively.
-36-
(10) Contingencies and Commitments
-----------------------------
The Company is a defendant in certain non-environmental litigation
arising from operations in the normal course of business. While it is
not feasible to determine the outcome of these actions, it is the
Company's opinion that the ultimate outcome of the litigation will not
have a material adverse effect on the financial position or results of
operations of the Company.
All of the Company's operations are generally subject to Federal,
state and local environmental regulations. To the best of management's
knowledge, the Company is in substantial compliance with such laws and
regulations.
The Company leases office space and certain equipment under various
operating leases which expire over the next four years. All leases
require the payment of taxes and insurance, and the office lease
requires the Company to pay its pro rata share of increases in
maintenance expense above that prevailing in base years. Management
expects that, in the normal course of business, leases will be renewed
or replaced by other leases. Rent expense for the three years ended
December 31, 2001 was $561,272, $453,440 and $362,443, respectively.
Minimum payments for operating leases having initial or noncancellable
terms in excess of one year are as follows:
2002 $ 386,968
2003 367,510
2004 342,435
2005 264,365
---------
Total minimum payments $1,361,278
=========
-37-
(11) Quarterly Financial Data (Unaudited)
-----------------------------------
Summarized quarterly financial data for the years ended December 31,
2001 and 2000 as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Year Ended December 31, 2001
Revenues $17,520,111 $14,190,988 $12,848,953 $ 9,598,574
Operating Income (a) 8,926,226 4,657,499 3,193,878 (2,961,164)
Net Income 5,673,213 2,803,627 2,004,257 (2,527,274)
Net Income per common share 1.16 .57 .41 (.51)
Year Ended December 31, 2000
Revenues $11,020,146 $11,566,965 $15,205,773 $16,049,373
Operating Income (a) 4,224,089 4,347,088 7,413,165 8,136,046
Net Income 2,475,864 2,601,185 4,623,290 4,402,754
Net Income per common share .51 .53 .95 .90
(a) Operating income excludes interest income and expense from pre-tax income.
(12) Supplemental Oil and Gas Disclosures (Unaudited)
------------------------------------------------
Capitalized Costs
-----------------
A summary of the Company's aggregate capitalized property and equipment
costs relating to oil and gas exploration and development activities
follows:
December 31,
-------------------
2001 2000
---- ----
Proved undeveloped leaseholds $ 3,960,520 $ 1,945,518
Producing properties 184,285,648 160,626,821
----------- -----------
188,246,168 162,572,339
Accumulated depreciation and
amortization 104,165,363 86,828,540
----------- -----------
Net capitalized costs $ 84,080,805 $ 75,743,799
=========== ===========
Costs Incurred
--------------
A summary of costs incurred in oil and gas acquisition, exploration and
development activities follows:
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Acquisition of properties
Proved undeveloped $ 2,015,003 $ 243,885 $ 2,691,308
Proved 11,108,791 7,531,915 40,589,276
Exploration costs 257,394 531,192 1,091,521
Development costs 12,469,097 5,058,262 1,010,969
---------- ---------- ---------
$25,850,285 $13,365,254 $45,383,074
========== ========== ==========
-38-
(12) Supplemental Oil and Gas Disclosures (Unaudited) continued
----------------------------------------------------------
Results of Operations
---------------------
The results of operations from oil and gas producing activities
are as follows:
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Sales $53,363,128 $52,738,994 $23,392,231
Production costs (a) (17,953,047) (14,168,808) (7,839,205)
Exploration expenses (2,434,535) (2,228,067) (1,668,191)
Depreciation and
amortization (13,998,648) (10,053,256) (5,780,413)
Impairment of proved
oil and gas
properties (3,382,741) -- --
---------- ---------- ----------
15,594,157 26,288,863 8,104,422
Income tax expense (5,302,013) (9,201,101) (2,744,385)
---------- ---------- ----------
Results of operations
from oil and gas
producing activities $10,292,144 $17,087,762 $ 5,360,037
========== ========== ==========
(a) Includes lifting costs, severance taxes and advalorem taxes.
Oil and Gas Reserve Quantities
------------------------------
The following unaudited tables represent the Company's estimates of its
proved oil and gas reserves. The Company emphasizes that reserve
estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, the estimates are expected to change as future
information becomes available. The estimates were evaluated by the
Company's staff of petroleum engineers and audited by independent
petroleum engineers. It is their opinions that the reserve quantity and
present value information in the following tables complies with the
applicable rules and regulations of the SEC. All of the Company's
reserves are located within the United States.
-39-
(12) Supplemental Oil and Gas Disclosures (Unaudited) continued
----------------------------------------------------------
Proved Developed and Oil Gas
Undeveloped Reserves (Barrels) (MCF)
- -------------------- --------- -----
Total as of December 31, 1998 5,019,452 12,904,100
Revisions of previous estimates 1,874,514 559,013
Purchases of reserves 4,706,560 18,008,548
Extensions and discoveries 930,732 2,928,373
Production (990,877) (2,289,564)
Sales of reserves in place (20,351) (183,610)
---------- ----------
Total as of December 31, 1999 11,520,030 31,926,860
Revisions of previous estimates 1,549,760 1,146,955
Purchases of reserves 760,874 1,498,830
Extensions and discoveries 1,230,077 2,196,522
Production (1,369,456) (3,915,325)
Sales of reserves in place (80,935) (776,122)
---------- ----------
Total as of December 31, 2000 13,610,350 32,077,720
Revisions of previous estimates (2,469,412) 1,478,240
Purchases of reserves 1,037,087 1,345,844
Extensions and discoveries 268,690 849,327
Production (1,446,375) (4,931,751)
---------- ----------
Total as of December 31, 2001 11,000,340 30,819,380
========== ==========
Proved Developed Reserves
- -------------------------
December 31, 1999 10,072,772 28,917,190
December 31, 2000 11,085,442 29,362,127
December 31, 2001 9,423,192 27,524,641
Standardized Measure
- --------------------
The standardized measure of discounted future cash flows from proved oil
and gas reserves determined in accordance with rules prescribed by the Financial
Accounting Standards Board is summarized as follows:
Years ended December 31,
------------------------
2001 2000 1999
(000's) (000's) (000's)
------- ------- -------
Future cash inflows $ 270,608 $ 655,640 $ 338,098
Future production costs (125,842) (201,244) (134,474)
Future development costs (14,816) (17,611) (11,605)
--------- --------- ---------
129,950 436,785 192,019
Future income tax (expense) (19,177) (127,452) (39,884)
--------- --------- ---------
Future net cash flows 110,773 309,333 152,135
10% annual discount for estimated
timing of cash flows (39,390) (117,755) (54,926)
--------- --------- ---------
Standardized measure of discounted
future net cash flows $ 71,383 $ 191,578 $ 97,209
========= ========= =========
-40-
(12) Supplemental Oil and Gas Disclosures (Unaudited) continued
----------------------------------------------------------
The average prices for oil and gas used to calculate future cash inflows at
December 31, 2001 were $17.62 per barrel and $2.49 per mcf, respectively.
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows.
Years ended December 31,
------------------------
2001 2000 1999
(000's) (000's) (000's)
------- ------- -------
Standardized measure - beginning of year $ 191,578 $ 97,209 $ 24,490
Sales of oil and gas produced,
net of production costs (35,410) (38,570) (15,553)
Net changes in prices and production
costs (164,336) 115,134 35,657
Extensions, discoveries, and improved
recovery, less related costs 1,709 20,979 9,151
Changes in future development costs (9,968) (3,336) (228)
Development costs incurred 4,097 2,137 60
Revisions of previous quantity estimates (14,200) 26,108 15,202
Accretion of discount 27,051 9,721 2,416
Purchase of proved reserves 4,645 16,399 52,739
Sale of proved reserves -0- (799) (394)
Net change in income taxes 66,577 (53,449) (25,817)
Other (360) 45 (514)
--------- --------- ---------
Standardized measure - end of year $ 71,383 $ 191,578 $ 97,209
========= ========= =========
-41-
Schedule II
-----------
MAYNARD OIL COMPANY AND SUBSIDIARY
Valuation and Qualifying Accounts
Three Years Ended December 31, 2001
Charged to
Beginning Cost and Ending
Description Balance Expenses Deductions Balance
- ----------- --------- ---------- ---------- --------
Allowance for Doubtful Accounts - (a)
- -------------------------------------
December 31, 1999 $ 53,000 -- -- $ 53,000
======== ========= ===== ========
December 31, 2000 $ 53,000 -- -- $ 53,000
======== ========= ===== ========
December 31, 2001 $ 53,000 $ 259,949 $-- $312,949
======== ========= ===== ========
(a) Valuation account deducted in the balance sheet from trade accounts
receivable.
-42-
MAYNARD OIL COMPANY AND SUBSIDIARIES
Index to Exhibits
Sequentially
Exhibit Numbered
Number Page
- ------- ------------
21.1 List of subsidiaries of the Company as
of December 31, 2001 44
-43-
EXHIBIT 21.1
LIST OF SUBSIDIARIES
OF THE COMPANY AS OF
December 31, 2001
Percentage of
Jurisdiction of Voting Securities
Name Incorporation Owned by Company
---- --------------- -----------------
M.O.C. Resources, Inc. Nevada 100%
-44-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2001 or
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from
to Commission file number 0-5704
------------------ ------------------- ------
MAYNARD OIL COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1362284
- --------------------------------------------------- -------------------
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8080 N. Central Expressway, Suite 660, Dallas, TX 75206
- --------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 891-8880
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.10 Par Value
------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes x No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in any amendment to this Form 10-K. [ x ]
The number of shares outstanding of the Registrant's $.10 par value common stock
as of April 15, 2002 was 4,880,368 shares.
Pursuant to this Form 10-K(A), the registrant provides Part III of Form 10-K for
2001. Besides this addition of Part III information, no other changes have been
made to the Form 10-K for 2001.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
MAYNARD OIL COMPANY
Information about each director of the Company follows:
Position with Company, Business
Names Age Experience and other Directorships
----- --- ----------------------------------
Ralph E. Graham 82 Director of the Company since 1993.
Independent oil and gas producer.
James G. Maynard 76 Chief Executive Officer and Chairman of
the Board of the Company since its
incorporation in 1971.
Robert B. McDermott 74 Director of the Company since 1971.
Business Consultant.
Fred L. Oliver 78 Director of the Company since 2001.
Independent consulting geologist and
engineer.
Certain information concerning the executive officers of the Company is set
forth below:
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position Age Since
---- -------- --- -----
James G. Maynard Chairman of the Board, 76 1971
Chief Executive Officer
and Treasurer
Glenn R. Moore President and Chief 64 1982
Operating Officer
L. Brent Carruth Executive Vice President 68 1984
of Operations
Kenneth W. Hatcher Executive Vice President 58 1983
of Finance
Linda K. Burgess Vice President of 53 1984
Accounting and
Corporate Secretary
Cassondra Foster Vice President of Land 59 1999
Jerry G. Keen Vice President of 53 1999
Engineering
Mr. Maynard has been a director since 1971 and engaged in oil and gas
exploration as an independent operator and private investor for the past 40
years.
Mr. Moore has over 35 years experience in domestic and foreign oil and
gas exploration and production. Prior to joining the Company in November, 1982,
Mr. Moore served as President of Shannon Oil and Gas, Inc. and Hanover Petroleum
Corporation.
Mr. Carruth has over 35 years of petroleum engineering experience.
Prior to joining the Company in January, 1984, he served for one year as Vice
President of Operations of Cordova Resources. Preceding that, Mr. Carruth was a
petroleum consultant for three years and served as Manager of Engineering of
Texas Pacific Oil Company for eight years.
Mr. Hatcher has over 35 years of finance and accounting experience in
the oil and gas industry and is a Certified Public Accountant. Prior to joining
the Company in February, 1983, Mr. Hatcher served as Controller and Vice
President of Finance of Shannon Oil and Gas, Inc. for three years and as
Controller and Vice President of Hanover Petroleum Corporation for four years.
Ms. Burgess has in excess of 30 years of oil and gas accounting
experience. Prior to joining the Company in May, 1984, Ms. Burgess served as
Controller for Trans-Western Exploration Inc. for four years and as Controller
for Energy Resources Oil and Gas for three years.
Ms. Foster has over 30 years of petroleum land management experience,
joining Maynard Oil Company's Land Department in 1974. Prior to that Ms. Foster
was a Title Analyst for Texas Oil & Gas.
Mr. Keen has over 30 years of petroleum engineering experience and has
been employed by Maynard Oil Company since 1984.
ITEM 11. EXECUTIVE COMPENSATION
The table below sets forth certain information concerning the annual
and long-term compensation for services in all capacities to the Company for the
three years ended December 31, 2001, of those persons who were, at December 31,
2001 (i) the chief executive officer, and (ii) its four other most highly
compensated executive officers ("named executive officers").
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
-----------------------------------------------------
Name and Principal Fiscal All Other
Position Year Salary(2) Bonus(3) Compensation(4)
- ---------------------- ---- -------- -------- ---------------
James G. Maynard 2001 $115,500 -0- $11,550 (5)
Chairman of the Board, 2000 114,231 -0- 11,424
Chief Executive 1999 106,515 -0- 10,652
Officer and
Treasurer
Glenn R. Moore 2001 197,996 9,923 17,000 (6)
President 2000 186,923 9,450 473,310
1999 173,892 -0- 16,000
L. B. Carruth 2001 161,870 8,153 17,000 (7)
Executive Vice President 2000 153,592 7,765 252,250
of Operations 1999 146,785 7,395 14,678
Kenneth W. Hatcher 2001 152,096 7,602 16,694 (8)
Executive Vice President 2000 142,308 7,240 228,365
of Finance 1999 132,904 6,700 13,290
Jerry G. Keen 2001 127,416 6,202 244,265 (9)
Vice President of 2000 116,827 5,906 12,246
Engineering 1999 111,653 5,625 11,166
(1) The Company does not maintain a "long term incentive plan" as that term
is defined in the applicable rules.
(2) Includes amounts deferred under the Company's Thrift Investment Plan.
(3) Includes bonus awards earned for performance in the fiscal year even
though such amounts could be payable in subsequent years.
(4) Totals shown consist of the Company's contributions to (i) the Stock
Participation Plan as enumerated in the table below, (ii) the Retirement
Plan in the amount of 5% of annual salary for 1999, 2000 and 2001,
unless otherwise specified below and (iii) the Thrift Investment Plan
for the remainder.
(5) During 2001, $5,775 was accrued in the Retirement Plan and $5,775 in the
Thrift Investment Plan on behalf of Mr. Maynard.
(6) During 2001, $8,500 was accrued in the Retirement Plan and $8,500 in the
Thrift Investment Plan on behalf of Mr. Moore.
(7) During 2001, $8,500 was accrued in the Retirement Plan and $8,500 in the
Thrift Investment Plan on behalf of Mr. Carruth.
(8) During 2001, $8,347 was accrued in the Retirement Plan and $8,347 in the
Thrift Investment Plan on behalf of Mr. Hatcher.
(9) During 2001, $6,976 was accrued in the Retirement Plan and $6,976 in the
Thrift Investment Plan on behalf of Mr. Keen.
The table below summarizes the cash amount received by each named executive
officer for his stock participation units exercised during the year ended
December 31, 2001.
Aggregated Stock Participation (SPAR) Exercises in 2001
Number of Securities Value of
Underlying Exercised SPARs
SPARs in the year ended Exercised during
12/31/01 Exercised/Remaining year ended 12/31/01
---------------------------- -------------------
Maynard -0- $-0-
Moore -0- -0-
Carruth -0- -0-
Hatcher -0- -0-
Burgess -0- -0-
Keen 11,000/0 230,313
There were no awards of stock participation units to any employee in 2001, nor
are there any remaining unexercised SPARs due "named executive officers."
ITEM 12. SECURITIES BENEFICIALLY OWNED BY
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The table below sets forth each stockholder who, based on public filings,
is known to the Company to be the beneficial owner of more than 5% of the Common
Stock of the Company as of April 15, 2002. On April 15, 2002, 4,880,368 shares
of the Company's Common Stock were issued and outstanding.
Name of Beneficial Owner Number of Shares(1) Percent of Class
------------------------ ------------------- ----------------
James G. Maynard 2,756,596(2) 56.48
9933 Lawler Avenue
Suite 344
Skokie, IL 60077
Franklin Resources, Inc. (3) 465,000 9.53
777 Mariners Island Blvd.
San Mateo, CA 94404
Dimensional Fund Advisors Inc. (4) 394,000 8.07
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
FMR Corp. (5) 488,000 10.00
82 Devonshire Street
Boston, MA 02109
Robert B. McDermott 5,000 0.10
Ralph E. Graham 2,200 0.05
Fred L. Oliver 2,000 0.04
Glenn R. Moore -- --
L. Brent Carruth -- --
Kenneth W. Hatcher -- --
Jerry G. Keen -- --
All directors and executive
officers as a group
(10 persons) 2,765,796 56.67
(1) In accordance with regulations of the Securities and Exchange
Commission, stock ownership reflects shares with respect to which the
director, nominee, principal stockholder or executive officer has
voting power or investment power, or has a right to acquire such power.
Each director, nominee, principal stockholder or executive officer has
both sole voting power and sole investment power with respect to the
shares set forth in the table. Beneficial ownership is disclaimed by
each director, nominee, principal stockholder or executive officer of
shares listed of which he or it would not, but for Rule 13d-3 under the
Securities Exchange Act of 1934, be deemed to be the beneficial owner.
(2) Includes 300,000 shares held of record by a corporation controlled by
Mr. Maynard; 10,000 shares held of record by Joan B. Maynard, spouse of
James G. Maynard, as trustee of a trust for her benefit; and 2,446,596
shares held of record by Mr. Maynard, as trustee of a trust for his
benefit.
(3) According to a Form 13G dated February 2, 2001 filed with the
Securities and Exchange Commission, these shares are beneficially owned
by one or more open or closed-end investment companies or other managed
accounts which are advised by direct and indirect investment advisory
subsidiaries (the "Adviser Subsidiaries") of Franklin Resources, Inc.
("FRI"). Such advisory contracts grant to such Adviser Subsidiaries all
investment and/or voting power over the securities owned by such
advisory clients, and therefore, the Adviser Subsidiaries may be deemed
to be the beneficial owner of the shares listed above.
Additionally, Charles B. Johnson and Rupert H. Johnson, Jr. each own in
excess of 10% of the outstanding Common Stock of FRI and are the
principal shareholders of FRI and may be deemed to be the beneficial
owner of shares held by persons and entities advised by FRI
subsidiaries.
(4) According to a Form 13G dated January 30, 2002 filed with the
Securities and Exchange Commission, Dimensional Fund Advisers, Inc.
("Dimensional"), a registered investment adviser, furnishes investment
advice to four investment companies and serves as investment manager to
certain other investment vehicles, including commingled group trusts
and separate accounts(these investment companies, trusts, and accounts
are the "Funds"). In its role as investment adviser or manager,
Dimensional possesses both voting and/or investment power over the
shares owned by the Funds and may be deemed to be the beneficial owner
of such shares.
(5) According to a Form 13G dated February 14, 2002 filed with the
Securities and Exchange Commission, FMR Corp. is the parent holding
company which has the right to receive or the power to direct the
receipt of dividends or the proceeds from the sale of the above
referenced securities through its wholly-owned subsidiary Fidelity
Management & Research Company ("Fidelity"), on behalf of Fidelity
Low-Priced Stock Fund, a registered investment company, and as such,
FMR and Fidelity may be deemed to be the beneficial holder's of such
shares. Additionally, Edward C. Johnson, 3d, Abigail P. Johnson, and
members of the Edward C. Johnson, 3d family are the predominant owners
of common stock of FMR Corp. and may be deemed to be the beneficial
owners of shares held by persons and/or entities advised by FMR Corp.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MAYNARD OIL COMPANY
By \s\ Kenneth W. Hatcher
---------------------------
Kenneth W. Hatcher
Executive Vice President of
Finance (Principal Financial
and Accounting officer and
Duly Authorized Officer)
Date: April 29, 2002
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ending March 31, 2002 Commission File #0-5704
------------------------------------ -------
MAYNARD OIL COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-1362284
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
8080 N. Central Expressway, Suite 660, Dallas, Texas 75206
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code: (214) 891-8880
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 10, 2002
4,880,368 shares of common stock, par value $0.10
-------------------------------------------------
MAYNARD OIL COMPANY AND SUBSIDIARY
Index to Consolidated Financial Statements and Schedules
Page
----
Part I. Financial Information
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001 3
Consolidated Statements of Operations
Three Months ended March 31, 2002 and 2001 4
Consolidated Statement of Changes in Shareholders' Equity
Three Months ended March 31, 2002 5
Consolidated Statements of Cash Flows
Three Months ended March 31, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
13
Signatures 14
-2-
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
------------- --------------
2002 2001
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14,917,147 $ 14,277,119
Accounts receivable, trade 5,282,342 6,457,897
Income taxes receivable 1,769,928 1,769,928
Other current assets 507,552 448,194
------------- -------------
Total current assets 22,476,969 22,953,138
------------- -------------
Property and equipment, at cost:
Oil and gas properties, successful
efforts method 188,812,782 188,246,168
Other property and equipment 493,090 491,699
------------- -------------
189,305,872 188,737,867
Less accumulated depreciation and
amortization (107,604,408) (104,457,017)
------------- -------------
Net property and equipment 81,701,464 84,280,850
------------- -------------
$ 104,178,433 $ 107,233,988
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 7,650,000 $ 7,650,000
Accounts payable 3,503,109 5,962,824
Accrued expenses 1,031,563 746,806
Income taxes payable 727,352 513,352
------------- -------------
Total current liabilities 12,912,024 14,872,982
------------- -------------
Deferred income taxes 3,248,000 3,110,000
Long-term debt 15,300,000 17,212,500
Shareholders' equity:
Preferred stock of $.50 par value
Authorized 1,000,000 shares; none issued -- --
Common stock of $.10 par value
Authorized 20,000,000 shares;
4,880,368 shares issued and outstanding 488,037 488,037
Additional paid-in capital 18,831,138 18,831,138
Retained earnings 53,399,234 52,719,331
------------- -------------
Total shareholders' equity 72,718,409 72,038,506
------------- -------------
Contingencies and Commitments
$ 104,178,433 $ 107,233,988
============= =============
See accompanying Notes to Consolidated Financial Statements.
-3-
MAYNARD OIL COMPANY AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months ended March 31,
----------------------------
2002 2001
---- ----
Revenues:
Oil and gas sales and royalties $ 9,500,977 $17,259,059
Interest and other 68,848 247,151
Gain on disposition of assets 19,558 13,901
----------- -----------
9,589,383 17,520,111
----------- -----------
Costs and expenses:
Operating expenses 4,089,869 4,449,893
Exploration, dry holes
and abandonments 580 8,956
General and administrative 1,050,681 770,980
Depreciation and amortization 3,213,549 3,116,905
Interest and other 202,801 603,107
----------- -----------
8,557,480 8,949,841
----------- -----------
Income before income taxes 1,031,903 8,570,270
----------- -----------
Income tax expense 352,000 2,897,057
----------- -----------
Net income $ 679,903 $ 5,673,213
=========== ===========
Weighted average number of common shares
outstanding 4,880,368 4,880,463
=========== ===========
Net income per common share $ 0.14 $ 1.16
(basic and diluted) =========== ===========
See accompanying Notes to Consolidated Financial Statements
-4-
MAYNARD OIL COMPANY
Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 2002
Additional Common
Comprehensive Retained Paid-in Common Stock
Total Income Earnings Capital Stock Shares
-----------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 72,038,506 $ 52,719,331 $ 18,831,138 $488,037 4,880,368
Comprehensive Income:
Net income 679,903 $ 679,903 679,903
--------------- ================= ---------------- ---------------- ------------- --------------
Balance at March 31, 2002 $ 72,718,409 $ 53,399,234 $ 18,831,138 $488,037 4,880,368
=============== ================ ================ ============= ==============
See accompanying Notes to Consolidated Financial Statements
-5-
MAYNARD OIL COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
-----------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 679,903 $ 5,673,213
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,213,549 3,116,905
Deferred income taxes 138,000 841,000
Dry holes and abandonments (393) --
Current year costs of dry holes and
abandonments 393 --
(Gain) loss on disposition of assets (19,558) (13,901)
(Increase) decrease in current assets:
Accounts receivable 1,175,555 231,553
Other current assets (59,358) 28,123
Increase (decrease) in current liabilities:
Accounts payable (2,459,715) (2,866,828)
Accrued expenses 284,757 864,943
Income taxes payable 214,000 1,847,000
------------ ------------
Net cash provided by operating
activities 3,167,133 9,722,008
------------ ------------
Cash flows from investing activities:
Proceeds from disposition of assets 20,065 14,859
Additions to property and equipment (634,670) (12,199,457)
------------ ------------
Net cash used by investing
activities (614,605) (12,184,598)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (1,912,500) (1,912,500)
Purchase and retirement of common stock -- (2,140)
------------ ------------
Net cash used by financing
activities (1,912,500) (1,914,640)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 640,028 (4,377,230)
Cash and cash equivalents at beginning of year 14,277,119 21,228,040
Cash and cash equivalents at end of period $ 14,917,147 $ 16,850,810
============ ============
See accompanying Notes to Consolidated Financial Statements
-6-
MAYNARD OIL COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2002
Note 1 Unaudited Financial Statements
The accompanying consolidated financial statements of Maynard Oil
Company (the "Company") have been prepared in accordance with generally
accepted accounting principals, pursuant to the rules and regulations
of the Securities and Exchange Commission included in the instructions
to Form 10-Q and Article 10 of Regulation S-X. The financial
information included herein is unaudited but, in the opinion of
management, contains all adjustments, consisting of all recurring
adjustments, necessary to present fairly the Company's financial
position as of March 31, 2002 and the results of operations and cash
flows for the three months ended March 31, 2002. The December 31, 2001
consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in the 2001 report on Form 10-K
filed with the Securities and Exchange Commission.
Note 2 Earnings Per Share
Net income per common share is based on the weighted average number of
shares outstanding in each period. As of March 31, 2002 and 2001, the
Company had no potentially dilutive common shares, and therefore, basic
and diluted earnings per common share were the same.
Note 3 Potential Merger
On April 25, 2002, the Company issued a press release announcing that
it had signed a merger agreement with Plantation Petroleum Holdings,
LLC. Pursuant to this agreement, Maynard Oil stockholders will receive
$17.00 cash for each of the 4,880,368 shares outstanding. The boards of
both companies have approved the transaction, which is subject to
approval by a majority of Maynard stockholders. Stockholders owning
approximately 56% of the Company's common shares outstanding have
stated their intention to vote in favor of the merger.
Currently, Maynard Oil stock is listed on NASDAQ. Since all of the
Maynard stock outstanding immediately before the merger will be
cancelled in exchange for the right to receive cash, Maynard Oil common
stock will be delisted from NASDAQ, if the merger is completed.
Additionally, Plantation intends to terminate the registration of
Maynard Oil common stock under the Securities Exchange Act of 1934,
meaning that the Company will no longer be required to file various
reports, such as Forms 10-K and 10-Q with the SEC.
-7-
Note 4 Income Taxes
The provision for income taxes consists of the following (thousands of
dollars):
Three Months Ended
March 31
--------
2002 2001
---------------------
Federal:
Current $ 214 $2,056
Deferred 138 841
------ ------
$ 352 $2,897
====== ======
Note 5 Commitments and Contingencies
In connection with the merger agreement referred to in Note 3, the
Company had previously entered into contracts with its personnel, which
provided incentive bonuses and retention arrangements that total
approximately $5,000,000. The incentive bonuses require double
triggering events, beginning with the consummation of a merger, at
which time, one-half of the incentive bonus becomes payable. The
balance due under these incentive bonus contracts, approximately
$2,098,000, is to be paid out within one year after the merger.
On April 1, 2002, the first of six monthly installments was paid to
eight Company employees under the Management Retention Agreement. This
payment, which totaled $134,167, will be included in the Company's
April, 2002 general and administrative expense category. The following
five equal monthly payments will be accounted for in the same manner.
The six monthly payments total approximately $805,000, which is
included in the $5,000,000 referred to in the above paragraph.
The Company is the defendant in certain non-environmental litigation
arising from operations in the normal course of business. While it is
not feasible to determine the outcome of these actions, it is the
Company's opinion that the ultimate outcome of the litigation will not
have a material adverse effect on the financial position or results of
the operations of the Company.
All of the Company's operations are generally subject to Federal, state
and local environmental regulations. To the best of management's
knowledge, the Company is in substantial compliance with such laws and
regulations.
Note 6 Subsequent Events
During May, 2002, the Company entered into a derivative financial
instrument (collar) whereby the Company hedged 2,400 barrels of daily
production from June 1, 2002 through May 31, 2003 with a ceiling price
of $29.19 per barrel and a floor price of $20.00 per barrel. This
agreement provides for monthly financial settlements between the two
parties should either the floor or ceiling amounts be exceeded.
- --------------------------------------------------------------------------------
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- --------------
Quarter Ended March 31, 2002 Compared to Quarter Ended March 31, 2001
- ---------------------------------------------------------------------
For the first quarter of 2002, the Company earned 14 cents per share on
revenues of $9,589,383 compared to $1.16 per share during the first quarter of
2001 on revenues of $17,520,111. Current quarter results were unfavorably
impacted by reduced revenues from the sale of oil and gas, resulting from lower
product pricing and decreased oil production volumes.
Revenues
- --------
Oil and gas revenues declined $7,758,082 between the two quarterly
periods, or approximately 45%, due to pricing reductions and lower oil
production volumes. Average oil and gas prices were $5.01 per barrel and $5.07
per thousand cubic feet of gas (mcf) lower than the same quarter a year ago. Oil
volumes decreased approximately 5% while gas volumes rose over 4% over this same
period. Interest income also fell between the two periods because of lower
average cash balances available for investment during the 2002 period.
Costs and Expenses
- ------------------
On a net equivalent barrel basis (NEB), lease operating expenses were
51 cents per NEB lower during the current quarter than the first quarter of
2001, caused primarily by lower severance taxes, which relate proportionally to
reduced oil and gas revenues. Decreases in expense workovers also lowered lease
operating costs for the 2002 quarter.
The general and administrative expense category reflects an increase of
$279,701, or approximately 36%, primarily the result of costs incurred in
connection with the potential merger referred to in Note 3 to the Financial
Statements.
-9-
Per NEB, the current quarter's depreciation and amortization amount
increased approximately 5% from $5.59 per NEB during the first quarter of 2001
to $5.87 per NEB during the 2002 quarter. Under the successful efforts method of
accounting, costs of oil and gas properties are amortized on a unit of
production method based upon estimated proved reserves. The Company calculates
and applies this rate on a property by property basis. Fluctuations in
depreciation and amortization expense can be caused by variations in the
performance of the oil and gas property, the amount invested in the property and
the hydrocarbon reserves ultimately recoverable from the property. As the oil
and gas properties and their associated reserves age within a company, these
rates become more predictable and have less variance.
Interest expense decreased $400,309 between the two quarterly periods
due to scheduled bank note payments and the resulting lower average outstanding
principal balance, as well as lower interest rates during the current quarter.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totaled $14.9 million and $14.3 million at
March 31, 2002 and December 31, 2001, respectively. Working capital was $9.6
million at March 31, 2002 compared with $8.1 million at December 31, 2001.
The following summary table reflects cash flows for the three months
ended March 31, 2002 (in thousands):
Net cash provided by operating activities: $3,167
Net cash used by investing activities: 615
Net cash used by financing activities: 1,913
The funds utilized for investing activities, approximately $635,000,
was spent performing development work on various properties.
-10-
At March 31, 2002, the Company's long-term debt was $15,300,000. The
Company believes it has sufficient cash being generated from operating
activities plus cash currently in the bank, or additional borrowing capacity, to
fund its planned drilling activities, to make additional property acquisitions,
as well as make scheduled debt repayments.
Certain Factors that Could Affect Future Operations
- ----------------------------------------------------
Certain information contained in this report, as well as written and
oral statements made or incorporated by reference from time to time by the
Company and its representatives in other reports, filings with the Securities
and Exchange Commission, press releases, conferences or otherwise, may be deemed
to be "forward-looking statements" within the meaning of Section 21E of the
Securities and Exchange Act of 1934 and are subject to the "Safe Harbor"
provisions of that section. Forward-looking statements include statements
concerning the Company's and management's plans, objectives, goals, strategies
and future operations and performance and the assumptions underlying such
forward-looking statements. These statements are based on current expectations
and involve a number of risks and uncertainties, including those described in
the context of such forward-looking statements. Actual results and developments
could differ materially from those expressed in or implied by such statements.
Such factors include, among others, the volatility of oil and gas prices, the
Company's drilling results, the Company's ability to compete in the acquisition
of producing property, the Company's ability to replace reserves, the
availability of capital resources, the reliance upon estimates of proved
reserves, operating hazards, uninsured risks, competition, government
regulation, and other factors referenced in this Form 10-Q.
Recent Accounting Pronouncements
- --------------------------------
Statement of Financial Accounting Standards "SFAS" No. 143, "Accounting for
Asset Retirement Obligations" addresses accounting and reporting for obligations
associated with
-11-
the retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 will be effective for the Company on January 1, 2003. This
Statement will require the fair value of the obligation be recognized in the
period in which it is incurred, if a reasonable estimate of fair value can be
made, and that the associated asset retirement costs be capitalized as part of
the carrying amount of the asset. The Company is currently assessing the impact
of this standard.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk
- --------------
The Company's primary commodity market risk exposure is to changes in
the pricing applicable to its oil production, which is normally priced with
reference to a defined benchmark, such as light, sweet crude oil (WTI) traded on
the New York Mercantile Exchange (NYMEX). Actual prices received vary from the
benchmark depending on quality and location differentials. The markets for crude
oil historically have been volatile and are likely to continue to be volatile in
the future.
From time to time, the Company enters into financial market
transactions, including collars, with creditworthy counterparties, primarily to
reduce the risk associated with the pricing of a portion of the oil and natural
gas that it sells. The policy is structured to underpin the Company's planned
revenues and results of operations.
During 2001, the Company entered into a derivative financial instrument
whereby the Company hedged 2,000 barrels of daily production from March 1, 2001
through February 28, 2002 with a ceiling price of $28.18/bbl and a floor price
of $24.00/bbl. The Company exercised its right to terminate this contract during
March, 2001 via payment of $803,000 which reduced oil and gas revenues for the
first quarter of 2001.
-12-
The Company has entered into a derivative instrument whereby the
Company hedged 2,400 barrels of daily production from June 1, 2002 through May
31, 2003 with a ceiling price of $29.19 per barrel and a floor price of $20.00
per barrel. As long as the average selling price for crude falls between $20.00
and $29.19 per barrel, no cash will be exchanged. However, should the average
selling price for crude oil exceed $29.19 per barrel, Maynard would owe the
counterparty the product of the amount in excess of $29.19 multiplied by the
number of barrels hedged. Conversely, should the average selling price for crude
oil fall below $20.00 per barrel, the counterparty would owe the Company the
product of the amount below $20.00 per barrel multiplied by the number of
barrels hedged. While the use of these derivative instruments limits the
downside risk of adverse price movements, they may also limit future revenues
from favorable price movements. The use of derivatives also involves risk that
the counterparties to such instruments will be unable to meet the financial
terms of such contracts.
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) On April 25, 2002, the Company filed a report on Form
8-K reporting that it had signed a merger agreement
with Plantation Petroleum Holdings, LLC.
-13-
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MAYNARD OIL COMPANY
By: /s/ Glenn R. Moore
----------------------------------
Glenn R. Moore
President
BY: /s/ Kenneth W. Hatcher
----------------------------------
Kenneth W. Hatcher
Executive Vice President of Finance
Dated: May 15, 2002
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
PLANTATION PETROLEUM HOLDINGS, LLC,
PLANTATION PETROLEUM ACQUISITION CORP.
AND
MAYNARD OIL COMPANY
APRIL 25, 2002
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER...................................................................................2
1.1. The Merger.....................................................................................2
1.2. Closing........................................................................................2
1.3. Effective Time.................................................................................2
1.4. Certificate of Incorporation; Bylaws; Directors; and Officers..................................2
1.5. Dissenter's Rights.............................................................................3
1.6. Escrow.........................................................................................3
ARTICLE II EFFECT OF THE MERGER ON THE STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE
OF CERTIFICATES.........................................................................................4
2.1. Effect on Stock................................................................................4
2.2. Exchange of Certificates.......................................................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................6
3.1. Organization...................................................................................6
3.2. Capital Structure..............................................................................6
3.3. Subsidiaries...................................................................................7
3.4. Authority......................................................................................7
3.5. Consents and Approvals; No Violations..........................................................7
3.6. SEC Documents and Other Reports................................................................8
3.7. Absence of Certain Changes.....................................................................8
3.8. Information Supplied...........................................................................8
3.9. Compliance with Laws...........................................................................9
3.10. Tax Matters....................................................................................9
3.11. Liabilities...................................................................................10
3.12. Litigation....................................................................................10
3.13. Benefit Plans.................................................................................10
3.14. Brokers.......................................................................................11
3.15. Voting Requirements...........................................................................12
3.16. Environmental Matters.........................................................................12
3.17. Contracts.....................................................................................13
3.18. Company Oil and Gas Properties................................................................15
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TABLE OF CONTENTS
(continued)
Page
3.19. Intellectual Property.........................................................................17
3.20. Reserve Report................................................................................17
3.21. Additional Drilling Obligations...............................................................17
3.22. Wells.........................................................................................17
3.23. Facilities....................................................................................18
3.24. Wells to Be Plugged and Abandoned.............................................................18
3.25. Asset Value...................................................................................18
3.26. Confidentiality Agreements....................................................................18
3.27. Insurance.....................................................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB............................................18
4.1. Organization..................................................................................18
4.2. Authority.....................................................................................19
4.3. Consents and Approvals; No Violations.........................................................19
4.4. Financial Statements..........................................................................20
4.5. Absence of Certain Changes....................................................................20
4.6. Information Supplied..........................................................................20
4.7. Compliance with Laws..........................................................................20
4.8. Liabilities...................................................................................21
4.9. Interim Operations of Sub.....................................................................21
4.10. Litigation....................................................................................21
4.11. Brokers.......................................................................................21
4.12. Availability of Funds.........................................................................21
4.13. Ownership of Shares...........................................................................22
4.14. Fair Market Value Determination...............................................................22
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS...................................................22
5.1. Conduct of Business by the Company Pending the Merger.........................................22
5.2. No Solicitation; Acquisition Proposals........................................................24
5.3. Modifications to Recommendations; Subsequent Determination....................................26
5.4. Hedge.........................................................................................26
ARTICLE VI ADDITIONAL AGREEMENTS.......................................................................27
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TABLE OF CONTENTS
(continued)
Page
6.1. Employee Benefits.............................................................................27
6.2. Stockholder Approval..........................................................................28
6.3. Access to Information.........................................................................28
6.4. March 2002 Form 10-Q..........................................................................29
6.5. Title Defects.................................................................................29
6.6. Environmental Defects.........................................................................30
6.7. Material Oil and Gas Contract Defects.........................................................30
6.8. Termination Fee...............................................................................31
6.9. Public Announcements..........................................................................31
6.10. Transfer Taxes................................................................................31
6.11. State Takeover Laws...........................................................................31
6.12. Indemnification; Directors and Officers Insurance.............................................32
6.13. Reasonable Best Efforts.......................................................................33
ARTICLE VII CONDITIONS PRECEDENT........................................................................34
7.1. Conditions to Each Party's Obligation to Effect the Merger....................................34
ARTICLE VIII TERMINATION AND AMENDMENT...................................................................34
8.1. Termination...................................................................................34
8.2. Effect of Termination.........................................................................36
8.3. Amendment.....................................................................................36
8.4. Extension; Waiver.............................................................................36
ARTICLE IX GENERAL PROVISIONS..........................................................................36
9.1. Non-Survival of Representations and Warranties and Agreements.................................36
9.2. Notices.......................................................................................36
9.3. Interpretation; Definitions...................................................................37
9.4. Counterparts..................................................................................48
9.5. Arbitration...................................................................................48
9.6. Entire Agreement; No Third-Party Beneficiaries................................................49
9.7. Governing Law.................................................................................49
9.8. Assignment....................................................................................49
9.9. Severability..................................................................................49
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TABLE OF CONTENTS
(continued)
Page
9.10. Enforcement of this Agreement.................................................................50
9.11. Obligations of Subsidiaries...................................................................50
-iv-
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, is made and entered into as of April
25, 2002 (this "AGREEMENT") by and among Plantation Petroleum Holdings, LLC, a
Delaware limited liability company ("Parent"), Plantation Petroleum Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("SUB"),
and Maynard Oil Company, a Delaware corporation (the "COMPANY") (Sub and the
Company being hereinafter collectively referred to as the "CONSTITUENT
CORPORATIONS"). Except as otherwise set forth herein, capitalized (and certain
other) terms used herein shall have the meanings set forth in Section 9.3.
WHEREAS, the respective Boards of Directors of Sub and the Company have
approved, and deem it to be advisable and in the best interests of their
respective stockholders, and the Board of Managers of Parent has approved, and
deems it to be advisable and in the best interests of Parent and its members, to
consummate the acquisition of the Company by Parent on the terms and conditions
set forth herein;
WHEREAS, the acquisition will be accomplished by Sub merging with and
into the Company (the "MERGER") and each share of common stock, par value $0.10
per share, of the Company ("COMPANY COMMON STOCK" or the "SHARES") (other than
Dissenting Shares) will be converted in the Merger into the right to receive an
amount equal to $17.00 per Share in cash (the "MERGER CONSIDERATION");
WHEREAS, the Board of Directors of the Company has determined that this
Agreement and the Merger are fair to, and in the best interests of, the
Company's stockholders and has resolved to recommend that the Company's
stockholders adopt this Agreement;
WHEREAS, the respective Boards of Directors of Sub, Guarantors and the
Company, and the Board of Managers of Parent, have each approved this Agreement
and the Merger, and the transactions contemplated hereby and thereby;
WHEREAS, as a condition and an inducement to Parent and Sub entering
into this Agreement, James G. Maynard, as trustee, Joan B. Maynard, as trustee,
and BCTM, Inc. have entered into a Voting Agreement with Parent (the "VOTING
AGREEMENT") pursuant to which each such stockholder has agreed to vote all of
their, respective, Company Common Stock in favor of this Agreement and the
Merger;
WHEREAS, as a condition and an inducement to the parties entering into
this Agreement, Parent shall, contemporaneously with the execution of this
Agreement, pay Two Million Dollars ($2,000,000) into an escrow account pursuant
to Section 1.6 in exchange for the right to conduct the additional
investigations of the Company's Material Oil and Gas Properties described on
Exhibit A attached hereto;
WHEREAS, as a condition and an inducement to the parties entering into
this Agreement, Plantation Petroleum Ventures, Ltd., a Texas limited partnership
affiliated with Parent and Sub, and Plantation Petroleum Corp., a Texas
corporation affiliated with Parent and
Sub (collectively, "GUARANTORS"), have agreed to unconditionally guarantee the
obligations of Parent and Sub under this Agreement and the transactions
contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, Parent, Sub and the Company agree as
set forth below.
ARTICLE I
THE MERGER
1.1. THE MERGER. The Merger shall be effected in accordance with the
DGCL. The Sub shall be merged with and into the Company at the Effective Time,
and the surviving corporation shall thereby become a wholly-owned subsidiary of
Parent. Following the Effective Time, the separate existence of Sub shall cease
and the Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and shall succeed to and assume all the rights and obligations of
Sub and the Company in accordance with the DGCL. The Merger shall have the
effects set forth in the DGCL.
1.2. CLOSING. The closing of the Merger will take place at 10:00 a.m.
on a date mutually agreed to by Parent and the Company, which shall be as soon
as practicable after satisfaction or waiver of the conditions set forth in
Article VII (the "CLOSING DATE"), at the offices of McDermott, Will & Emery, 227
West Monroe Street, Chicago, Illinois 60606, unless another date, time or place
is agreed to in writing by the parties hereto.
1.3. EFFECTIVE TIME. Sub and the Company will cause a Certificate of
Merger (the "CERTIFICATE OF MERGER") to be executed and filed on the Closing
Date. The Merger shall become effective when the Certificate of Merger, executed
in accordance with the relevant provisions of the DGCL, is duly filed with the
Secretary of State of the State of Delaware, or at such other time as Sub and
the Company shall agree, as specified in the Certificate of Merger. When used in
this Agreement, the term "EFFECTIVE TIME" shall mean the later of the date and
time at which the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware or such later time established by the Certificate
of Merger.
1.4. CERTIFICATE OF INCORPORATION; BYLAWS; DIRECTORS; AND OFFICERS.
(a) At the Effective Time, the Certificate of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
(b) The Bylaws of Company, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter changed or amended as provided by the Certificate of Incorporation of
the Surviving Corporation or by applicable law.
(c) The directors of Sub immediately prior to the Effective Time shall
be the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
-2-
(d) The officers of the Company immediately prior to the Effective Time
shall be the officers of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
1.5. DISSENTER'S RIGHTS. Notwithstanding anything in this Agreement to
the contrary, any shares of Company Common Stock outstanding immediately prior
to the Effective Time and held by a holder who has properly exercised the
holder's appraisal rights in accordance with Section 262 of the DGCL or any
successor provision ("DISSENTING SHARES"), shall not be converted into, or
represent the right to receive, the Merger Consideration, unless and until such
holder fails to perfect or effectively withdraws or otherwise loses his right to
appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses his right to
appraisal, such Dissenting Shares shall thereupon be treated as if they had been
converted as of the Effective Time into the right to receive the Merger
Consideration to which such holder is entitled, without interest or dividends
thereon, upon the surrender of the certificate(s) which formerly represented
Shares, in the manner provided in Section 2.2. The Company shall give Parent
prompt notice of any demands received by the Company for appraisal of Shares.
1.6. ESCROW. Parent, Company and Bank One, a national association (the
"ESCROW AGENT") shall execute an Escrow Agreement substantially in the form
attached hereto as Exhibit C (the "ESCROW AGREEMENT"), and Parent shall pay and
deliver to the Escrow Agent, either by cashier's check or wire transfer of
immediately available funds, an earnest money deposit (the "DEPOSIT") of
$2,000,000 (Two Million Dollars). Parent and the Company agree to execute
written instructions to the Escrow Agent in accordance with the Escrow Agreement
to release the Deposit as follows:
(i) to Parent at Closing;
(ii) unless the Company has also breached this Agreement, to
Company, if (A) the Company terminates this Agreement pursuant to
Section 8.1(e) or (B) the Merger is not consummated on or before the
Outside Date and the failure to consummate the Merger is the result of
a breach of this Agreement by Parent; and
(iii) to Parent, if Parent terminates this Agreement pursuant to
Section 8.1(c), 8.1(f) or 8.1(g), if Company terminates this Agreement
pursuant to Section 8.1(d), or if Closing does not otherwise occur on
or before the Outside Date for any reason other than (ii) above.
The fees of the Escrow Agent shall be borne by Parent.
-3-
ARTICLE II
EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1. EFFECT ON STOCK. As of the Effective Time, by virtue of the Merger
and without any action on the part of any of Sub, the Company or the holders of
any securities of the Constituent Corporations:
(a) Capital Stock of Sub. Each issued and outstanding share of capital
stock of Sub shall be converted into one validly issued, fully paid and
nonassessable share of Common Stock, $0.10 par value, of the Surviving
Corporation;
(b) Treasury Stock and Parent Owned Stock. Each Share that is owned by
the Company, Parent, Sub or any other Subsidiary of Parent shall automatically
be cancelled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor; and
(c) Conversion of Shares. Each Share issued and outstanding (other than
Shares to be cancelled in accordance with Section 2.1(b)) shall be converted
into the right to receive the Merger Consideration. As of the Effective Time,
all such Shares, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration.
2.2. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. At or before the Effective Time, Parent or Sub
shall deposit, or shall cause to be deposited, with a banking or other financial
institution mutually acceptable to Parent and the Company (the "EXCHANGE
AGENT"), for the benefit of the holders of Shares, cash in an amount equal to
the product of the number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time (reduced by the sum of the
number of Shares owned by Parent, Sub or the Company) times the Merger
Consideration for exchange in accordance with this Article II. Such funds shall
be invested by the Exchange Agent as directed by Parent. Parent shall pay all
charges and expenses of the Exchange Agent.
(b) Exchange Procedure. As soon as practicable after the Effective
Time, Parent or the Surviving Corporation shall cause the Exchange Agent to mail
and make available to each holder of record of a certificate or certificates
that immediately prior to the Effective Time represented Shares (the
"CERTIFICATES"), (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent and the Company may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates for payment of the Merger Consideration. Upon surrender of a
Certificate to the Exchange Agent, together with a duly executed letter of
transmittal, the Exchange Agent shall, and the Parent shall cause the Exchange
Agent to, promptly pay out to the
-4-
holder of such Certificate a check representing the Merger Consideration that
such holder has the right to receive in respect of the Certificate surrendered,
after giving effect to any required withholding tax. Shares represented by the
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or accrued on the cash payable to holders of Shares. In the event of a transfer
of ownership of Shares that is not registered in the transfer records of the
Company, Merger Consideration to be paid pursuant to this Section 2.2 may be
paid to a transferee, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the transferee shall pay any
transfer or other taxes required by reason of the payment to a Person other than
the registered holder of such Certificate or establish to the satisfaction of
Parent or the Surviving Corporation that such tax has been paid or is not
applicable. Parent or the Exchange Agent shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any holder of Shares such amounts as Parent or the Exchange Agent
is required to deduct and withhold with respect to the making of such payment
under the Code or under any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Parent or the Exchange Agent, withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the Shares in respect of which such deduction and withholding
was made by Parent or the Exchange Agent. Until surrendered as contemplated by
this Section 2.2, each Certificate (other than Certificates representing
Dissenting Shares) shall be deemed at any time after the Effective Time to
represent only the right to receive the Merger Consideration in cash as
contemplated by this Section 2.2.
(c) No Further Ownership Rights in Shares. The Merger Consideration
paid upon the surrender for exchange of Certificates in accordance with the
terms of this Article II shall be deemed to have been paid in full satisfaction
of all rights pertaining to such Shares. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the Shares that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
Parent, the Surviving Corporation or the Exchange Agent for any reason, they
shall be cancelled and exchanged as provided in this Article II. (d) No
Liability. At any time following one (1) year after the Effective Time, the
Surviving Corporation shall be entitled to require the Exchange Agent to deliver
to it any funds (including any interest received with respect thereto) which had
been made available to the Exchange Agent and which have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to look
to the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates, without any
interest thereon. Notwithstanding the foregoing, none of Parent, Sub, the
Company or the Exchange Agent shall be liable to any Person in respect of any
amount properly delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(e) Lost Certificates. If any Certificate shall have been lost, stolen,
mislaid or destroyed, then, upon receipt of (i) an affidavit of that fact from
the holder claiming such Certificate to be lost, mislaid, stolen or destroyed,
and (ii) such bond, security or indemnity as Parent or the Exchange Agent may
reasonably require, the Merger Consideration with respect to the Shares of
Company Common Stock represented by such Certificate may be paid. Each lost,
stolen, mislaid or destroyed Certificate with respect to which any Merger
Consideration shall be paid in
-5-
accordance with the provisions of this Section 2.2(e) shall forthwith be deemed
surrendered and cancelled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company SEC Documents or in the disclosure
letter of even date herewith delivered by the Company (the "COMPANY DISCLOSURE
LETTER"), the Company represents and warrants to Parent and Sub as set forth
below as of the date of this Agreement and as of the Effective Time (except to
the extent expressly made as of an earlier date, in which case as of such date):
3.1. ORGANIZATION. Each of the Company and MOC Resources, Inc., a
Nevada corporation and wholly owned Subsidiary of the Company (the "COMPANY
SUBSIDIARY"), is validly existing and in good standing under the laws of the
jurisdiction of its organization and has requisite power and authority to carry
on its business as now being conducted, except where the failure to be so
existing and in good standing or to have such power and authority would not have
a Material Adverse Effect on the Company. Each of the Company and the Company
Subsidiary is duly qualified or licensed to do business and in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not have a Material Adverse Effect on the
Company or prevent or materially delay the consummation of the Merger. The
Company has made available to Parent complete and correct copies of its
certificate of incorporation and bylaws and the articles of incorporation and
bylaws of the Company Subsidiary, in each case as amended through the date
hereof.
3.2. CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock and 1,000,000 shares of
preferred stock, par value $.50 per share (the "COMPANY PREFERRED STOCK"). At
the close of business on the date hereof, (i) 4,880,368 shares of Company Common
Stock were issued and outstanding, all of which were duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights, (ii) no
shares of Company Common Stock were held by the Company in its treasury, (iii)
no shares of Company Common Stock or Company Preferred Stock were reserved for
issuance pursuant to outstanding options or warrants to purchase, and (iv) no
shares of Company Preferred Stock were issued or outstanding. Except as set
forth above, no shares of capital stock were issued, reserved for issuance or
outstanding. There are no outstanding stock appreciation rights, phantom stock
or other contractual rights the value of which is determined in whole or in part
by the value of any capital stock of the Company ("STOCK EQUIVALENTS"). There
are no outstanding bonds, debentures, notes or other indebtedness of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matter on which the Company's stockholders may
vote. There are no securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or the
Company Subsidiary is a party or by which any of them is bound obligating the
Company or the Company Subsidiary to issue, deliver or sell or create, or cause
to be issued, delivered or sold or created, or evidencing any right to subscribe
for, additional shares of capital
-6-
stock or other voting securities or Stock Equivalents of the Company or the
Company Subsidiary or obligating the Company or the Company Subsidiary to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no outstanding
rights, commitments, agreements or undertakings of any kind obligating the
Company or the Company Subsidiary to repurchase, redeem or otherwise acquire any
shares of capital stock or other voting securities of the Company or the Company
Subsidiary or any securities of the type described in the two immediately
preceding sentences.
3.3. SUBSIDIARIES. Except for the capital stock of the Company
Subsidiary, the Company does not own, directly or indirectly, any capital stock
or other ownership interest in any Person. All of the outstanding shares of
capital stock or ownership interest of the Company Subsidiary have been validly
issued and are fully paid and nonassessable, and are owned by the Company free
and clear of all Liens (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock). The Company Subsidiary holds assets of
approximately $190,000 in the form of cash or cash equivalents, has no
liabilities (whether fixed or contingent) or employees and is not actively
engaged in any operations.
3.4. AUTHORITY. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to Company
Stockholder Approval, to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the Merger and of the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, subject to Company Stockholder Approval. This
Agreement has been duly executed and delivered by the Company and (assuming the
valid authorization, execution and delivery of this Agreement by Parent and Sub)
constitutes the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except that such enforceability (i)
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally and (ii)
is subject to general principles of equity.
3.5. CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the execution and
delivery of this Agreement by the Company nor the consummation by the Company of
the transactions contemplated hereby will (a) conflict with or result in any
breach of any provision of the respective certificate or articles of
incorporation or respective by-laws or of the Company or the Company Subsidiary,
(b) require any Consent of, or filing with or notification to, any Governmental
Entity, except (i) a proxy or information statement relating to the Company
Stockholders' Meeting (as amended or supplemented from time to time, the "PROXY
STATEMENT"), (ii) pursuant to the applicable requirements of the Exchange Act,
(iii) the filing of the Certificate of Merger pursuant to the DGCL and
appropriate documents with the relevant authorities of other states in which the
Company is authorized to do business, (iv) as may be required by any applicable
state securities or "blue sky" laws or state takeover laws or (v) where the
failure to obtain such Consents, or to make such filings or notifications, would
not have a Material Adverse Effect on the Company, or (c) assuming the Consents,
filings or notifications referred to in this Section 3.5 are duly and timely
obtained or made and Company Stockholder Approval has been obtained, violate any
order, writ, injunction, decree, statute, rule or regulation in effect as of the
date of this Agreement and applicable to the Company, except for violations
which would not have a Material Adverse Effect on the Company.
-7-
3.6. SEC DOCUMENTS AND OTHER REPORTS. The Company has timely filed with
the SEC all required reports, schedules, forms, statements and other documents
required to be filed by it since December 31, 2001 through the date of this
Agreement under the federal securities laws and the SEC rules and regulations
thereunder (the "COMPANY SEC DOCUMENTS"). As of their respective filing dates,
the Company SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, each
as in effect on the date so filed, and at the time filed with the SEC none of
the Company SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company (including the
related notes thereto) included in the Company SEC Documents complied in form
and substance as of their respective dates in all material respects with the
then applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, were prepared in accordance with GAAP (except
in the case of the unaudited statements, as permitted by Form 10-Q under the
Exchange Act) applied on a basis consistent with prior periods (except as may be
indicated therein or in the notes thereto) and fairly present, in conformity
with GAAP, in all material respects the consolidated financial position of the
Company and the Company Subsidiary as at the dates thereof and the consolidated
results of their operations and their consolidated cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments and to any other adjustments described therein).
3.7. ABSENCE OF CERTAIN CHANGES. Since December 31, 2001, the Company
has conducted its business in all material respects only in the ordinary course
and in a manner consistent with past practice and there has not been (i) any
changes, circumstances or events which have had a Material Adverse Effect on the
Company, (ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to its capital
stock or any redemption, purchase or other acquisition of any of its capital
stock, (iii) any split, combination or reclassification of any of its capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iv) any change in accounting methods, principles or practices by
the Company, except insofar as may have been required by a change in GAAP, (v)
any increase in compensation, severance or termination pay to any current or
former director, officer or employee of the Company or (vi) any damage,
destruction or loss (whether or not covered by insurance) that has had a
Material Adverse Effect on the Company.
3.8. INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company specifically for inclusion or incorporation by reference
in the Proxy Statement, will, at the time the Proxy Statement is first mailed to
the Company's stockholders, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Stockholders Meeting which has become false or misleading. The Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act, except that no representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied by Parent or Sub specifically for inclusion or
incorporation by reference therein.
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3.9. COMPLIANCE WITH LAWS. The Company and the Company Subsidiary are
in compliance in all material respects with all applicable Laws, except for any
non-compliance that would not have a Material Adverse Effect on the Company, and
neither the Company nor the Company Subsidiary has received any notice from any
Governmental Entity or any other Person that either the Company or the Company
Subsidiary is in violation of, or has violated, any applicable Laws, except for
violations that would not have a Material Adverse Effect on the Company. The
Company has in effect all Federal, state and local governmental Permits
necessary for it to own, lease or operate its properties and assets and to carry
on its business as now conducted, and there has occurred no default under any
such Permit, except for the absence of Permits and for defaults under Permits,
which absence or defaults, individually or in the aggregate, would not have a
Material Adverse Effect on the Company. Neither the execution and delivery of
this Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby will result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to a right of termination or cancellation) of any Permit.
3.10. TAX MATTERS. Each of the Company and the Company Subsidiary has
filed (after taking into account any extensions to file) all Tax Returns
required to be filed by it either on a separate or combined or consolidated
basis, except where the failure to timely file a Tax Return (other than a
Federal or state income Tax Return) would not have a Material Adverse Effect on
the Company. All such Tax Returns are complete and accurate, except where the
failure to be complete or accurate would not have a Material Adverse Effect on
the Company. Each of the Company and the Company Subsidiary has paid and
discharged or caused to be paid and discharged all Taxes reflected on such Tax
Returns which have become due and payable by it (except Taxes being contested in
good faith and reserved against, and has made adequate provision in reserves
established in its financial statements and accounts for all Taxes which have
accrued but are not yet due and payable, except where the failure to file Tax
Returns, pay Taxes or provide reserves for Taxes would not have a Material
Adverse Effect on the Company. Neither the Company nor the Company Subsidiary
has waived any statute of limitations in respect of the assessment and
collection of Taxes. Neither the Company nor the Company Subsidiary is a party
to any Tax allocation or sharing agreement outside the ordinary course of
business, other than between themselves. Neither of the Company or the Company
Subsidiary has been a member of an affiliated group filing a consolidated U.S.
federal Tax Return, other than Tax Returns as to which the Company is the common
parent. As of the date of this Agreement, there are no pending or, to the
Knowledge of the Company, threatened in writing audits, examinations,
investigations or other proceedings with respect to Taxes relating to the
Company or the Company Subsidiary, which, if determined adversely to the Company
or the Company Subsidiary, would have a Material Adverse Effect on the Company.
Neither the Company nor the Company Subsidiary is or was either a "distributing
corporation" or "controlled corporation" (within the meaning of Section
355(a)(1)(A) of the Code) in a distribution qualifying for tax-free treatment
under Section 355 of the Code in the two years prior to the date of this
Agreement. No written requests for waivers of the time to assess any material
Taxes of the Company or the Company Subsidiary are pending.
None of the Company's assets constitutes either an interest in, or
property of, an unincorporated organization that files a Tax Return as a
partnership for federal income tax purposes. The Company does not own any
interest in any controlled foreign corporation (as
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defined in section 957 of the Code), passive foreign investment company (as
defined in section 1296 of the Code) or other entity the income of which is
required to be included in the income of the Company.
3.11. LIABILITIES. Neither the Company nor the Company Subsidiary has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) whether or not any such liability or obligation would
have been required by GAAP to be set forth on a consolidated balance sheet of
the Company or in the notes thereto, other than (i) liabilities and obligations
set forth on the audited consolidated balance sheet of the Company and the
Subsidiary as of December 31, 2001 (or in the notes thereto) contained in the
Company SEC Documents, (ii) liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby (iii)
liabilities and obligations incurred since December 31, 2001 in the ordinary
course of business (none of which is a material liability for breach of
contract, breach of warranty, tort or infringement) or (iv) liabilities which
would not have a Material Adverse Effect on the Company.
3.12. LITIGATION. Except as disclosed in the Company SEC Reports or as
set forth in the Company Disclosure Letter, as of the date of this Agreement,
there is no, nor has there been since December 31, 2001 any, suit, action,
claim, audit, proceeding or investigation pending or, to the Knowledge of the
Company, threatened against the Company or the Company Subsidiary or to the
Knowledge of the Company against any member of the Company's Board of Directors
or any of the Company's officers in their capacity as such, by or before any
Governmental Entity or by any third party that, individually or in the
aggregate, would (i) have a Material Adverse Effect on the Company, (ii) impair
the ability of the Company to perform its obligations under this Agreement or
(iii) prevent or delay the Merger; nor is there any outstanding judgment, order,
writ, injunction, rule or decree of any Governmental Entity or arbitrator
outstanding against the Company or the Company Subsidiary that would have any
such effect, and neither the Company nor the Company Subsidiary has any
Knowledge of any fact or circumstance that the Company believes, or reasonably
should believe, would be likely to form the basis for any such claim, suit,
proceeding, audit or governmental investigation.
3.13. BENEFIT PLANS.
(a) The Company Disclosure Letter sets forth a complete and accurate
list of all Benefit Plans of the Company. The Company Subsidiary does not have,
and, since January 1, 1997, has not had, any Benefit Plans. Except as required
by law, the Company has not adopted or amended in any material respect any
Benefit Plan since December 31, 2001. The Company has made available to Parent a
copy of each Benefit Plan.
(b) Except as would not have a Material Adverse Effect on the Company,
each ERISA Benefit Plan maintained by the Company has been maintained and
operated in compliance with its terms, the applicable requirements of applicable
law, including the Code and ERISA. Each ERISA Benefit Plan intended to be
"qualified" within the meaning of Section 401(a) of the Code has received a
current favorable determination letter from the IRS. None of the Company, the
Company Subsidiary or any other Person or entity that together with the Company
is treated as a single employer under Section 414 of the Code (each, an "ERISA
AFFILIATE") has at any time during the five-year period preceding the date
hereof contributed to any ERISA Benefit Plan that
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is a "multiemployer plan" (as defined in Section 3(37) of ERISA) or maintained
any ERISA Benefit Plan that is subject to Title IV of ERISA or Section 412 of
the Code.
(c) No liability under Title IV or Section 302 of ERISA has been
incurred by the Company or any ERISA Affiliate that has not been satisfied in
full, and no condition exists that presents a material risk to the Company or
any ERISA Affiliate of incurring any such liability. Insofar as the
representation made in this Section 3.13(c) applies to Sections 4064, 4069 or
4204 of Title IV of ERISA, it is made with respect to any employee benefit plan,
program, agreement or arrangement subject to Title IV of ERISA to which the
Company or any ERISA Affiliate made, or was required to make, contributions
during the five-year period ending on the last day of the most recent plan year
ending prior to the Closing Date.
(d) No Benefit Plan provides medical, surgical, hospitalization or
death benefits (whether or not insured) for employees or former employees of the
Company for periods extending beyond their retirement or other termination of
service, other than (i) coverage mandated by applicable law, (ii) death benefits
under any "pension plan," or (iii) benefits the full cost of which is borne by
the current or former employee (or his or her beneficiary) or (iv) exceptions
which would not have a Material Adverse Effect on the Company.
(e) The Company is not a party to any collective bargaining or other
labor union contract. There is no pending or, to the Knowledge of the Company,
threatened in writing labor dispute, strike or work stoppage against the Company
which would have a Material Adverse Effect on the Company, nor is the Company
aware of any labor organization activity involving its employees. The employment
of each officer and employee of the Company is terminable at the will of the
Company.
(f) The consummation of the transactions contemplated by this Agreement
will not give rise to an obligation on behalf of the Company to make severance
or change of control payments to any employees or directors of the Company or
the Company Subsidiary, or increase benefits or accelerate vesting or payments
under any Benefit Plans.
(g) No payments made to any employees or directors of the Company or
the Company Subsidiary by the Company or the Company Subsidiary as a result of
the consummation of the transactions contemplated by this Agreement would be
non-deductible under Section 280G of the Code, except as would not have a
Material Adverse Effect on the Company.
(h) Neither the Company nor the Company Subsidiary has taken any action
or failed to take any action which would result in the imposition of an excise
tax on the Company pursuant to Sections 4975, 4980B and 4999 of the Code that
would have a Material Adverse Effect on the Company.
3.14. BROKERS. No broker, investment banker, financial advisor or other
Person, other than William Blair & Company LLC ("WILLIAM BLAIR"), the fees and
expenses of which will be paid by the Company, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company or the Company Subsidiary.
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3.15. VOTING REQUIREMENTS.
(a) Approval of the Merger requires the affirmative vote of a majority
of the outstanding Shares (the "COMPANY STOCKHOLDER APPROVAL"). The Company
Stockholder Approval is the only vote of the holders of the Company's capital
stock necessary to approve and adopt this Agreement and the transactions
contemplated hereby.
(b) The Board of Directors of the Company, at a meeting duly called and
held, has unanimously duly adopted resolutions (i) determining that this
Agreement and the transactions contemplated hereby, including the Merger, are
advisable and are fair to and in the best interest of the Company's
stockholders, (ii) approving this Agreement and the transactions contemplated
hereby, including the Merger (and for purposes of Section 203 of the DGCL, the
Voting Agreement) which approval satisfies in full the requirements of the DGCL
that the Agreement be approved by the Company's Board of Directors, and (iii)
resolving to recommend approval and adoption of this Agreement by the Company's
stockholders at the Company Stockholders Meeting (the recommendations referred
to in this clause (iii) are collectively referred to in this Agreement as the
"RECOMMENDATIONS" and are subject to the right of the Board of Directors of the
Company to make Subsequent Determinations in accordance with Section 5.3 below).
The Company has received the opinion, dated the date hereof, of William Blair
that, as of such date and on the basis of and subject to the matters described
therein, the Merger Consideration was fair to the Company's stockholders (other
than Parent and Sub) from a financial point of view. The Company has been
advised that all of its directors who hold Company Common Stock intend to vote
in favor of the Merger.
3.16. ENVIRONMENTAL MATTERS.
(a) The Company is in compliance with all applicable Environmental
Laws, including possessing or filing all Permits, exemptions and other
governmental authorizations required for its operations under applicable
Environmental Laws, except for such non-compliance that would not have a
Material Adverse Effect on the Company.
(b) There is no pending or, to the Knowledge of the Company, threatened
claim, lawsuit or administrative proceeding against the Company or the Company
Subsidiary, under or pursuant to any Environmental Law. The Company has not
received written notice from any Person, including any Governmental Entity,
alleging that the Company has been or is in violation or potentially in
violation of any applicable Environmental Law or otherwise may be liable under
any applicable Environmental Law, which violation or liability is unresolved.
The Company has not received any written request for information from any
Person, including any Governmental Entity, related to liability under or
compliance with any applicable Environmental Law.
(c) With respect to the real property that is currently owned, leased
or operated by the Company, there have been no spills, discharges or releases
(as such term is defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42, U.S.C. 9601, et seq.) of Hazardous
Substances or any other contaminant or pollutant on or underneath any of such
real property that would have a Material Adverse Effect on the Company.
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(d) With respect to real property that was formerly owned, leased or
operated by the Company or any of its predecessors in interest, to the Knowledge
of the Company, there were no spills, discharges or releases (as such term is
defined by the Comprehensive Environmental Response, Compensation and Liability
Act, 42, U.S.C. 9601, et seq.) of Hazardous Substances or any other contaminant
or pollutant on or underneath any of such real property during or prior to the
Company's ownership or operation of such real property that would have a
Material Adverse Effect on the Company.
(e) The Company has not entered into any written agreement to pay to,
reimburse, guarantee, pledge, defend, indemnify or hold harmless any Person from
or against any liabilities or costs arising out of or related to the generation,
manufacture, use, transportation or disposal of Hazardous Substances, or
otherwise arising in connection with or under Environmental Laws, which would
have a Material Adverse Effect on the Company.
(f) To the Knowledge of the Company, the Company has not disposed or
arranged for the disposal of Hazardous Substances (or any waste or substance
containing Hazardous Substances) at any location that is: (i) listed on the
Federal National Priorities List ("NPL") or identified on the Comprehensive
Environmental Response, Compensation and Liability Information System
("CERCLIS"), each established pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act, 42, U.S.C. 9601, et seq.; (ii) listed
on any state list of hazardous waste sites that is analogous to the NPL or
CERCLIS; or (iii) has been subject to environmental investigation or redemption,
other than, in each case, exceptions which would not have a Material Adverse
Effect on the Company.
(g) The Company has made available to Parent all material environmental
audits and studies which are in the Company's possession or control.
3.17. CONTRACTS.
(a) The Company Disclosure Letter and the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 and the exhibits contained or
incorporated by reference therein together set forth a complete and accurate
list of all material agreements to which the Company is a party, as of the date
of this Agreement and the Closing Date, including: (i) any contract covering
compensation and employment or service of any officer, employee or consultant or
relating to any loan from the Company to an officer, director or Affiliate; (ii)
any indenture, mortgage, loan, credit or similar contract under which the
Company has borrowed any money or issued any note, bond, indenture or other
evidence of indebtedness for borrowed money, sold and leased back assets or
guaranteed indebtedness for others (including hedge, swap, exchange or similar
contracts entered into in the ordinary course of business), whether or not
reflected in the Company SEC Documents; (iii) any guarantee by the Company of
any obligation of another or any Hedge; (iv) any agreement under which it has
granted any individual or entity any registration rights (including demand and
piggyback registration rights); (v) any agreement between the Company and its
stockholders or among its stockholders (of which the Company has Knowledge)
concerning corporate governance or related matters; (vi) any agreement
respecting any partnership, joint venture or right of first refusal; (vii) any
agreement requiring capital expenditures, other than those on the capital
expenditure budget for 2002 in the form included in the Company Disclosure
Letter (the "2002 CAPITAL EXPENDITURE BUDGET") in
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excess of $100,000; (viii) any contract (A) by which the Company or the Company
Subsidiary is obligated to make future payments in excess of $50,000 or sell
assets with a book value in excess of $50,000 in the aggregate, and (B) which is
not entered into in the ordinary course of the conduct of its business
consistent with past practices; (ix) any non-competition agreements or any other
agreements or obligations which purport to limit in any material respect the
manner in which, or the localities in which, all or any substantial portion of
the business of the Company is conducted; (x) any contract not terminable at
will without penalty with any stockholder of the Company or any affiliate of any
stockholder of the Company; (xi) any plan, contract or arrangement providing for
bonuses, pensions, deferred compensation, retirement plan payments, profit
sharing, incentive pay or any other employee right or benefit (the agreements,
contracts and obligations specified above, collectively the "COMPANY
Contracts").
(b) The Company has made, and, prior to the Closing Date, will continue
to make, available to Parent at the Company's offices for copying each Lease,
and each agreement or other contract related to the Oil and Gas Properties
listed in the Reserve Report as having a PW 10 Value of $100,000 or greater
(each of such Oil and Gas Properties a "MATERIAL OIL AND GAS PROPERTY" of a type
described below which it has in its possession or control (collectively with
each Lease related to the Material Oil and Gas Properties, "MATERIAL OIL AND GAS
CONTRACTS"):
(i) for the future sale, lease, farmout or other disposition of
any Lease or Wells;
(ii) under which exists a gas or oil imbalance;
(iii) which constitutes a partnership, joint venture or agreement
pursuant to which the Company has granted any Person a right of first
refusal, preemptive rights of purchase, or other option to acquire any
Material Oil and Gas Property;
(iv) which constitutes a farmin or farmout agreement,
participation agreement or other contract that will increase or
decrease the Company's Working Interest or Net Revenue Interest in any
Lease or Well from the Working Interest or Net Revenue Interest set
forth in the Reserve Report including any such increase or decrease
resulting from any reversion, "back-in," "carried" interest
arrangement, non-consent arrangement, conversion option or other
similar provision; and
(v) (A) joint and other operating agreements; (B) exploration
agreements; (C) participation agreements; (D) area of mutual interest
agreements; (E) agreements for the purchase of producing properties;
(F) unitization agreements; (G) assessment agreements; (H) any
prepayment arrangement; (I) agreements containing a "take-or-pay" or
similar provision; (J) agreements providing for a production payment;
(K) "gas balancing" agreements; (L) any other arrangement to deliver
hydrocarbons at some future time; (M) bottom hole agreements; (N)
acreage contribution agreements; (O) pooling and communitization
agreements; (P) processing agreements; or (Q) agreements containing
seismic licenses, permits and other rights to geological and/or
geophysical data and information directly or indirectly relating to
the leases held by the Company.
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(c) All Company Contracts and Material Oil and Gas Contracts are valid
and binding, in full force and effect and, to the Company's Knowledge,
enforceable against the parties thereto in accordance with their respective
terms, except where the failure to be so valid and binding, in full force and
effect or enforceable would not have a Material Adverse Effect on the Company.
The Company has performed all material obligations and is not in breach or
default under any Company Contract or Material Oil and Gas Contract and no event
has occurred, which after notice or lapse of time, or both, would constitute a
default by the Company, or to the Company's Knowledge, any other party, other
than any such defaults or events which would not have a Material Adverse Effect
on the Company. Neither the execution of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby will result
in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination,
cancellation or acceleration of lien, other charge or encumbrance or
preferential right to purchase or trigger any change in operator provisions)
under any Company Contract or any Material Oil and Gas Contract, except for such
violations, breaches and defaults (or rights of termination, cancellation or
acceleration or liens or other charges or Liens) as to which Consents have been
obtained or which would not have a Material Adverse Effect on the Company. There
are no Consents related to the Material Oil and Gas Properties required in
connection with the Merger. There are no preferential purchase rights or (with
respect to the Material Oil and Gas Properties operated by the Company) change
in operator provisions related to the Material Oil and Gas Properties that would
be triggered by the Merger.
3.18. COMPANY OIL AND GAS PROPERTIES. (a) Except for goods and other
property sold, used or otherwise disposed of since December 31, 2001, without
breaching any Company warranty, representation or covenant set forth in this
Agreement, the Company has Defensible Title in and to all the Wells, Units and
Leases as to the Working Interests and Revenue Interests described in the
Reserve Report, as owned by the Company, free and clear of Liens, except
Permitted Encumbrances.
(b) The Company's interest in production from each Well, Unit or Lease
included in the Oil and Gas Properties entitles the holder thereof to receive
not less than the Net Revenue Interest set forth in the Reserve Report hereto
with respect to such Well, Unit or Lease under the caption "Revenue Interest" or
"NRI" without reduction during the life of such Well, Unit or Lease, except as
set forth in the Reserve Report, and obligates the holder thereof to pay costs
and expenses relating to each such Well, Unit or Lease in an amount not greater
than the Working Interest set forth in the Reserve Report with respect to such
Well, Unit or Lease, without increase over the life of such Well, Unit or Lease.
(c) As to Oil and Gas Properties operated by the Company, and to the
Knowledge of the Company as to Oil and Gas Properties operated by third parties,
all Leases and other agreements pursuant to which the Company leases or
otherwise acquires or obtains operating rights affecting real or personal
property are in good standing, valid and effective, and all royalties, rentals
and other payments and expenses due by the Company to any lessor of any such
Leases have been timely paid by the Company. The Company Disclosure Letter sets
forth all suspense funds held by the Company for the account of a third party or
an Affiliate that are associated with the Oil and Gas Properties.
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(d) Except for Hydrocarbon sales contracts with a term not greater than
ninety (90) days, no Hydrocarbons produced from the Oil and Gas Properties are
subject to a sales contract or other agreement relating to the marketing of
Hydrocarbons, and no Person has any option to purchase or similar rights with
respect to Hydrocarbons produced from such Oil and Gas Properties at less than
market value.
(e) The Company has, and to the Knowledge of the Company as to Oil and
Gas Properties operated by third parties the operator has, the ability and right
to obtain access to, produce, treat, compress, dehydrate, transport, process, or
otherwise market Hydrocarbons from the Wells, Units, Lands and Leases related to
the Oil and Gas Properties without the need for any additional agreements.
(f) The Company Disclosure Letter sets forth all of the Company's gas
or oil imbalances. Except for gas balancing agreements containing customary
provisions, the Company is not obligated, by virtue of a prepayment arrangement,
a "take or pay" arrangement, a production payment or any other arrangement, to
deliver Hydrocarbons produced from the Oil and Gas Properties at some future
time without then or thereafter receiving full payment therefor, and no take or
pay credits must be provided before gas can be transported through any
interstate carrier under FERC Order 500, et al, and there are no obligations on
the Oil and Gas Properties under FERC Order 451.
(g) The Company has not entered into any Hedges.
(h) As to Oil and Gas Properties operated by the Company, the Company
has caused the Oil and Gas Properties to be maintained and operated in a
reasonable and prudent manner in accordance with typical and customary standards
of the oil and gas industry.
(i) The Company Disclosure Letter sets forth, as of the date set forth
for each Well included in the Oil and Gas Properties, to the Knowledge of the
Company and for purposes of this representation such Knowledge is based on the
information given to the Company by third-party operators for all Wells not
operated by the Company, the Payout Balances for each Well included in the Oil
and Gas Properties. "PAYOUT BALANCES" means the status, as of the date of the
Company's calculations, of the recovery in the contract relating to a Well out
of the revenue from such Well where the Net Revenue Interest of the Company
therein will be reduced or increased when such amount has been recovered.
(j) The Company is currently receiving from all purchasers of
production from the Wells or Leases included in the Oil and Gas Properties
revenues not less than the Net Revenue Interest described in the Reserve Report
with respect thereto without suspense or any indemnity other than the normal
division order warranty of title.
(k) The Company Disclosure Letter sets forth, as of the date of this
Agreement, all currently outstanding and expected internal Company and third
party authorizations for expenditures (commonly known as "AFE's") which require
a future expenditure in excess of $25,000.
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(l) Except as set forth in the Company Disclosure Letter, since the
effective date of the Reserve Report, the Company has not sold or abandoned any
Wells included in the Oil and Gas Properties listed in the Reserve Report.
3.19. INTELLECTUAL PROPERTY. The Company and the Company Subsidiary
either own or have valid licenses or other rights to use all patents,
copyrights, trademarks, software, databases, geological data, geophysical data,
engineering data, maps, interpretations and other technical information used in
their businesses as presently conducted, subject to the limitations contained in
the agreements governing the use of the same, which limitations are customary
for companies engaged in the business of the exploration and production of oil,
gas, condensate and other hydrocarbons, with such exceptions as would not result
in a Material Adverse Effect on the Company. There are no limitations contained
in the agreements of the type described in the immediately preceding sentence
which, upon consummation of the transactions contemplated by this Agreement,
will alter or impair any such rights, breach any such agreement with any third
party vendor, or require payments of additional sums thereunder, except any such
limitations that would not have a Material Adverse Effect on the Company.
3.20. RESERVE REPORT. The Estimates of Oil & Gas Reserves as of
December 31, 2001 (in both paper and ARIES database formats, a copy of each of
which has been provided to Parent) prepared by the Company and audited by
Netherland, Sewell & Associates, Inc. (the "RESERVE REPORT"), list all producing
Oil and Gas Properties, and are accurate and complete in all material respects.
The Company has good and defensible title to all of the Oil and Gas Properties,
free and clear of all Liens, except for Permitted Encumbrances and Title Defects
and Liens that would not have a Material Adverse Effect on the Company. The
Company enjoys and is in peaceful and undisturbed possession of the Oil and Gas
Properties. The estimates of future capital expenditures and other exploration
and development costs were prepared in good faith and with a reasonable basis.
3.21. ADDITIONAL DRILLING OBLIGATIONS. There are no current obligations
or assessments of the Company (other than implied obligations under the Leases
concerning protection from drainage and further development that is customary in
the oil and gas industry) that require the drilling of additional Wells or other
material development operations (including re-entry of existing wells) in order
to earn or to continue to hold all or any portion of the Oil and Gas Properties,
and the Company has never been advised by a lessor of any requirements or
demands to drill additional Wells on any of the Land (whether pursuant to any
implied covenant to protect from drainage, further development, or otherwise),
which requirements or demands have not been resolved.
3.22. WELLS . To the Knowledge of the Company, all Wells have been
located, drilled and completed on the Land in substantial accordance with all
Laws applicable thereto. To the Knowledge of the Company, there are no Permits
required to be obtained by the Company to discharge, dispose of or transport
water, whether or not across lease lines, with respect to the operation of its
Wells, other than Well Permits obtained by the Company from the jurisdictions
where the Well is located or the United States Environmental Protection Agency
in connection with the normal drilling and operation of each Well.
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3.23. FACILITIES. To the Knowledge of the Company, (i) the Facilities
owned by the Company which are material to the operation of the Company are in
good working order, are in a state of good repair subject to ordinary wear and
tear, and are suitable for the purposes for which such Facilities are being
used, and (ii) the Company has all material easements, rights of way, licenses
and Consents from appropriate property owners and all licenses and Consents from
appropriate Governmental Entities necessary to access, construct, operate,
maintain and repair the Facilities owned by the Company in material compliance
with all applicable Laws. Except for gathering systems for the Company
production associated with the Leases, the Company does not own any downstream
transportation or gas processing facilities.
3.24. WELLS TO BE PLUGGED AND ABANDONED. As to Wells operated by the
Company, and to the Knowledge of the Company, as to Wells operated by third
parties, there are no Wells that: (i) the Company is currently obligated by Law
or contract to plug and abandon; (ii) are subject to exceptions to a requirement
to plug and abandon issued by a Government Entity; or (iii) have been plugged
and abandoned in a manner that does not comply in all material respects with
applicable Law.
3.25. ASSET VALUE. The aggregate fair market value (without netting
liabilities) of the reserves of oil, natural gas, shale or tar sands (or the
rights thereto) and associated exploration or production assets, held by the
Company in the aggregate is less than $500 million and the aggregate fair market
value (without netting liabilities) of all other assets held by Company is less
than $50 million. For these purposes associated exploration or production assets
has the meaning set out in 16 C.F.R. ss. 802.3 (2001).
3.26. CONFIDENTIALITY AGREEMENTS. The confidentiality agreements
entered into with any other potential purchasers of the Company are in
substantially the same form as the Confidentiality Agreement, and all benefits
under such agreements shall inure to the Company as of the Effective Time.
3.27. INSURANCE. The Company and the Company Subsidiary maintain, and
there are currently in full force and effect, policies of insurance with respect
to their respective assets and operations against casualties and contingencies
of such types and such amounts as is customary for corporations of similar size
engaged in similar lines of business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as set forth below
as of the date of this Agreement and as of the Effective Time (except to the
extent expressly made as of an earlier date, in which case as of such date):
4.1. ORGANIZATION. Each of Parent and Sub is validly existing and in
good standing under the laws of the jurisdiction of its organization and has
requisite power and authority to carry on its business as now being conducted,
except where the failure to be so existing and in good standing or to have such
power and authority would not have a Material Adverse Effect on Parent. Each of
Parent and Sub is duly qualified or licensed to do business and in good standing
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in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not have a Material Adverse Effect on Parent
or prevent or materially delay the consummation of the Merger. Parent has
delivered to the Company complete and correct copies of its certificate of
formation and limited liability company agreement, and Sub has delivered to the
Company complete and correct copies of its certificate of incorporation and
bylaws. Sub is a wholly-owned subsidiary of Parent.
4.2. AUTHORITY. Parent has requisite limited liability company power
and authority, and Sub has requisite corporate power and authority, to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by each of
Parent and Sub and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of each of Parent and Sub. This Agreement has been duly executed and delivered
by each of Parent and Sub and (assuming the valid authorization, execution and
delivery of this Agreement by the Company) constitutes the valid and binding
obligation of each of Parent and Sub enforceable against each of them in
accordance with its terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
4.3. CONSENTS AND APPROVALS; NO VIOLATIONS.
(a) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of Parent or Sub under, (i) the
certificate of formation or limited liability company agreement of Parent or the
certificate of incorporation or bylaws of Sub, (ii) any loan or credit
agreement, mortgage, indenture, lease, license, contract or other agreement to
which Parent or Sub is a party or by which any of their respective properties or
assets may be bound or (iii) subject to the governmental filings and other
matters referred to in Section 4.3(b), any judgment, order, injunction, decree,
statute, law, ordinance, rule or regulation applicable to Parent or Sub or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not (x) have a Material Adverse Effect on
Parent, (y) materially impair Parent's or Sub's ability to perform its
obligations under this Agreement or (z) prevent or materially delay the
consummation of the Merger.
(b) No Consent by a Governmental Entity is required by or with respect
to Parent or Sub in connection with the execution and delivery of this Agreement
by Parent or Sub or the consummation by Parent or Sub of the transactions
contemplated by this Agreement, except for (i) the filing with the SEC of such
reports, schedules, forms and statements under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated
hereby, (ii) such filings as may be required under state securities or "blue
sky" laws, (iii) the filing of the Certificate of Merger with the Delaware
Secretary of State and appropriate
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documents with the relevant authorities of other states in which Parent is
qualified to do business, and (iv) such other Consents and filings the failure
of which to be made or obtained individually or in the aggregate would not (x)
have a Material Adverse Effect on Parent, (y) impair Parent's or Sub's ability
to perform its obligations under this Agreement or (z) prevent or materially
delay the consummation of the Merger.
4.4. FINANCIAL STATEMENTS. Parent has delivered to the Company accurate
and complete copies of its unaudited statements for the period ended April 23,
2002 ("PARENT FINANCIAL STATEMENTS"). The Parent Financial Statements were
prepared in accordance with GAAP and fairly present the consolidated financial
position of Parent and its consolidated Subsidiaries as at the dates thereof and
the consolidated results of their operations and their consolidated cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and to any other adjustments described
therein).
4.5. ABSENCE OF CERTAIN CHANGES. Since April 23, 2002, Parent and its
subsidiaries have conducted their respective businesses in all material respects
only in the ordinary course consistent with past practice, and there has not
been (i) any changes, circumstances or events which have, had or would
reasonably be expected to have, a Material Adverse Effect on the Parent or its
subsidiaries, (ii) except for ordinary quarterly distributions paid or payable
to members of Parent, any declaration, setting aside or payment of any
distribution with respect to its membership interests or any redemption,
purchase or other acquisition of any of its membership interests, (iii) any
split, combination or reclassification of any of its membership interests or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for its membership interests, or (iv) any
change in accounting methods, principles or practices by Parent, except insofar
as may have been required by a change in GAAP.
4.6. INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Parent or Sub specifically for inclusion or incorporation by
reference in the Proxy Statement will at the respective times they are filed
with the SEC or first published, sent or given to the Company's stockholders,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation or warranty is made by Parent or Sub
in connection with any of the foregoing with respect to statements made or
incorporated by reference therein based on information supplied by the Company
or any of its representatives specifically for inclusion or incorporation by
reference therein.
4.7. COMPLIANCE WITH LAWS. Parent and its subsidiaries are in
compliance in all material respects with all applicable Laws, except for any
non-compliance that would not have a Material Adverse Effect on Parent, and
neither Parent nor any of its subsidiaries has received any notice from any
Governmental Entity or any other Person that either Parent or any of its
subsidiaries is in violation of, or has violated, any applicable Laws, except
for violations that would not have a Material Adverse Effect on Parent. Each of
Parent and its subsidiaries has in effect all Federal, state, local and foreign
governmental Permits necessary for it to own, lease or operate properties and
assets and to carry on its business as now conducted, and there has
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occurred no default under any such Permit, except for the absence of Permits and
for defaults under Permits, which absence or defaults would not have a Material
Adverse Effect on Parent.
4.8. LIABILITIES. Neither Parent nor any of its subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) whether or not any such liability or obligation would have been
required by GAAP to be set forth on a consolidated balance sheet of Parent and
its subsidiaries or in the notes thereto, other than (i) liabilities and
obligations set forth on the Parent Financial Statements, (ii) liabilities or
obligations under this Agreement or incurred in connection with the transactions
contemplated hereby, (iii) liabilities and obligations incurred since December
31, 2001 in the ordinary course of business (none of which is a material
liability for breach of contract, breach of warranty, tort or infringement) or
(iv) liabilities which would not reasonably be expected to have a Material
Adverse Effect on Parent.
4.9. INTERIM OPERATIONS OF SUB. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
4.10. LITIGATION. There is no suit, action, proceeding or investigation
pending or, to the Knowledge of Parent, threatened against Parent or any of its
Subsidiaries that would (i) have a Material Adverse Effect on Parent, (ii)
materially impair the ability of Parent or Sub to perform their respective
obligations under this Agreement, or (iii) prevent or materially delay the
Merger; nor is there any outstanding judgment, order, writ, injunction or decree
of any Governmental Entity or arbitrator outstanding against Parent or Sub that
would have such effect.
4.11. BROKERS. No broker, investment banker, financial advisor or other
Person, other than Simmons & Company International, the fees and expenses of
which will be paid by Parent, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
4.12. AVAILABILITY OF FUNDS.
(a) Parent has received and executed a commitment letter, dated the
date of this Agreement, from EnCap Energy Capital Fund IV, L.P., EnCap Energy
Acquisition IV-B, Inc. and Bank of Texas, N.A. (collectively, the "COMMITMENT
LETTERS"), pursuant to which each of the foregoing have separately committed,
subject to the terms and conditions set forth therein, to provide financing for
the transactions contemplated hereby (the "FINANCING"). Correct and complete
copies of the Commitment Letters are attached hereto as Exhibit B. Parent has
fully paid any and all commitment fees or other fees required by the Commitment
Letters to be paid as of the date hereof (and will duly pay any such fees after
the date hereof). The Commitment Letters are valid and in full force and effect,
have not been amended, modified or revoked, and no event has occurred which
(with or without notice, lapse of time or both) would constitute a default
thereunder on the part of Parent or Sub.
(b) Each of the Commitment Letters has been obtained, subject to the
terms and conditions thereof, to pay in part the aggregate Merger Consideration,
to pay all related fees and
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expenses, and to provide additional financing for future working capital and
general corporate needs of the Parent and its Subsidiaries. The obligations to
fund under the Commitment Letters are not subject to any conditions, other than
as set forth in the Commitment Letter. It is the good faith belief of Parent and
Sub, that the Financing will be obtained. Each of Parent and Sub will use its
reasonable best efforts to cause the Financing to be completed.
(c) The Financing, together with the other funds available to Parent,
will provide sufficient funds to consummate the Merger and the other
transactions contemplated hereby. Immediately after the consummation of the
Merger, the Surviving Corporation (i) will not be insolvent, (ii) will not be
left with unreasonably small capital, and (iii) will not have debts beyond its
ability to pay such debts as they mature.
4.13. OWNERSHIP OF SHARES. Neither Parent nor Sub nor Guarantor
beneficially owns any Company Common Stock.
4.14. FAIR MARKET VALUE DETERMINATION. Parent has determined, in
accordance with 16 C.F.R. ss. 801.10 (2001), that the aggregate fair market
value (without netting liabilities) of the reserves of oil, natural gas, shale
or tar sands (or the rights thereto) and associated exploration or production
assets to be held as a result of the Merger is less than $500 million and that
the aggregate fair market value (without netting liabilities) of all other
assets to be held as a result of the Merger is less than $50 million. For these
purposes "associated exploration or production assets" has the meaning set out
in 16 C.F.R. ss. 802.3 (2001).
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. From the
date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement, the Company shall, and shall cause the Company
Subsidiary to, in all material respects, carry on its business in the ordinary
course in a manner consistent with operations during the prior twelve month
period and in compliance with applicable Laws. Without limiting the generality
of the foregoing, and except as otherwise contemplated by this Agreement or as
disclosed in the Company Disclosure Letter, during such period, the Company
shall not, and shall not permit the Company Subsidiary to, without the prior
written consent of Parent (which consent shall not be unreasonably withheld or
delayed):
(a) split, combine, subdivide or reclassify any Shares or declare, set
aside for payment or pay any dividend, or make any other actual, constructive or
deemed distribution in respect of any Shares or otherwise make any payments to
stockholders in their capacity as such, other than dividends by the Company
Subsidiary to the Company;
(b) authorize or propose the issuance, sale, disposition or pledge or
other encumbrance of (i) any additional shares of capital stock of any class
(including the Shares), or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for any shares of capital
stock, or any rights, warrants, options, calls, commitments or any other
agreements of any character to purchase or acquire any shares
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of capital stock or any securities or rights convertible into, exchangeable for,
or evidencing the right to subscribe for, any shares of capital stock or (ii)
any other securities in respect of, in lieu of, or in substitution for, Shares
outstanding on the date hereof;
(c) adopt any amendments to its certificate of incorporation or by-laws
or alter through merger, liquidation, reorganization, restructuring or in any
other fashion the corporate structure or ownership of the Company or the Company
Subsidiary;
(d) acquire, or agree to acquire, in a single transaction or series of
related transactions, any business or assets having a value in excess of $50,000
individually or $100,000 in the aggregate, other than transactions that are in
the ordinary course of business or as permitted under Section 5.1(e);
(e) make or agree to make any capital expenditure, other than
expenditures within the Company's 2002 Capital Expenditure Budget;
(f) sell, lease, license, farmout, subject to Lien or otherwise dispose
of any of its Material Oil and Gas Properties (other than Hydrocarbons in the
ordinary course of business);
(g) enter into any material joint venture agreement, partnership
agreement or similar agreement not in conjunction with acquisitions or capital
expenditures contemplated in this Section 5.1 or the Company Disclosure Letter;
(h) except as may be required as a result of a change in law or GAAP,
make any material change in its method of accounting;
(i) make any material Tax election (unless required by law), enter into
any settlement or compromise of any material Tax liability or amend any Tax
Return;
(j) (i) incur any Indebtedness or guarantee any Indebtedness of another
Person, issue or sell any debt securities or warrants or other rights to acquire
any debt securities of the Company or the Company Subsidiary, guarantee any debt
securities of another Person, or (ii) make any loans, advances or capital
contributions to, or investments in, any other Person, except pursuant to an
agreement existing on the date hereof and which is referenced in the Company
Disclosure Letter;
(k) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or the Company Subsidiary (other than the Merger); or redeem,
purchase or otherwise acquire any of its outstanding Shares;
(l) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction, in
the ordinary course of business consistent with past practice in accordance with
their terms, or liabilities reflected or reserved against in, or contemplated
by, the Company SEC Documents or incurred since December 31, 2001
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in the ordinary course of business consistent with past practice, or waive any
benefits of, or agree to modify in any respect, any confidentiality, standstill
or similar agreements to which the Company, or the Company Subsidiary, is a
party;
(m) modify or amend in any material respect or terminate any Company
Contract (including any Hedges) or Material Oil and Gas Contract to which the
Company or the Company Subsidiary is a party, or waive, release or assign any
rights or claims thereunder;
(n) except as required to comply with applicable law, (i) adopt, enter
into, terminate or amend any Benefit Plans, (ii) increase in any manner the
compensation or fringe benefits of any director, officer, employee or consultant
(except for normal increases or bonuses to non-officers and non-directors in the
ordinary course of business consistent with past practice), (iii) pay any
benefit not provided for under any Benefit Plan, (iv) grant any equity-based
awards under any Benefit Plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any Benefit Plans
or agreement or awards made thereunder), (v) other than in the ordinary course
of business consistent with past practice, take any action to fund or in any
other way secure the payment of compensation or benefits under any employee
plan, agreement, contract or arrangement or Benefit Plan or (vi) alter the
composition of the Board of Directors or change the title of, hire, terminate
the employment of, modify the job description or duties of, or waive any
material right under any employment or consulting agreement with, any senior
management, consultant or employee whose annual compensation rate exceeds
$60,000 other than in the ordinary course of business and consistent with past
practice);
(o) allow any insurance policy naming the Company or the Company
Subsidiary as beneficiary or loss payee to be cancelled or terminated, other
than in the ordinary course, or cause or permit the decrease in any current
policy coverage limits;
(p) settle or compromise any pending or threatened litigation involving
the Company or the Company Subsidiary;
(q) enter into any contract, agreement, arrangement or understanding
that materially limits or otherwise materially restricts the Company or the
Company Subsidiary or any successor thereto, or that would, after the Effective
Time, limit or restrict the Surviving Corporation or any successor thereto, from
engaging in or competing in any line of business or in any geographic area
(except for confidentiality agreements relating to specific prospects); or
(r) enter into any contract, agreement, commitment or arrangement to do
any of the foregoing.
5.2. NO SOLICITATION; ACQUISITION PROPOSALS.
(a) From the date of this Agreement until the Effective Time or, if
earlier, the termination of this Agreement, (i) the Company shall, and shall use
its reasonable best efforts to
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cause its Representatives to, (X) immediately cease and terminate any existing
solicitation, discussion or negotiation with any Third Party with respect to any
Acquisition Proposal and (Y) use its best efforts to recover or cause to be
destroyed all nonpublic information concerning the Company in the possession of
such Persons and their Representatives and advisors, and (ii) the Company shall
not, nor shall it permit the Company Subsidiary to, nor shall it authorize or
permit its Representatives to, directly or indirectly, (A) solicit or initiate
the submission of any Acquisition Proposal; (B) enter into any agreement
requiring the Company to abandon or terminate its participation in the Merger;
(C) participate in any discussions or negotiations regarding, or furnish any
nonpublic information relating to the Company to any Third Party with respect
to, or take any other action knowingly to facilitate the making of any proposal
that constitutes or would reasonably be expected to lead to any Acquisition
Proposal; (D) grant any waiver or release under any standstill or similar
agreement with respect to any class of the Company's equity securities; or (E)
enter into any letter of intent, agreement or similar document relating to any
Acquisition Proposal, other than in the manner contemplated by Section 5.3.
(b) Notwithstanding the restrictions set forth in Section 5.2(a), if at
any time prior to consummation of the Merger, (i) the Company receives an
Acquisition Proposal, and (ii) the Board of Directors of the Company concludes
in good faith (after consultation with an investment bank of nationally
recognized reputation) that such Acquisition Proposal may reasonably be expected
to lead to a Superior Proposal, the Company may, subject to its giving Parent 24
hours prior written notice of the terms and conditions of such Acquisition
Proposal to the extent known and of the Company's intention to furnish
information to, or enter into discussions or negotiations with, a Third Party,
(x) furnish information to any Third Party pursuant to a confidentiality
agreement containing terms not materially less restrictive than the terms of the
Confidentiality Agreement, dated September 24, 2001, between the Company and
Parent (including the standstill provisions), as the same may be amended,
supplemented or modified (the "CONFIDENTIALITY AGREEMENT") and (y) participate
in discussions or negotiations regarding such proposal or take any of the
actions described in Section 5.2(a).
(c) Nothing contained in this Section 5.2 shall prohibit or restrict
the Board of Directors of the Company from taking any action necessary to
fulfill its fiduciary duties to the Company's stockholders under applicable law
in connection with an Acquisition Proposal, so long as the Board of Directors
(i) receives the advice of outside counsel to the Company that is reasonably
competent to render such advice to the effect that taking such action is
required to satisfy the fiduciary duties of the Board of Directors under
applicable law and (ii) determines in good faith that taking such action is
required to satisfy the fiduciary duties of the Board of Directors under
applicable law; provided that the Company shall have otherwise complied in all
respects with Sections 5.2 and 5.3.
(d) For purposes of this Agreement,
"ACQUISITION PROPOSAL" means any inquiry, offer, proposal or indication
of interest by a Third Party which relates to a transaction or series of
transactions (including any merger, consolidation, recapitalization, liquidation
or other direct or indirect business combination) involving the Company or any
Subsidiary of the Company or the purchase or acquisition of fifteen percent
(15%) or more of the outstanding Shares or any tender or exchange offer that if
consummated would result in any Person, together with all affiliates thereof,
Beneficially
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Owning fifteen percent (15%) or more of the outstanding Shares, or the
acquisition, purchase or other disposition of fifteen percent (15%) or more of
the assets of the Company or any Subsidiary of the Company immediately prior to
such transaction; and
"SUPERIOR PROPOSAL" means any bona fide written Acquisition Proposal
(provided that for the purposes of this definition, the applicable percentages
in the definition of Acquisition Proposal shall be fifty percent (50%) as
opposed to fifteen percent (15%), which the Board of Directors of the Company
determines in good faith, after consultation with an investment banker of
nationally recognized reputation and outside legal counsel, taking into account,
among other things, all legal, financial, regulatory and other aspects of the
proposal and the Third Party making the proposal (i) would, if consummated,
result in a transaction that is more favorable to the Company's stockholders,
other than Parent and Sub (in their capacities as stockholders), from a
financial point of view, than the transactions contemplated by this Agreement
and (ii) is reasonably capable of being consummated.
5.3. MODIFICATIONS TO RECOMMENDATIONS; SUBSEQUENT DETERMINATION. Except
as permitted by the second sentence of this Section 5.3, neither the Board of
Directors of the Company nor any committee thereof shall (a) withdraw or modify,
or publicly propose to withdraw or modify, in a manner adverse to Parent, the
Recommendations, or make any public statement, filing or release inconsistent
with the Recommendations, (b) approve or recommend, or publicly propose to
approve or recommend, any Acquisition Proposal or (c) cause the Company to enter
into any letter of intent, agreement in principle, acquisition agreement or
similar agreement related to any Acquisition Proposal (each such determination,
a "SUBSEQUENT DETERMINATION"). The Board of Directors of the Company may make a
Subsequent Determination, if the Board of Directors shall have determined (x) to
approve or recommend an Acquisition Proposal after concluding that the
Acquisition Proposal constitutes a Superior Proposal and (y) to enter into a
binding agreement concerning the Acquisition Proposal; provided, however, that
the Company shall have provided to Parent at least three (3) Business Days'
prior written notice that its Board of Directors intends to make a Subsequent
Determination (a "SUBSEQUENT DETERMINATION NOTICE"), which Subsequent
Determination Notice shall specify the material terms and conditions of the
Acquisition Proposal and identify the person making the Acquisition Proposal.
Parent may make, within three (3) Business Days of receiving the notice, an
offer such that a majority of the Company's Board of Directors determines that
(x) the foregoing Acquisition Proposal no longer constitutes a Superior Proposal
or (y) its fiduciary duties no longer require it to make a Subsequent
Determination.
5.4. HEDGE. The Company agrees to consider a proposal by Parent for
entering into a Hedge of certain of the Company's oil and gas production on
terms and conditions acceptable to the Company in its sole discretion; provided,
however, that the Company shall be under no obligation to enter into a Hedge;
and provided, further, that failure to enter into a Hedge shall not constitute a
breach of this Agreement or constitute a basis for termination of this
Agreement.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. EMPLOYEE BENEFITS.
(a) Parent shall take all necessary action so that each employee of the
Company immediately prior to the consummation of the Merger (including each such
Person who is on vacation, temporary layoff, approved leave of absence, sick
leave or short- or long-term disability) (a "RETAINED EMPLOYEE") shall remain an
employee of Parent, the Company or the Surviving Corporation or a subsidiary of
Parent, as the case may be, immediately following the consummation of the
Merger. Parent shall take all necessary action so that each Retained Employee
shall after the consummation of the Merger continue to be credited with the
unused vacation and sick leave credited to such employee under the applicable
vacation and sick leave policies of the Company, and Parent shall permit or
cause the Company, the Surviving Corporation and their Subsidiaries to permit
such employees to use such vacation and sick leave. Parent shall take all
necessary action so that, for purposes of eligibility and vesting service under
each employee benefit plan and determination of benefits under each paid time
off, vacation, severance, short-term disability and service award plans
maintained by Parent or any of its subsidiaries in which Retained Employees or
former employees of the Company become eligible to participate upon or after the
consummation of the Merger, each such Person shall be given credit for all
service with the Company and the Company Subsidiary to the same extent as if
rendered to Parent or its subsidiaries. The preceding sentence shall not
preclude Parent or the Surviving Corporation or its subsidiaries at any time
following the Effective Time from terminating the employment of any Company
employee.
(b) Except as otherwise provided in this Section 6.1, nothing in this
Agreement shall be interpreted as limiting the power of the Surviving
Corporation to amend or terminate any particular Benefit Plan or any other
particular employee benefit plan, program, agreement or policy or as requiring
the Surviving Corporation to offer to continue (other than as required by its
terms) any written employment contract, subject to the terms and conditions of
the applicable plan, program, agreement or policies.
(c) Parent shall honor or cause to be honored by the Company, the
Surviving Corporation and their subsidiaries all employment agreements, bonus
agreements, severance agreements, indemnification agreements and severance plans
with the Persons who are directors, officers and employees of the Company or the
Company Subsidiary (it being understood that nothing herein shall be deemed to
mean that the Company, the Surviving Corporation and their subsidiaries shall
not be required to honor any of their obligations under any such agreement).
(d) Parent shall, or shall cause the Company and the Surviving
Corporation to, (i) waive all preexisting condition limitations and waiting
periods with respect to participation and coverage requirements applicable to
the Retained Employees and former employees of the Company and the Company
Subsidiary under any health or disability plan in which such employees and
former employees may be eligible to participate, other than limitations or
waiting periods that are in effect with respect to such employees and that have
not been satisfied under the corresponding welfare or fringe benefit plan
maintained by the Company for the Retained
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Employees and former employees prior to the consummation of the Merger, and (ii)
provide each Retained Employee and former employee with credit under any welfare
plans in which such employee or former employee becomes eligible to participate
for any co-payments and deductibles paid by such Retained Employee or former
employee for the then current plan year under the corresponding welfare plans
maintained by the Company prior to the consummation of the Merger.
(e) Notwithstanding subsections (a), (b), (c) and (d) of this Section
6.1, nothing contained in this Section 6.1 shall confer upon any former, present
or future employee of the Company, or any other Person not a party to this
Agreement, any rights or remedies.
6.2. STOCKHOLDER APPROVAL.
(a) The Company shall cause a meeting of its stockholders (the "COMPANY
STOCKHOLDERS MEETING") to be duly called and held as soon as reasonably
practicable following the date upon which all other conditions to the closing of
the Merger are expected to be satisfied for the purpose of considering and
taking action upon this Agreement and the Merger and (with the consent of
Parent) such other matters as may in the reasonable judgment of the Company be
appropriate for consideration at the Company Stockholders Meeting. Once the
Company Stockholders Meeting has been called and noticed, the Company shall not
postpone or adjourn the Company Stockholders Meeting (other than for the absence
of a quorum) without the consent of Parent. Unless otherwise required by its
fiduciary duties under applicable law, the Board of Directors of the Company
shall include the Recommendations in the Proxy Statement. The Company shall use
commercially reasonable efforts to solicit from stockholders of the Company
proxies for use at the Company Stockholders Meeting and in favor of this
Agreement and the Merger and shall take all other actions reasonably necessary
to secure the vote or consent of stockholders required by the DGCL to effect the
Merger.
(b) The Company shall not file the Proxy Statement without consultation
with Parent and its counsel. The Company shall notify Parent promptly of the
receipt of any comments on, or any requests for amendments or supplements to,
the Proxy Statement by the SEC, and the Company shall supply Parent with copies
of all correspondence between it and its representatives, on the one hand, and
the SEC or members of its staff, on the other, with respect to the Proxy
Statement. The Company, Parent, and Sub shall each use its reasonable best
efforts to obtain and furnish the information required to be included in the
Proxy Statement, and the Company, after consultation with Parent, shall use its
reasonable best efforts to respond promptly to any comments made by the SEC with
respect to the Proxy Statement. The Company, Parent, and Sub each agrees
promptly to correct any information provided by it for use in the Proxy
Statement if and to the extent that such information shall have become false or
misleading in any material respect, and the Company further agrees to take all
steps necessary to cause the Proxy Statement as so corrected to be filed with
the SEC and to be disseminated to holders of shares of Company Stock, in each
case as and to the extent required by applicable federal securities laws.
6.3. ACCESS TO INFORMATION. Upon reasonable notice and subject to the
terms of the Confidentiality Agreement, each of Company and Parent shall, and
shall cause each of its respective subsidiaries to, afford to the other party,
and its respective Representatives, all reasonable access, during normal
business hours during the period prior to the Effective Time, to
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all their respective properties, books, contracts, commitments, records and
Representatives. During such period, each of Company and Parent shall (and shall
cause each of its respective subsidiaries to) make available to the other party
(a) a copy of each report, schedule, registration statement and other document
filed or received by it during such period pursuant to the requirements of the
Federal or state securities laws or the Federal tax laws and (b) all other
information concerning its business, properties and personnel as the other party
may reasonably request. All information exchanged pursuant to this Section 6.3
shall be subject to the Confidentiality Agreement. In the event of a termination
of this Agreement for any reason, each party shall promptly return or destroy,
or cause to be returned or destroyed, all nonpublic information so obtained from
the other party or any of its Subsidiaries.
6.4. MARCH 2002 FORM 10-Q. The Company shall deliver to Parent a copy
of its March 2002 Form 10-Q promptly following the date on which the Company
files such report with the SEC. The financial statements of the Company
(including the related notes thereto) included in the Form 10-Q will comply in
form and substance as of their respective dates in all material respects with
the then applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP (except in the case of the unaudited statements, as permitted by Form 10-Q
under the Exchange Act) applied on a basis consistent with prior periods (except
as may be indicated therein or in the notes thereto) and fairly present, in
conformity with GAAP, in all material respects the consolidated financial
position of the Company and the Company Subsidiary as at the date thereof and
the consolidated results of their operations and their consolidated cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and to any other adjustments described
therein.
6.5. TITLE DEFECTS. At any time on or before 5:00 P.M. (Dallas time) on
June 20, 2002 (the "NOTICE DEADLINE"), Parent may give the Company notice (a
"TITLE DEFECT NOTICE") of any Title Defect on the Material Oil and Gas
Properties. Such Title Defect Notice shall be in writing and shall include:
(a) a description of each Material Oil and Gas Property affected by the
Title Defect (a "DEFECTIVE INTEREST");
(b) a statement of the nature of the Title Defect, a statement of the
basis for treating such Oil and Gas Property as a Defective Interest and copies
of supporting documents reasonably necessary for the Company to verify the
existence of the asserted Title Defect;
(c) the Allocated Value of the affected Oil and Gas Property; and
(d) Parent's good faith estimate of the amount by which the Allocated
Value of a Defective Interest has been reduced by the Title Defect (the "DEFECT
VALUE").
The "ALLOCATED VALUE" of each Material Oil and Gas Property shall be as
set forth in Exhibit A attached hereto. In determining which portion of Material
Oil and Gas Property is a Defective Interest, the Defect Value may not exceed
the Allocated Value and shall be determined by Parent in good faith taking into
account all relevant factors, including the following:
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(i) The potential for or actual reduction in the NRI of the
Defective Interest, or the potential for or actual increase in
the WI to the extent such increase is not accompanied by a
corresponding increase in NRI;
(ii) The legal effect of the Title Defect and whether
applicable limitations periods regarding such Title Defect have
run; and
(iii) If the Title Defect is a Lien (other than a Permitted
Encumbrance), the cost of removing such Lien.
6.6. ENVIRONMENTAL DEFECTS. Prior to the Notice Deadline, Parent may
give the Company notice (an "ENVIRONMENTAL DEFECT NOTICE") of any violation of
Environmental Laws (an "ENVIRONMENTAL DEFECT") related to the Oil and Gas
Properties. Such Environmental Defect Notice shall be in writing and shall
include:
(a) a description of each Oil and Gas Property affected by the
Environmental Defect (an "ENVIRONMENTAL DEFECTIVE INTEREST");
(b) a statement of the nature of the Environmental Defect, a statement
of the basis for treating such Oil and Gas Property as an Environmental
Defective Interest and copies of supporting documents reasonably necessary for
the Company to verify the existence of the asserted Environmental Defect;
(c) a description in reasonable detail of Parent's good faith estimate
of the investigation, removal, remediation or other action required to remedy
the Environmental Defect (the "CLEANUP") and a calculation of the amount
necessary to carry out the Cleanup, itemized in reasonable detail; and
(d) if applicable, a statement of the amount of losses or liabilities
likely to be incurred by the Company on account of the Environmental Defect,
including the likely expense of defense in connection with any probable Third
Party action. The aggregate of claimed amounts in Section 6.6(c) and (d) is
herein called the "ENVIRONMENTAL DEFECT VALUE." The Environmental Defect Value
shall be the Lowest Cost Response applicable to such Environmental Defect and
shall not include any internal costs of Parent, Guarantor or the Company
associated with the Cleanup.
6.7. MATERIAL OIL AND GAS CONTRACT DEFECTS. Prior to the Notice
Deadline, Parent may give the Company notice (a "MATERIAL OIL AND GAS CONTRACT
DEFECT NOTICE") of any condition that constitutes a breach of the Company's
representations and warranties set forth in Section 3.17 (a "MATERIAL OIL AND
GAS CONTRACT Defect") related to the Material Oil and Gas Contracts. Such
Material Oil & Gas Contract Defect Notice shall be in writing and shall include:
(a) a description of each Oil and Gas Property affected by the Material
Oil and Gas Contract Defect (an "MATERIAL CONTRACT DEFECTIVE INTEREST");
(b) the nature of the Material Oil and Gas Contract Defect and the
basis for treating such contract as a Material Oil and Gas Contract Defective
Interest and copies of supporting documents reasonably necessary for the Company
to verify the existence of the asserted Material Contract Defective Interest;
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(c) a description in reasonable detail of Parent's good faith estimate
of the action required to remedy the Material Oil and Gas Contract Defect (the
"MATERIAL OIL AND GAS CONTRACT CURE"), including a calculation of the amount
necessary to effect the carry out the Material Oil and Gas Contract Cure; and
(d) if applicable, a statement of the amount of losses or liabilities
likely to be incurred by the Company on account of the Material Oil and Gas
Contract Defect, including the likely expense of defense in connection with any
probable Third Party action. The aggregate of claimed amounts in Section 6.7(c)
and (d) is herein called the "MATERIAL OIL AND GAS CONTRACT DEFECT VALUE."
6.8. TERMINATION FEE .
(a) The Company agrees to pay Parent a termination fee (a "TERMINATION
FEE") equal to One Million Five Hundred Thousand Dollars ($1,500,000), if Parent
terminates this Agreement pursuant to Section 8.1(c) or if the Company
terminates this Agreement pursuant to Section 8.1(d). Upon termination pursuant
to Section 8.1(c) and 8.1(d), all fees due hereunder shall be payable in full by
wire transfer of same day funds on the date termination becomes effective.
(b) Parent and the Company agree that the agreements contained in this
Section 6.8 are an integral part of the transactions contemplated by this
Agreement and constitute liquidated damages and not a penalty and shall be in
lieu of any other damages arising out of this Agreement for the termination of
this Agreement pursuant to Section 8.1(c) or 8.1(d).
(c) Except as set forth in this Section 6.8, all fees and expenses
incurred in connection herewith and the transactions contemplated hereby shall
be paid by the party incurring expenses, whether or not the Merger is
consummated.
6.9. PUBLIC ANNOUNCEMENTS. The initial press release with respect to
the execution of this Agreement shall be a joint press release acceptable to
Parent and the Company. Thereafter, so long as this Agreement is in effect,
neither the Company, Parent nor any of their respective affiliates shall issue
or cause the publication of any press release or other announcement with respect
to the Merger, this Agreement or the other transactions contemplated hereby
without prior consultation with the other party and without using reasonable
efforts to agree upon the text of any press release, except as may be required
by law, the rules and regulations of any national securities exchange or over
the counter market or by obligations pursuant to any listing agreement or other
requirement of a national market system.
6.10. TRANSFER TAXES. The Company and Parent shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interest, penalties or additions to tax, "TRANSFER TAXES"). Transfer
Taxes shall not be a liability of any holder of Company Common Stock.
6.11. STATE TAKEOVER LAWS. If any "fair price" or "control share
acquisition" statute or other similar statute or regulation shall become
applicable to the transactions contemplated
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hereby, Parent and its Board of Managers and the Company and its Board of
Directors shall use best efforts to grant such approvals and take such actions
as are necessary so that the transactions contemplated hereby may be consummated
as promptly as practicable on the terms contemplated hereby and otherwise act to
minimize the effects of any such statute or regulation on the transactions
contemplated hereby.
6.12. INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE.
(a) Parent shall, or shall cause the Surviving Corporation to, honor
for a period of not less than six (6) years from the Effective Time (or, in the
case of matters that have not been resolved prior to the sixth anniversary of
the Effective Time, until such matters are finally resolved), all rights to
indemnification or exculpation, existing in favor of a director, officer,
employee or agent (an "INDEMNIFIED PERSON") of the Company or the Company
Subsidiary (including rights relating to advancement of expenses and
indemnification rights to which such Persons are entitled because they are
serving as a director, officer, agent or employee of another entity at the
request of the Company), as provided in the certificate of incorporation of the
Company, the bylaws of the Company, or any agreement with any of the foregoing,
in each case, as in effect on the date of this Agreement, and relating to
actions or events through the Effective Time.
(b) The indemnification provided for in Section 6.12(a) shall be
subject to the following:
(i) Any determination required to be made as to whether an
Indemnified Person's conduct complies with the standards set
forth under the DGCL, the certificate of incorporation, the
bylaws or other agreement, as the case may be, shall be made by
independent legal counsel which is selected by such Indemnified
Person reasonably acceptable to Parent, and paid by Parent or
Surviving Corporation;
(ii) Nothing in this Section 6.12 shall impair any other
legal or contractual rights of any Indemnified Person;
(iii) The Indemnified Person must notify the Surviving
Corporation of a claim against an Indemnified Person (a "CLAIM")
within 30 days of the date on which the Indemnified Person
becomes aware of the Claim (failure to provide the notification
provided for in this subsection (iii) shall constitute a
unconditional bar to indemnification if the Surviving Corporation
is materially prejudiced by such failure);
(iv) The Surviving Corporation shall have the right to
control the defense of such Claim with counsel selected by the
Surviving Corporation, and reasonably acceptable to the
Indemnified Person;
(v) The Indemnified Person shall be permitted to participate
in the defense of such Claim through counsel reasonably
acceptable to the Surviving Corporation selected by the
Indemnified Person, at the Surviving Corporation's expense; and
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(vi) If any Indemnified Person becomes involved in any
actual or threatened action, suit, claim, proceeding or
investigation after the Effective Time, Parent shall, or shall
cause the Surviving Corporation to, promptly advance to such
Indemnified Person his or her legal and other expenses (including
the cost of any investigation and preparation incurred in
connection therewith), subject to an undertaking by such
Indemnified Person to reimburse all amounts so advanced in the
event of a non-appealable determination of a court of competent
jurisdiction that such Indemnified Person is not entitled
thereto.
(c) The Company shall obtain and pay for in full a "tail" coverage
directors' and officers' liability insurance policy ("D&O INSURANCE") covering a
period of not less than six (6) years after the Effective Time providing
coverage in amounts and on terms consistent with the Company's existing D&O
Insurance. In the event the Company is unable to obtain such insurance, Parent
shall cause the Surviving Corporation to maintain the Company's D&O Insurance
for a period of not less than six (6) years after the Effective Time; provided,
that the Surviving Corporation may substitute therefor policies of substantially
similar coverage and amounts containing terms no less advantageous to such
former directors or officers; provided further that if the existing D&O
Insurance expires or is cancelled during such period, Parent or the Surviving
Corporation shall use its best efforts to obtain substantially similar D&O
Insurance; and provided further that neither Parent nor the Surviving
Corporation shall be required to expend, in order to maintain or procure an
annual D&O Insurance policy, in lieu of a tail policy, an amount per year in
excess of $110,000, but in such case shall purchase as much coverage as possible
for such amount.
(d) The provisions of this Section 6.12 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Person, his or her
heirs and his or her personal representatives and shall be binding on all
successors and assigns of Parent, the Company and the Surviving Corporation.
(e) The Company agrees to consider a proposal by Parent for an
alternative to funding a cash escrow under the Company's indemnification
agreements with its directors on terms and conditions acceptable to the Company
in its sole discretion; provided, however, that the Company shall be under no
obligation to enter into any alternative to the cash escrow; and provided,
further, that failure to enter into an alternative to the cash escrow shall not
constitute a breach of this Agreement or constitute a basis for termination of
this Agreement.
6.13. REASONABLE BEST EFFORTS. Subject to the terms and conditions
herein provided, each of the parties agrees to use its reasonable best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger, and the other transactions contemplated by this
Agreement, including (i) promptly effecting all necessary registrations,
submissions and filings, which may be necessary or required in connection with
the consummation of the transactions contemplated by this Agreement, (ii)
defending any lawsuit or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, (iii) preparing and filing the
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Proxy Statement, and (iv) taking all other actions and doing all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by, and to fully carry out the
purposes of, this Agreement, in each case subject to the Company Board of
Director's fiduciary duties under applicable law and the requisite vote of the
stockholders of the Company.
ARTICLE VII
CONDITIONS PRECEDENT
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval
shall have been obtained.
(b) No Injunction or Restraint. There shall not be in effect any
temporary restraining order, decree, ruling or injunction or other order of a
court or other Governmental Entity of competent jurisdiction directing that the
transactions contemplated herein not be consummated, or making such consummation
unlawful, or otherwise materially limiting or restricting ownership or operation
of the business of the Surviving Corporation; provided, however, that each of
the parties shall have used their reasonable best efforts to prevent the entry
of any such temporary restraining order, injunction or other order.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of this Agreement and the
Merger by the stockholders of the Company or Sub:
(a) by mutual written consent of Parent, Sub and the Company;
(b) by either of Parent, Sub or the Company, if:
(i) the Merger shall not have been consummated on or before
October 31, 2002 (the "OUTSIDE DATE"), unless the failure to
consummate the Merger is the result of a breach of this Agreement
by the party seeking to terminate this Agreement (provided,
however, that if any matter or matters have been submitted to
arbitration in accordance with Section 9.5, the Outside Date
shall mean the date that is October 31, 2002 plus the aggregate
number of days that any such matter or matters have been in
arbitration); or
(ii) if there shall be any law or regulation that makes
consummation of the Merger illegal or otherwise prohibited or if
any judgment, injunction, order or decree enjoining Parent, Sub
or the Company from consummating the Merger is
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entered and such judgment, injunction, order or decree shall
become final and nonappealable.
(c) by Parent, if the Company gives a Subsequent Determination Notice
that is not withdrawn prior to the third Business Day following delivery
thereof;
(d) by the Company, if the Company makes a Subsequent Determination and
has paid the Termination Fee;
(e) by the Company (i) if Sub or Parent shall have breached in any
material respect any of their respective covenants, obligations or other
agreements under this Agreement, or (ii) if the representations and warranties
of Parent and Sub set forth in this Agreement that are qualified as to
materiality shall not be true and correct as of the date of this Agreement and
as of the Effective Time (except to the extent expressly made as of an earlier
date, in which case as of such date), or any of the representations and
warranties set forth in this Agreement that are not so qualified by materiality
shall not be true and correct in any material respect as of the date of this
Agreement and as of the Effective Time (except to the extent expressly made as
of an earlier date, in which case as of such date); provided that this right of
termination shall not be deemed to exist unless any such breaches of
representation or warranty (without regard to any "Materiality" or "Material
Adverse Effect" or similar qualifier or threshold), individually or in the
aggregate, has had a Material Adverse Effect on the Parent; provided further
that the breach of the covenant, obligation, agreement, representation or
warranty is incapable of being or has not been cured by Parent or Sub on or
prior to the date which is fifteen (15) Business Days immediately following
written notice by the Company to Parent of such breach or failure to perform;
(f) by Parent (i) if the Company shall have breached in any material
respect any of its covenants, obligations or other agreements under this
Agreement, or (ii) if the representations and warranties of the Company set
forth in this Agreement that are qualified as to materiality shall not be true
and correct as of the date of this Agreement and as of the Effective Time
(except to the extent expressly made as of an earlier date, in which case as of
such date), or any of the representations and warranties set forth in this
Agreement that are not so qualified by materiality shall not be true and correct
in any material respect as of the date of this Agreement and as of the Effective
Time (except to the extent expressly made as of an earlier date); provided that
this right of termination shall not be deemed to exist unless any such breaches
of representation or warranty (without regard to any "Materiality" or "Material
Adverse Effect" or similar qualifier or threshold), individually or in the
aggregate, has had a Material Adverse Effect on the Company; provided further
that the breach of the covenant, obligation, agreement, representation or
warranty is incapable of being or has not been cured by the Company on or prior
to the date which is fifteen (15) Business Days immediately following written
notice by Parent to the Company of such breach or failure to perform;
(g) by Parent on or prior to the Notice Deadline, if the aggregate of
the (i) Title Defect Values, (ii) Environmental Defect Values, and (iii)
Material Oil and Gas Contract Defect Values exceeds Two Million Five Hundred
Thousand Dollars ($2,500,000); provided, that the Company does not request
arbitration under Section 9.5 of this Agreement within ten (10) Business Days
following written notice by Parent to the Company of its intent to terminate
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pursuant to this Section 8.1(g), accompanied by the appropriate Title Defect
Notices, Environmental Defect Notices, and/or Material Oil and Gas Contract
Defect Notices.
The party desiring to terminate this Agreement pursuant to clauses
8.1(b) through 8.1(g) shall give written notice of such termination to the other
parties in accordance with Section 9.2.
8.2. EFFECT OF TERMINATION. In the event of a termination of this
Agreement by either the Company or Parent as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Sub or the Company, except with respect to
Section 3.14, Section 4.11, the last sentence of Section 6.3, this Section 8.2
and Article IX; provided, however, that nothing herein shall relieve any party
for liability for any knowing breach hereof.
8.3. AMENDMENT. Subject to Section 6.2 and Section 6.12, this Agreement
may be amended by the parties at any time prior to the Effective Time, but if
the Company Stockholder Approval shall have been obtained, thereafter no
amendment shall be made which by law requires further approval by the Company's
stockholders without obtaining such further approval. This Agreement may not be
amended except by a written instrument signed by each of the parties.
8.4. EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties, by action taken or authorized by their respective Board of Directors or
Board of Managers, as the case may be, subject to Section 6.2 and Section 6.12,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
ARTICLE IX
GENERAL PROVISIONS
9.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND AGREEMENTS.
None of the representations and warranties in this Agreement or in any
instrument or document delivered pursuant to this Agreement shall survive the
Effective Time. This Section 9.1 shall not limit any covenant or agreement of
the parties which by its terms contemplates performance after the Effective
Time.
9.2. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
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if to Parent or Sub, to:
Plantation Petroleum Holdings, LLC
14520 Wunderlich Drive, Suite 200
Houston, Texas 77069
Attn: Thomas C. Meneley
Facsimile: (281) 880-6065
with a copy to:
Chamberlain, Hrdlicka, White, Williams and Martin
1200 Smith Street, Suite 1400
Houston, Texas 77002
Attn: Wilburn O. McDonald, Jr.
Facsimile: (713) 658-2553
if to the Company, to:
Maynard Oil Company
8080 North Central Expressway
Suite 660
Dallas, TX 75206
Attn: President
Facsimile: (214) 891-8484
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606
Attn: Robert A. Schreck, Jr.
Facsimile: (312) 984-7700
9.3. INTERPRETATION; DEFINITIONS. When a reference is made in this
Agreement to an Article or a Section, such reference shall be to an Article or a
Section of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
As used in this Agreement, the following terms have the meanings
specified or referred to in this Section 9.3 and shall be equally applicable to
both the singular and plural forms. Any agreement referred to below shall mean
such agreement as amended, supplemented or modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.
"2002 CAPITAL EXPENDITURE BUDGET" shall have the meaning set forth in
Section 3.17(a). "
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ACQUISITION PROPOSAL" shall have the meaning set forth in Section
5.2(d).
"AFFILIATE" means, with respect to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, such Person. For purposes of this definition, the term "control"
(including the correlative terms "controlling," "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
"AGREEMENT" shall have the meaning set forth in the introductory
paragraph hereof.
"ALLOCATED VALUE" shall have the meaning set forth in Section 6.5.
"BENEFICIAL OWNER" or "BENEFICIALLY OWNING" shall have the meaning set
forth in Rule 13d-3 promulgated under the Exchange Act.
"BENEFIT PLAN" means any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical, employee stock
purchase, stock appreciation, restricted stock or other employee benefit plan,
agreement or arrangement, in each case that is maintained, sponsored,
contributed to or required to be contributed to by the Company or any ERISA
Affiliate for the benefit of providing benefits to any current or former
employee, officer, director or consultant of the Company or the Company
Subsidiary.
"BUSINESS DAY" means any day, other than a Saturday, Sunday or one on
which banks are authorized to close in Dallas, Texas.
"CERCLIS" shall have the meaning set forth in Section 3.16 (f).
"CERTIFICATE OF MERGER" shall have the meaning set forth in Section
1.3.
"CERTIFICATES" shall have the meaning set forth in Section 2.2(b).
"CLAIM" shall have the meaning set forth in Section 6.12 (b)(iii).
"CLEANUP" shall have the meaning set forth in Section 6.6(c).
"CLOSING DATE" shall have the meaning set forth in Section 1.2.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITMENT LETTER" shall have the meaning set forth in Section 4.12.
"COMPANY" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"COMPANY COMMON STOCK" shall have the meaning set forth in the second
recital provision of this Agreement.
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"COMPANY CONTRACTS" shall have the meaning set forth in Section
3.17(a).
"COMPANY DISCLOSURE LETTER" shall have the meaning set forth in Section
3.5.
"COMPANY PREFERRED STOCK" shall have the meaning set forth in Section
3.2.
"COMPANY SEC DOCUMENTS" shall have the meaning set forth in Section
3.6.
"COMPANY STOCKHOLDER APPROVAL" shall have the meaning set forth in
Section 3.15.
"COMPANY STOCKHOLDERS MEETING" shall have the meaning set forth in
Section 6.2.
"COMPANY SUBSIDIARY" shall have the meaning set forth in Section 3.1.
"CONFIDENTIALITY AGREEMENT" shall have the meaning set forth in Section
5.2(b).
"CONSENTS" means with respect to a Governmental Entity or Person, any
consent, approval, waiver, order or authorization of, or registration,
declaration or filing with or exemption by such Governmental Entity or Person,
as the case may be.
"CONSTITUENT CORPORATIONS" shall have the meaning set forth in the
introductory paragraph of this Agreement.
"D&O INSURANCE" shall have the meaning set forth in Section 6.12(c).
"DEFECTIVE INTEREST" shall have the meaning set forth in Section
6.5(a).
"DEFECT VALUE" shall have the meaning set forth in Section 6.5(d).
"DEFENSIBLE TITLE" means for each Well, Unit or Lease specified in the
Reserve Report, such title (any element of a Net Revenue Interest which is
attributable to a non-consent or sole risk election shall be deemed to be record
title) that (i) entitles the Company to receive and retain without reduction or
termination throughout the life of such Well, Unit or Lease a Net Revenue
Interest in, to and from that Well, Unit or Lease not less than the Net Revenue
Interest specified for such Well, Unit or Lease in the Reserve Report (except
for such reductions or terminations, if any, as are reflected therein), (ii)
obligates the Company to pay and bear throughout the life of such Well, Unit or
Lease a share of the costs and risks of exploring, drilling, developing,
operating and abandoning that Well, Unit or Lease not greater than the Working
Interest specified for such Well, Unit or Lease in the Reserve Report (prior to
giving effect to rights of non-consents hereafter exercised by others), (iii)
does not have a Material Adverse Effect on the Company's ability to obtain
access, produce or otherwise market Hydrocarbons from the Well, Unit or Lease at
market rates, and (iv) is free and clear of all Liens, except Permitted
Encumbrances.
"DEPOSIT" shall have the meaning set forth in Section 1.6.
"DGCL" means the General Corporation Law of the State of Delaware, as
amended.
"DISSENTING SHARES" shall have the meaning set forth in Section 1.5.
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"EFFECTIVE TIME" shall have the meaning set forth in Section 1.3.
"ENVIRONMENTAL DEFECT" shall have the meaning set forth in Section 6.6.
"ENVIRONMENTAL DEFECTIVE INTEREST" shall have the meaning set forth in
Section 6.6(a).
"ENVIRONMENTAL DEFECT NOTICE" shall have the meaning set forth in
Section 6.6.
"ENVIRONMENTAL DEFECT VALUE" shall have the meaning set forth in
Section 6.6(d).
"ENVIRONMENTAL LAWS" shall mean all Federal, state and local laws,
regulations, rules and ordinances relating to pollution or protection of the
environment or human health and safety, including laws relating to releases or
threatened releases of Hazardous Substances into the indoor or outdoor
environment (including ambient air, surface water, groundwater, land, surface
and subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, release, transport or handling of
Hazardous Substances; all laws and regulations with regard to recordkeeping,
notification, disclosure and reporting requirements respecting Hazardous
Substances; and all laws relating to endangered or threatened species of fish,
wildlife and plants and the management or use of natural resources.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" shall have the meaning set forth in Section 3.13(b).
"ERISA BENEFIT PLAN" means a Benefit Plan maintained as of the date of
this Agreement which is also an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA) or which is also an "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA).
"ESCROW AGENT" shall have the meaning set forth in Section 1.6.
"ESCROW AGREEMENT" shall have the meaning set forth in Section 1.6.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"EXCHANGE AGENT" shall have the meaning set forth in Section 2.2(a).
"FACILITIES" means gas and water pipelines and gathering systems and
water disposal systems, compressors, wellhead equipment and facilities, central
production facilities, saltwater disposal wells and facilities, together with
all machinery, equipment, pipe, appliances, material, supplies, buildings,
structures, improvements and fixtures used in connection with the exploration,
development or operation of a Lease, Well or Unit or the production, treatment,
storage, dehydrating, compression, sale, marketing, gathering or transportation
of Hydrocarbons from a Lease, Well or Unit.
"FINANCING" shall have the meaning set forth in Section 4.12.
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"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL ENTITY" means any Federal, state, local or tribal
government or authority, or any court, tribunal, administrative agency or
commission or other governmental or other regulatory authority or agency.
"GUARANTOR" shall have the meaning set forth in the recitals.
"HAZARDOUS SUBSTANCES" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is friable, urea
formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing polychlorinated biphenyls, and radon gas; (b) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "restricted
hazardous materials," "extremely hazardous substances," "toxic substances,"
"contaminants" or "pollutants" or words of similar meaning and regulatory
effect; or (c) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any applicable Environmental Law."
"HEDGES" means any future, derivative, swap, collar, put, call, cap,
option or other contract that is intended to benefit from, relate to, or reduce
or eliminate the risk of fluctuations in interest rates, basis risk or the price
of commodities, including Hydrocarbons or securities, to which either of the
Company or the Company Subsidiary is bound.
"HYDROCARBONS" means oil, gas, other liquid or gaseous hydrocarbons, or
any of them or any combination thereof.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (a) obligations for borrowed money, (b) obligations evidenced by
bonds, debentures, notes or similar instruments, (c) letters of credit issued
for the account of such Person (excluding letters of credit issued for the
benefit of suppliers to support accounts payable to suppliers incurred in the
ordinary course of business), (d) capitalized lease obligations, and (e)
guarantees and arrangements having the economic effect of a guarantee of any
indebtedness of any other Person.
"INFORMATION" means technical information pertaining to Wells and/or
reserves or deposits or potential reserves or deposits of Hydrocarbons,
including all geological, geochemical and geophysical information, geographic
and structural geological maps, well logs and related analyses and correlations,
paleontological data, stratigraphic studies and data pertaining to permeability
or porosity, seismic and gravitational data and production records, engineering
and geological data, consultants' studies or reports regarding any of the
foregoing and any and all interpretative analyses of the foregoing; insurance
policies and bonds, all original books, records, files, documents (including,
accounts payable and receivable, accounting records, Leases, deeds, and Company
Contracts) that pertain to the Material Oil and Gas Properties; all title
information (including, but not limited to, title opinions, abstracts, evidence
that rentals, royalties and other payments due under the Leases and Company
Contracts have been paid, evidence that Taxes have been paid, evidence that
Taxes have been paid, maps and surveys, lease records and data sheets),
computer-sensible copies of all computer records pertaining to the Material Oil
and Gas Properties; and all written plans for exploration and development,
applications, inspection
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reports, environmental impact statements, assessments and studies, permits,
licenses, orders, consents, notices, correspondence and other statements and
instruments pertaining to environmental matters and requirements that have been
filed with or supplied to or by any Governmental Entity.
"INDEMNIFIED PERSON" shall have the meaning set forth in Section
6.12(a).
"KNOWLEDGE" shall mean the actual knowledge of the executive officers
of the Company or the executive officers of Parent, as the case may be.
"LAND" means the lands covered by a Lease and lands within an area
covered by a unitization, communitization or pooling agreement or order.
"LAW" means any law, statute, ordinance, decree, order, judgment, rule
or regulation of, including the terms of any license or permit issued by, any
Governmental Entity.
"LEASES" means oil, gas and/or mineral leases, leasehold estates,
operating rights and other rights authorizing the owner thereof to explore or
drill for and produce Hydrocarbons and other minerals, contractual rights to
acquire any such of the foregoing interests, which have been earned by
performance, and fee mineral, royalty and overriding royalty interests, in each
case, in which the Company has an interest.
"LIENS" means any pledges, security interests, mortgages, claims,
liens, charges and encumbrances of any kind or nature whatsoever.
"LOWEST COST RESPONSE" means the response required or allowed under
Environmental Laws that addresses the condition present at the lowest cost
considered as a whole as compared to any other response that is consistent with
Environmental Laws. Taking no action shall constitute the Lowest Cost Response
if, after investigation, taking no action is determined to be consistent with
Environmental Laws, any requirements of contracts, leases or other agreements
binding on the property and any requirements of any Governmental Entity with
jurisdiction (collectively, the "Environmental Requirements"). If taking no
action is not consistent with the Environmental Requirements, the least costly
non-permanent remedy (such as mechanisms to contain or stabilize Hazardous
Substances, including caps, dikes, encapsulation, leachate collection systems,
etc.) shall be the Lowest Cost Response, provided that such non-permanent remedy
is consistent with the Environmental Requirements and less costly than a
permanent remedy.
"MARCH 2002 FORM 10-Q" means the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2002.
"MATERIAL ADVERSE EFFECT" means, when used in connection with the
Company or Parent, as the case may be, any change or effect (or any development
that, insofar as can reasonably be foreseen, is likely to result in any change
or effect) that, individually or taken with all other such changes or effects,
is materially adverse to the business, properties, assets, condition (financial
or otherwise) or results of operations of the Company and the Company Subsidiary
taken as a whole, or Parent and its Subsidiaries taken as a whole, as the case
may be; provided, however, that any adverse change, effect or development that
is caused by or results
-42-
from (i) conditions affecting the United States economy generally or the economy
of any region in which the Company or Parent, as the case may be, or any of its
Subsidiaries conducts business, (ii) conditions generally affecting the oil and
gas industry, including the market price for Hydrocarbons, and (iii) the
announcement or pendency of this Agreement, the Merger or the transactions
contemplated hereby shall not be taken into account in determining whether there
has been (or whether there could reasonably be foreseen) a "Material Adverse
Effect" with respect to the Company or Parent, as the case may be.
"MATERIAL OIL AND GAS CONTRACT CURE" shall have the meaning set forth
in Section 6.7(c).
"MATERIAL OIL AND GAS CONTRACT DEFECT" shall have the meaning set forth
in Section 6.7.
"MATERIAL OIL AND GAS CONTRACT DEFECTIVE INTEREST" shall have the
meaning set forth in Section 6.7(a).
"MATERIAL OIL AND GAS CONTRACT DEFECT NOTICE" shall have the meaning
set forth in Section 6.7.
"MATERIAL OIL AND GAS CONTRACT DEFECT VALUE" shall have the meaning set
forth in Section 6.7(d).
"MATERIAL OIL AND GAS CONTRACTS" shall have the meaning set forth in
Section 3.17(b).
"MATERIAL OIL AND GAS PROPERTY" shall have the meaning set forth in
Section 3.17(b).
"MERGER" shall have the meaning set forth in the recitals of this
Agreement.
"MERGER CONSIDERATION" shall have the meaning set forth in the recitals
of this Agreement.
"NET REVENUE INTEREST" or "NRI" means the interest (expressed as a
percentage or decimal fraction) of the Company listed in the Reserve Report in
and to Hydrocarbons produced from or allocated to a Well or Unit, as the case
may be, after deducting all applicable Production Burdens.
"NOTICE DEADLINE" shall have the meaning set forth in Section 6.5.
"NPL" shall have the meaning set forth in Section 3.16(f).
"OIL AND GAS PROPERTIES" means, with respect to Company, all of
Company's right, title and interest in, to and under, or derived from, Leases,
Wells and Units listed in the Reserve Report together with all property, whether
real, personal or mixed, used in or related to the operation and maintenance of
Leases, Wells and Units, including its right, title and interest in Land,
Facilities, Company Contracts and Information pertaining or relating thereto.
"OUTSIDE DATE" shall have the meaning set forth in Section 8.1(b)(i).
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"PARENT" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"PARENT FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 4.4.
"PAYOUT BALANCES" shall have the meaning set forth in Section 3.18(i).
"PERMITS" means approvals, authorizations, certificates, filings,
franchises, licenses or permits.
"PERMITTED ENCUMBRANCES" means the following:
(i) liens for Taxes or assessments or charges of any
Governmental Entity (A) not yet due and payable and (B) to the
extent identified in the Company Disclosure Letter, Taxes and
assessments and charges due but being contested in good faith,
and for which adequate reserves have been established in
accordance with GAAP;
(ii) materialmen's, mechanics', repairmen's, employees',
contractors', operators', or other similar liens or charges
arising in the ordinary course of business incidental to
construction, maintenance or operation of the Oil and Gas
Properties (A) if they have not been filed pursuant to law and
the time for filing them has expired, (B) if filed, they have not
yet become due and payable or payment is being withheld as
provided by law, (C) to the extent identified in the Company
Disclosure Letter, or (D) if their validity is being contested in
good faith by appropriate action and for which adequate reserves
have been established in accordance with GAAP;
(iii) Production Burdens which do not operate to reduce the
Company's Net Revenue Interest in a Well, Lease or Unit below the
Net Revenue Interest set forth in the Reserve Report for such
Well, Lease or Unit;
(iv) Liens under contracts (excluding area of mutual
interest agreements) and pooling and unitization orders of a
scope and nature customary in the oil and gas industry and Liens
customarily acceptable to prudent oil and gas operators in the
area where the Well, Unit, Land, or Lease is located, insofar as
they: (A) do not cause the Company's Net Revenue Interest in a
Well, Lease or Unit to be less than the Net Revenue Interest set
forth in the Reserve Report for such Well, Lease or Unit; (B) do
not cause the Company to bear more than the share of the costs
and risks of exploring, drilling, developing, operating and
abandoning such Well, Lease or Unit equal to the Working Interest
set forth in the Reserve Report for such Well, Lease or Unit
(prior to giving effect to rights of non-consent hereafter
exercised by others and claims with respect to non-payment by
defaulting parties other than the Company to operating agreements
and similar contracts); and (C) do not materially and adversely
affect the Company's ability to access, produce and market
Hydrocarbons from a Well, Lease or Unit at market rates.
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(v) statutory liens securing the payment of production
proceeds to Persons entitled thereto;
(vi) all Consents by any Governmental Entity (if any) in
connection with the change of ownership or control of an interest
in any federal, state or other Lease if the same are customarily
obtained after such change of ownership or control by timely
filings or other actions;
(vii) the terms of contracts relating to the Oil and Gas
Properties insofar as they: (A) do not cause the Company's Net
Revenue Interest in a Well, Lease or Unit to be less than the Net
Revenue Interest set forth in the Reserve Report for such Well,
Lease or Unit; (B) do not cause the Company to bear more than the
share of the costs and risks of exploring, drilling, developing,
operating and abandoning such Well, Lease or Unit equal to the
Working Interest set forth in the Reserve Report for such Well,
Lease or Unit (prior to giving effect to rights of non-consent
hereafter exercised by others and claims with respect to
non-payment by defaulting parties to operating agreements and
similar contracts); and (C) do not materially and adversely
affect the Company's ability to access, produce and market
Hydrocarbons from a Well, Lease or Unit at market rates.
(viii) easements, rights of way and the like incidental to
the conduct of the Company's business or the ownership of the Oil
and Gas Properties;
(ix) any preferential rights to purchase and required Third
Party Consents to assignments of contracts or property and
similar agreements that are not triggered by or required in
connection with, the Merger or the Financing;
(x) such Title Defects set forth in the Company Disclosure
Letter or as Parent has waived in writing pursuant to the
execution of this Agreement;
(xi) rights reserved to or vested in any Governmental Entity
to control or regulate any of the assets in any manner; and all
applicable laws, rules, regulations and orders of general
applicability in the area of the assets;
(xii) the litigation and claims set forth in the Company
Disclosure Letter; and
(xiii) liens arising under operating agreements, unitization
and pooling agreements and production sales contracts securing
amounts not yet due or, if set forth in the Company Disclosure
Letter as due, being contested in good faith in the ordinary
course of business and for which adequate reserves have been
established in accordance with GAAP.
"PERSON" means an individual, corporation, partnership, association,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity (including any Person as defined in Section
13(d)(3) of the Exchange Act) or Governmental Entity.
"PROXY STATEMENT" shall have the meaning set forth in Section 3.5(b).
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"PRODUCTION BURDENS" means all royalty interests, overriding royalty
interests, production payments, net profit interests or other similar
non-operating interests that constitute a burden on, and are measured by or are
payable out of, the production of Hydrocarbons or the proceeds realized from the
sale or other disposition thereof, other than Taxes and assessments of
Governmental Entities.
"RECOMMENDATIONS" shall have the meaning set forth in Section 3.15.
"REPRESENTATIVE" means with respect to any Person, its officers,
directors, investment bankers, attorneys, accountants, consultants or other
agents, advisors or representatives.
"RESERVE REPORT" shall have the meaning set forth in Section 3.20.
"RETAINED EMPLOYEE" shall have the meaning set forth in Section 6.1(a).
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"SHARES" shall have the meaning set forth in the second recital
provision of this Agreement.
"STOCK EQUIVALENTS" shall have the meaning set forth in Section 3.2.
"SUB" shall have the meaning set forth in the introductory paragraph of
this Agreement.
"SUBSEQUENT DETERMINATION" shall have the meaning set forth in Section
5.3.
"SUBSEQUENT DETERMINATION NOTICE" shall have the meaning set forth in
Section 5.3.
"SUBSIDIARY" or "SUBSIDIARY" of any person means another Person, an
amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which is owned directly or indirectly by
such first person).
"SUPERIOR PROPOSAL" shall have the meaning set forth in Section 5.2(d).
"SURVIVING CORPORATION" shall have the meaning set forth in Section
1.1.
"TAX" and "TAXES" means any Federal, state or local net income, gross
income, gross receipts, windfall profit, severance, property, production, sales,
use, license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum or any other tax, custom, duty, levy, tariff, governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or penalty, addition to tax or additional amount imposed by any
Governmental Entity.
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"TAX RETURN" means any return, report or similar statement (including
any related or supporting information) required to be filed with respect to any
Tax, including any information return, claim for refund, amended return or
declaration of estimated Tax.
"TERMINATION FEE" shall have the meaning set forth in Section 6.8.
"THIRD PARTY" means any Person (or group of Persons) other than Parent
and its affiliates.
"TITLE DEFECT" means any lien, encumbrance, adverse claim,
encroachment, irregularity, defect in or objection to real property title,
excluding Permitted Encumbrances, that alone or in combination with other
defects renders the title of the Company to a Material Oil and Gas Property to
be less than Defensible Title. Notwithstanding the foregoing, the following
shall not be considered Title Defects:
(i) defects based solely on lack of information in the
Company's files provided that the public records contain such
information;
(ii) defects in the early chain of title consisting of the
mere failure to recite marital status in a document or omissions
of successors of heirship or estate proceedings, unless Parent
provides affirmative evidence that such failure or omission has
resulted in another party's actual and superior claim of title to
the relevant Material Oil and Gas Property;
(iii) defects arising out of lack of survey, unless a survey
is required by applicable laws or regulations; and
(iv) defects that are shown by the Company by a
preponderance of evidence to be defensible by possession under
applicable statutes of limitation for adverse possession or for
prescription.
"TITLE DEFECT NOTICE" shall have the meaning set forth in Section 6.5.
"TRANSFER TAXES" shall have the meaning set forth in Section 6.10.
"TREASURY REGULATIONS" means the final and temporary (but not proposed)
income tax regulations promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"UNITS" means the area covered by a unitization, communitization or
pooling agreement or order applicable to Leases (or any portion thereof) or
Wells in which the Company has an interest, but only as to those formations in
which a Well or Wells are currently completed and producing Hydrocarbons.
"VOTING AGREEMENT" shall have the meaning set forth in the recitals of
this Agreement.
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"WELL" means a well for the purpose of producing Hydrocarbons or
disposing of fluids produced in connection with the production of Hydrocarbons,
in which the Company has an interest.
"WILLIAM BLAIR" shall have the meaning set forth in Section 3.14.
"WORKING INTEREST" or "WI" means the interest (expressed as a
percentage or decimal fraction) of the Company in any Lease, Well or Unit listed
in the Reserve Report before giving effect to any applicable Production Burdens
which equals the percentage of all costs and expenses associated with the
exploration, drilling, development, operation and abandonment of such Well or
Unit required to be borne by the Company or any of its Subsidiaries (prior to
giving effect to rights of non-consent hereafter exercised by others and claims
with respect to non-payment by defaulting parties to operating agreements and
similar contracts).
9.4. COUNTERPARTS. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart. Delivery of an executed counterpart by facsimile
shall be effective to the fullest extent permitted by applicable law.
9.5. ARBITRATION. Disputes arising concerning whether Parent has the
right to terminate this Agreement pursuant to Section 8.1(g) shall be resolved
by arbitration as set forth herein and shall be governed by the United States
Arbitration Act, 9 U.S.C. Sections 1-16, and with any disputes over the scope of
discovery to be determined by the arbitrators. The party hereto desiring
arbitration shall commence arbitration by written notice to the other party
setting forth its claim or its understanding of the dispute in reasonable detail
with supporting documentation as necessary for an arbitrator to understand the
dispute.
(a) The chief executive officer of each of Parent and the Company shall
select independent and impartial arbitrators pursuant to the following
provisions: (i) for disputes concerning Environmental Defect Values or Lowest
Cost Responses, the arbitrator shall be an environmental engineer (ii) for
disputes concerning Title Defect Values, the arbitrator shall be an oil and gas
title expert and (iii) for disputes concerning Material Oil and Gas Contract
Defect Values, the arbitrator shall be an attorney selected by the United States
District Judge then senior in service for the Southern District of Texas,
Houston Division. Each arbitrator shall be generally familiar with the oil and
gas industry, preferably with no fewer than ten years of practical experience in
the relevant field of the oil and gas industry in dispute. In the event that the
parties fail to select arbitrators as required above, the arbitrator shall be
selected by the United States District Judge then senior in service for the
Southern District of Texas, Houston Division.
(b) All matters arbitrated hereunder shall be arbitrated in Dallas,
Texas.
(c) The arbitrator(s) shall conduct a hearing no later than fifteen
(15) days after initiation of arbitration, and a decision shall be rendered
within fifteen (15) days following the hearing. At the hearing, the parties
shall present such evidence and witnesses as they may choose, with or without
counsel. Adherence to formal rules of
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evidence shall not be required, but arbitrators shall consider any evidence and
testimony deemed relevant, in accordance with procedures that it determines to
be appropriate. The arbitration award shall be in writing and shall specify the
factual and legal bases for the award. The role of the arbitrator(s) shall be
the determination of the amount in controversy for any given dispute and
arbitrators may not award any other remedy or relief, whether legal or
equitable.
(d) The arbitrator(s) shall be entitled to a fee commensurate with
their fees for professional services requiring similar time and effort. The fees
of the arbitrator(s) and other costs of the arbitration shall be borne 50% by
the Company and 50% by Parent.
(e) The submission and agreement to arbitrate shall be governed by and
specifically enforceable in accordance with the laws of the State of Delaware.
Arbitration may proceed in the absence of any party if notice of the proceedings
has been given to such party. Each of the Company and Parent agrees to abide by
all awards rendered in such proceedings and such awards shall be final and
binding on each of the Company and Parent.
(f) The arbitration procedures provided by this Section 9.5 are
provided for the limited purpose of resolving the types of disputes enumerated
above and no party hereto shall have the right to cause the other party to
arbitrate a dispute pursuant to the provisions hereof if such dispute does not
stem from one of the types of express claims for which dispute resolution is
provided under this Section 9.5, or if such claim is not brought within the
specified time frame for such claim as provided for herein.
9.6. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement,
including the Company Disclosure Letter and all exhibits and schedules hereto,
and the Confidentiality Agreement constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof. This Agreement, except for
the provisions of Section 6.12, is not intended to confer upon any Person other
than the parties any rights or remedies.
9.7. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof; provided, however, that issues related to Land shall be governed by the
laws of the state in which the Land in question is located.
9.8. ASSIGNMENT. Neither this Agreement nor any rights, interests or
obligations hereunder shall be assigned in whole or in party by any party
(whether by operation of law or otherwise) without the prior written consent of
the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
9.9. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the
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economic and legal substance of the transactions contemplated hereby are not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the transactions contemplated by this
Agreement may be consummated as originally contemplated to the fullest extent
possible.
9.10. ENFORCEMENT OF THIS AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, such remedy being in addition to any
other remedy to which any party is entitled at law or in equity. It is further
agreed that the Company may enforce this Agreement and seek damages for and on
behalf of its stockholders.
9.11. OBLIGATIONS OF SUBSIDIARIES. Whenever this Agreement requires any
subsidiary of Parent (including Sub) or of the Company to take any action, such
requirement shall be deemed to include an undertaking on the part of Parent or
the Company, as the case may be, to cause such Subsidiary to take such action.
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SIGNATURE PAGE TO
MAYNARD/PLANTATION MERGER AGREEMENT
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
PLANTATION PETROLEUM MAYNARD OIL COMPANY
HOLDINGS, LLC
By: By:
-------------------------------------- --------------------------
Thomas C. Meneley, President James G. Maynard, Chairman
PLANTATION PETROLEUM ACQUISITION CORP.
By:
--------------------------------------
Thomas C. Meneley, President
GUARANTEE
Plantation Petroleum Corp. and Plantation Petroleum Ventures, Ltd.
hereby jointly and severally unconditionally guarantee the prompt payment and
performance of all liabilities and obligations of Parent and Sub under this
Agreement.
PLANTATION PETROLEUM CORP.
By:
--------------------------------------
Thomas C. Meneley, President
PLANTATION PETROLEUM VENTURES, LTD., by
Plantation Petroleum Management, LLC, its
general partner
By:
------------------------------------
Thomas C. Meneley
ANNEX B
VOTING AGREEMENT
THIS VOTING AGREEMENT ("AGREEMENT") is made and entered into as of the
25th day of April, 2002, by and between Plantation Petroleum Holdings, LLC, a
Delaware limited liability company ("PARENT"), and the stockholders listed on
the signature page hereof (the "STOCKHOLDERS").
WHEREAS, Maynard Oil Company, a Delaware corporation (the "COMPANY"),
and Parent have entered into an Agreement and Plan of Merger, dated as of the
date hereof (as the same may be amended or supplemented, the "MERGER
AGREEMENT"), providing for the merger of a wholly-owned subsidiary of Parent
with and into the Company (the "MERGER") upon the terms and subject to the
conditions set forth in the Merger Agreement;
WHEREAS, each Stockholder beneficially owns the number of shares of
common stock, par value $.10 per share ("COMPANY COMMON STOCK"), of the Company
set forth opposite its name on the signature page hereof (the "SUBJECT SHARES");
and
WHEREAS, as a condition to entering into the Merger Agreement, Parent
has requested that the Stockholders enter into this Agreement, pursuant to which
each Stockholder shall vote to approve and adopt the Merger Agreement and the
Merger in accordance with the terms hereof and thereof.
NOW, THEREFORE, in consideration of the premises and promises contained
herein, the parties agree as set forth below.
1. The Subject Shares. Each Stockholder is the record owner of, and has
good and marketable title to, the Subject Shares, free and clear of any Liens
(as defined in the Merger Agreement) whatsoever. The Stockholder does not own,
of record or beneficially, any shares of capital stock of the Company, other
than the Subject Shares set forth opposite its name on the signature page. Each
Stockholder has full power to vote and dispose of the Subject Shares registered
in its name and there are no restrictions on any Stockholder's voting rights or
rights of disposition with respect to the Subject Shares, except as set forth
herein or imposed by federal or state securities laws. No Stockholder owns any
options to purchase or rights to subscribe for or otherwise acquire any capital
stock of the Company or has any voting rights with respect to capital stock of
the Company, other than the Subject Shares.
2. Covenants of Stockholders. Subject to Section 5 hereof, and without
in any way limiting a Stockholder's right to vote the Subject Shares in its sole
discretion on any other matters that may be submitted to a stockholder vote,
consent or other approval (including by written consent), each Stockholder shall
vote (or cause to be voted) the Subject Shares in favor of the Merger and for
the approval and adoption by the Company of the Merger Agreement. Prior to
termination of the Merger Agreement, the Stockholders agree not to vote these
Subject Shares in favor of an Acquisition Proposal (as defined in the Merger
Agreement). Each of the Stockholders agrees that during the term of this
Agreement, the Stockholder shall attend or otherwise participate in all duly
called stockholder meetings and any adjournments thereof and in all actions by
written consent of stockholders.
3. No Proxies or Encumbrances. Except as otherwise provided herein, no
Stockholder shall, directly or indirectly, grant any proxies or powers of
attorney with respect to the Subject Shares, deposit the Subject Shares into a
voting trust, or enter into any other voting agreement with respect to the
Subject Shares. No Stockholder shall sell, assign, transfer, encumber or dispose
of any Subject Shares, unless the recipient or party to the encumbrance agrees
to the covenants set forth herein. There are no restrictions on the
Stockholder's voting rights or rights of disposition pertaining thereto except
as set forth in this Agreement or imposed by federal and state securities law.
None of the Subject Shares is subject to any voting trust or other agreement or
arrangement with respect to the voting of such shares.
4. Non-contravention. The execution and delivery of this Agreement by
each Stockholder and the compliance by each Stockholder with the provisions
hereof will not (i) result in, or give rise to, a violation or breach of or a
default under any of the terms of any contract, agreement or other instrument or
obligation to which the Stockholder is a party or by which the Stockholder or
any of its Subject Shares may be bound, or (ii) violate any applicable order,
writ, injunction, decree, judgment, statute, rule or regulation which would
reasonably be expected to adversely affect the Stockholder's ability to perform
its obligations under this Agreement.
5. Authorization. The execution, delivery and performance by each
Stockholder of this Agreement and the consummation by the Stockholder of the
transactions contemplated hereby are within the Stockholder's powers and have
been duly authorized by all necessary actions, if any, including all necessary
actions by the trustees of the Stockholder, if the Stockholder is a trust. This
Agreement constitutes a valid and binding agreement of each Stockholder,
enforceable against the Stockholder in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar laws relating to creditors rights generally, or general equitable
principles.
6. Certain Events. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Subject Shares and shall be binding
upon any person or entity to which ownership of its Subject Shares shall pass,
whether by operation of law or otherwise, including the Stockholder's
successors. In the event of any stock split, stock dividend, reorganization,
recapitalization or other change in the capital structure of the Company
affecting the Company Common Stock, or the acquisition of additional shares of
Company Common Stock by the Stockholder (whether by purchase or otherwise), the
number of Subject Shares listed on the signature page hereof beside the name of
the Stockholder shall be adjusted appropriately and this Agreement and the
obligations hereunder shall attach to any additional or decreased shares of
Company Common Stock issued to or acquired or disposed of by the Stockholder.
7. Termination. This Agreement shall terminate, and the provisions
hereof shall be of no further force or effect, upon the earlier of the
effectiveness of the Merger or the termination of the Merger Agreement in
accordance with its terms.
8. Action as Director. Nothing in this Agreement shall restrict any
Stockholder or affiliate of a Stockholder from taking any action in the capacity
of a director of the Company or from fulfilling his fiduciary duties under
Delaware law.
-2-
9. Filing of Agreement with Registered and Principal Office. The
Stockholders shall promptly cause a copy of this Agreement to be filed with the
Company at its registered office and its principal place of business.
10. General Provisions.
(a) Amendments. This Agreement may not be amended, except by an
instrument in writing signed by each of the parties hereto.
(b) Notice. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to Parent in accordance with Section 9.2 of the Merger Agreement and to the
Stockholder at its address set forth on the signature page hereof (or at such
other address for a party as shall be specified by like notice).
(c) Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by the Stockholders, on the one hand,
without the prior written consent of Parent nor by Parent, on the other hand,
without the prior written consent of the Stockholders. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other parties. Signatures may be by
facsimile or other electronic means.
(e) Entire Agreement; No Third Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and is not intended to confer any rights or remedies upon
any person other than the parties hereto.
(f) Governing Law. This Agreement shall be governed by, and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
(g) Publication. Each Stockholder hereby permits Parent and the Company
to publish and disclose in all documents and schedules filed with the Securities
and Exchange Commission the Stockholder's identity and ownership of shares of
stock of the Company and the nature of its commitments, arrangements, and
understandings pursuant to this Agreement.
(h) Specific Enforcement; Remedies Cumulative. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Accordingly, the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity. All rights, powers and
remedies provided under this Agreement or otherwise available in respect hereof
-3-
at law or in equity shall be cumulative and not alternative, and the exercise of
any thereof by any party shall not preclude the simultaneous or later exercise
of any other such right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof shall not constitute a waiver by such party of
its right to exercise any such or other right, power or remedy or to demand such
compliance.
-4-
IN WITNESS WHEREOF, the undersigned here caused this Agreement to be
executed and the date first written above.
SUBJECT
PARENT: STOCKHOLDERS: SHARES
By: BCTM, INC. 300,000
------------------------ Shares
Name:
Title: ------------------------------
By: James G. Maynard
As: President
JOAN B. MAYNARD TRUST DATED
APRIL 30, 1976 10,000 Shares
------------------------------
By: Joan B. Maynard
As: Trustee
JAMES G. MAYNARD TRUST DATED 2,446,596
APRIL 30, 1976 Shares
------------------------------
By: James G. Maynard
As: Trustee
ANNEX C
April 23, 2002
Board of Directors
Maynard Oil Company
8080 N. Central Expressway Suite 660
Dallas, TX 75206
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common stock
(individually, a "Stockholder," and collectively, the "Stockholders") of Maynard
Oil Company (the "Company") of the $17.00 per share in cash (the "Merger
Consideration ") proposed to be paid to the Stockholders pursuant to the draft
Agreement and Plan of Merger (the "Merger Agreement") by and among Plantation
Petroleum Holdings, LLC, a Delaware limited liability company ("Parent"),
Plantation Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Sub"), and the Company. Pursuant to the terms of and
subject to the conditions set forth in the Merger Agreement, the Sub will merge
with and into the Company (the "Merger") and each share of common stock, par
value $0.10 per share, of the Company ("Company Common Stock") (other than
Dissenting Shares (as defined in the Merger Agreement)) will be converted in the
Merger into the right to receive an amount equal to the Merger Consideration.
In connection with our review of the proposed Merger and the
preparation of our opinion herein, we have examined: (a) a draft of the Merger
Agreement; (b) certain audited historical financial statements of the Company
for the three years ended December 31, 2001; (c) the Company's December 31, 2001
reserve engineering report prepared by the Company's management and audited by
Netherland, Sewell and Associates, Inc. an independent petroleum consulting firm
(the "Engineering Consultant"), relating to estimates of the proved oil and gas
reserves of the Company as of December 31, 2001 (the "Reserve Report"); (d)
certain internal business, operating and financial information and forecasts
(the "Forecasts") of the Company, prepared by the senior management of the
Company; (e) the publicly available financial terms of certain other business
combinations that we deemed relevant; (f) the financial position and operating
results of the Company compared with those of certain other publicly traded
companies that we deemed relevant; (g) current and historical market prices and
trading volumes of the Company Common Stock; and (h) certain other publicly
available information relating to the Company. We have also held discussions
with members of the senior management of the Company and representatives of the
Company to discuss the foregoing, the past and current business operations, the
financial condition and the future prospects of the Company. We have also held
discussions with you and the Company's legal counsel to discuss the proposed
Merger and the results of our analysis and examination, and have considered
other matters which we have deemed relevant to our inquiry and have taken into
account such accepted financial and investment banking procedures and
considerations as we have deemed relevant or appropriate. In connection with our
engagement, we were requested by the Company to approach, and held discussions
with, third parties to both solicit and respond to indications of interest in a
possible acquisition of the Company. We were not requested to consider, and our
opinion does not address, any term of the Merger or the Merger Agreement other
than the Merger Consideration to be paid to the Stockholders in the Merger
pursuant to the Merger Agreement.
In rendering our opinion, we have assumed and relied, without any duty
of independent verification, upon the accuracy and completeness of all the
information examined by or otherwise reviewed or discussed with us for purposes
of our opinion, including without limitation the Forecasts and the Reserve
Report provided to us by senior management. We have not made or obtained an
independent valuation or appraisal of the assets, liabilities or solvency of the
Company. We have been advised by the senior management of the Company that the
Forecasts examined by us have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the senior management of the
Company. With respect to the estimates of proved oil and gas reserves of the
Company contained in the Reserve Report, we have assumed that such estimates
have been reasonably prepared on bases reflecting the best available estimates
and judgments of the Company's management and/or the Engineering Consultant. In
that regard, we have assumed, with your consent, that (i) the Forecasts will be
achieved and (ii) all material assets and liabilities (contingent or otherwise)
of the Company are as set forth in the Company's financial statements or other
information made available to us. We express no opinion with respect to the
Forecasts, the Reserve Report or the estimates and judgments on which they are
based. Our opinion herein is based upon economic, market, financial and other
conditions existing on, and other information disclosed to us as of, the date of
this letter. It should be understood that, although subsequent developments may
affect our opinion, we do not have any obligation to update, revise or reaffirm
our opinion herein. We have relied as to all legal matters on advice of counsel
to the Company, and have assumed that the Merger will be consummated on the
terms described in the Merger Agreement, without any waiver of any material
terms or conditions by the Company, and that the executed form of the Merger
Agreement will be in substantially the form of the last draft of the Merger
Agreement reviewed by us.
William Blair & Company has been engaged in the investment banking
business since 1935. We continually undertake the valuation of investment
securities in connection with public offerings, private placements, business
combinations, estate and gift tax valuations and similar transactions. We have
acted as an investment banker to the Company in connection with the Merger and
will receive a fee from the Company for our services, a significant portion of
which is contingent upon consummation of the Merger. In addition, the Company
has agreed to indemnify us against certain liabilities arising out of our
engagement. In the ordinary course of our business, we may beneficially own or
actively trade the common shares and other securities of the Company for our own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities.
We are expressing no opinion herein as to the prices at which the
Company Common Stock has traded or will trade following the announcement of the
proposed Merger. Such trading price may be affected by a number of factors,
including but not limited to (i) changes in prevailing interest rates and other
factors which generally influence the price of securities, (ii) adverse changes
in the current capital markets, (iii) the occurrence of adverse changes in the
financial condition, business, assets, results of operations or prospects of the
Company specifically, or in the oil and gas markets in general, (iv) any
necessary actions by or restrictions of federal, state or other governmental
agencies or regulatory authorities, and (v) timely completion of the Merger on
terms and conditions that are acceptable to all parties at interest.
Our investment banking services and our opinion were provided for the
use and benefit of the Board of Directors of the Company in connection with its
consideration of the proposed Merger contemplated by the Merger Agreement. Our
opinion is limited to the fairness, from a financial point of view, to the
Stockholders of the Merger Consideration to be paid to the Stockholders in the
Merger pursuant to the Merger Agreement, and we do not address the merits of the
underlying decision by the Company to engage in the Merger. Furthermore, our
opinion does not constitute a recommendation to any Stockholder as to how such
Stockholder should vote with respect to the proposed Merger or any matter
related thereto. It is understood that this letter may not be disclosed or
otherwise referred to without our prior written consent, except that this letter
may be reproduced in its entirety in a proxy statement mailed to the
Stockholders by the Company in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion as
investment bankers that, as of the date hereof, the Merger Consideration to be
paid to the Stockholders in the Merger pursuant to the Merger Agreement is fair,
from a financial point of view, to the Stockholders.
Very truly yours,
-------------------------------
WILLIAM BLAIR & COMPANY, L.L.C.
ANNEX D
THE FOLLOWING IS THE TEXT OF SECTION 262
OF THE DELAWARE GENERAL CORPORATION LAW:
SS. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to ss. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to ss. 251 (other than a merger effected pursuant to ss. 251(g) of this
title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation
pursuant to ss.ss. 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated
as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and
c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or
ss. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in
such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to
all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation
the appraisal of such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective date
of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection.
An affidavit of the secretary or assistant secretary or of the transfer
agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining
the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more
than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.