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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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HARCOR ENERGY, INC.
(Name of Subject Company)
HARCOR ENERGY, INC.
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $.10 PER SHARE
(Title of Class of Securities)
411 628 209
(CUSIP Number of Class of Securities)
HARRY J. LAWSON
GENERAL COUNSEL
HARCOR ENERGY, INC.
4400 POST OAK PARKWAY, SUITE 2220
HOUSTON, TEXAS 77027
(713) 961-1804
FAX: (713) 961-9773
(Name, address and telephone number of person authorized to receive notice
and communications on behalf of person filing statement)
With a copy to:
MICHAEL P. FINCH, ESQ.
VINSON & ELKINS L.L.P.
1001 FANNIN, SUITE 2300
HOUSTON, TEXAS 77002
(713) 758-2128
FAX: (713) 615-5282
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[HARCOR ENERGY, INC. LETTERHEAD]
April 6, 1998
Dear Stockholder:
On behalf of the Board of Directors of HarCor Energy, Inc. (the "Company"),
I am pleased to inform you that the Company entered into an Agreement and Plan
of Merger, dated as of March 31, 1998 (the "Merger Agreement"), with Seneca
Resources Corporation ("Parent") and Seneca West Corp., its wholly owned
subsidiary (the "Purchaser"), pursuant to which the Purchaser has today
commenced a cash tender offer (the "Offer") to purchase all of the outstanding
shares of common stock of the Company (the "Shares") at a price of $2.00 per
share, net to the seller in cash, without interest. The Offer is conditioned
upon, among other things, the tender of at least a majority of the Shares.
Following the successful completion of the Offer, upon the terms and
subject to the conditions contained in the Merger Agreement, the Purchaser will
be merged with and into the Company (the "Merger"), with the Company as the
surviving corporation. At the effective time of the Merger, each remaining
issued and outstanding Share will be converted into the right to receive $2.00
in cash, subject to dissenter's rights.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER
AGREEMENT, HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR
TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND THE COMPANY'S STOCKHOLDERS,
AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the enclosed
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which is being filed today with the Securities and Exchange Commission,
including, among other things, the written opinion of SBC Warburg Dillon Read
Inc., the Company's financial advisor, that the consideration to be received by
the stockholders of the Company pursuant to the Offer and the Merger is fair to
such stockholders from a financial point of view.
Additional information with respect to the Board's decision is contained in
the enclosed Schedule 14D-9 and we urge you to consider this information
carefully.
In addition to the attached Schedule 14D-9, enclosed also is the
Purchaser's Offer to Purchase dated April 6, 1998, together with related
materials, including a Letter of Transmittal to be used for tendering your
Shares in the Offer. These documents set forth the terms and conditions of the
Offer and provide instructions as to how to tender your Shares. I urge you to
read and consider the enclosed materials carefully before making your decision
with respect to tendering your Shares pursuant to the Offer.
Very truly yours,
MARK G. HARRINGTON
Chairman of the Board and
Chief Executive Officer
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is HarCor Energy, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 4400 Post Oak Parkway, Suite 2220, Houston, Texas 77027. The
title of the class of equity securities to which this statement relates is the
Common Stock, par value $.10 per share (the "Common Stock"), of the Company (the
"Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a tender offer by Seneca West Corp., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Seneca Resources
Corporation, a Pennsylvania corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated April 6, 1998 (the "Schedule 14D-1"), whereby
the Purchaser has offered to purchase all of the outstanding Shares at a price
of $2.00 per Share (such price, or any such higher price as may be paid in the
Offer (as defined below), being referred to herein as the "Offer Price"), net to
the seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated April 6, 1998 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which together constitute
the "Offer"), which are incorporated by reference herein.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES WHICH, TOGETHER WITH ANY SHARES BENEFICIALLY OWNED BY PARENT OR
PURCHASER, REPRESENT AT LEAST A MAJORITY OF THE SHARES OUTSTANDING (THE "MINIMUM
CONDITION"). The Company has represented and warranted to the Purchaser and
Parent in the Merger Agreement that, as of March 31, 1998, there were 16,268,367
Shares issued and outstanding, and that all options outstanding under the
Company's stock option plans ("Options") and all outstanding Warrants to
purchase Common Stock ("Warrants") have exercise prices greater than $2.00 per
share, and are therefore not expected to be exercised. Based on the foregoing,
if 8,134,184 Shares were validly tendered and not withdrawn prior to the
Expiration Date (as hereinafter defined) pursuant to the terms of the Offer, the
Minimum Condition would be satisfied.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of March 31, 1998 (the "Merger Agreement"), among Parent, Purchaser and the
Company, pursuant to which, as promptly as practicable following the later of
the Expiration Date and the satisfaction or waiver of certain conditions, the
Purchaser will be merged with and into the Company (the "Merger"), with the
Company surviving (the "Surviving Corporation") as a wholly owned subsidiary of
Parent. At the effective time of the Merger (the "Effective Time"), each Share
issued and outstanding immediately prior to the Effective Time (other than
Shares owned by the Purchaser, the Parent or their respective affiliates or by
the Company and Shares held by stockholders who perfect their dissenters' rights
under Delaware law) will be canceled and converted automatically into the right
to receive $2.00 in cash, or any higher price that may be paid per Share in the
Offer, without interest (the "Merger Consideration"). The Merger Agreement is
incorporated by reference herein and is summarized in Item 3.
According to the Schedule 14D-1, the address of the principal executive
offices of Parent and the Purchaser is 1201 Louisiana, Suite 400, Houston, Texas
77002.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, is set forth in Item 1 above. All information contained in this
Statement or incorporated herein by reference concerning Parent, Purchaser or
their respective officers, directors, representatives or affiliates, or actions
or events with respect to any of them, was provided by Parent or Purchaser,
respectively, and the Company takes no responsibility for such information.
(b) The Company has entered into Severance Agreements with each of its
officers and employees (a total of 14 persons), effective as of April 9, 1997,
which provide that upon the effective date of a "change of control" of the
Company (the "Effective Date"), as defined therein, the Company will make a
lump-sum
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severance payment to each such person equal to 150% of the aggregate
compensation reported on such employee's 1996 IRS Forms W-2 and 1099. The
Effective Date with respect to the transactions contemplated hereby would be the
date on which Purchaser acquires more than 50% of the outstanding shares of
Common Stock, which would be the date of completion of the Offer. The Severance
Agreements also provide that each employee shall be entitled to full coverage
and benefits currently existing under the Company's health and life insurance
policies for a period of six months following the Effective Date. It is
anticipated that none of the Company's officers or employees will continue to be
employed by the Surviving Corporation following the consummation of the Merger.
Certain other contracts, agreements, arrangements or understandings between the
Company or its affiliates and its executive officers, directors or affiliates
are described in the Company's Information Statement (the "Information
Statement") included pursuant to Section 14(f) of the Securities Exchange Act of
1934, as amended, which is attached as Annex A hereto and incorporated by
reference, under the captions "Directors and Committees," "Security Ownership of
Management" and "Information about Executive Officers."
Except as described herein, there are no material contracts, agreements,
arrangements or understandings between the Company or its affiliates and Parent,
Purchaser or any of their respective executive officers, directors or
affiliates.
MERGER AGREEMENT; CONFIDENTIALITY AGREEMENT
THE MERGER AGREEMENT. The following summary of the Merger Agreement is
qualified by reference to the Merger Agreement. Capitalized terms used but not
defined herein shall have the meaning given to them in the Merger Agreement.
The Offer. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to prior satisfaction or waiver
of the conditions of the Offer, the Purchaser will purchase all Shares validly
tendered and not properly withdrawn pursuant to the Offer. The Offer is
conditioned upon, among other things, there being tendered and not withdrawn
prior to the Expiration Date, a number of Shares which, together with any Shares
beneficially owned by Parent and Purchaser, represent a majority of the
outstanding Shares. The Merger Agreement provides that, without the written
consent of the Company, the Purchaser will not (i) decrease or change the form
of consideration to be paid in the Offer, (ii) reduce the maximum number of
Shares to be purchased in the Offer or the Minimum Condition, (iii) impose
additional conditions to the Offer, (iv) change the conditions to the Offer
(except that the Parent in its sole discretion may waive any of the conditions
to the Offer other than the Minimum Condition), or (v) amend any other term or
condition of the Offer in a manner adverse to the holders of the Shares. In the
event that all conditions of the Offer have not been satisfied or waived by the
Expiration Date, May 4, 1998, the Purchaser may terminate the Offer and the
Merger Agreement. Additionally, the Merger Agreement provides that the Purchaser
may extend the Offer for a period of up to 10 business days after the later of
(i) the initial expiration date of the Offer or (ii) the date on which all
conditions to completion of the Offer have been satisfied or waived. The
Purchaser will, on the terms and subject to the prior satisfaction or waiver of
the conditions to the Offer, accept for payment and pay for Shares validly
tendered and not properly withdrawn as soon as practicable after expiration of
the Offer.
The Merger. Following the consummation of the Offer, the Merger Agreement
provides that, subject to the terms and conditions thereof, and in accordance
with Delaware law, as soon as practicable, the Purchaser will be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
the Purchaser will cease and the Company will continue as the Surviving
Corporation and a wholly owned subsidiary of the Parent.
The respective obligations of the Parent and the Purchaser, on the one
hand, and the Company, on the other hand, to effect the Merger are subject to
the satisfaction on or prior to the Closing Date (as defined in the Merger
Agreement) of each of the following conditions: (i) the Merger Agreement shall
have been approved and adopted by the requisite vote of the holders of Shares,
if required by applicable law, in order to consummate the Merger; (ii) no
federal or state governmental or regulatory body or court of competent
jurisdiction shall have enacted, issued, promulgated or enforced any statute,
rule, regulation, executive order,
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decree, judgment, preliminary or permanent injunction or other order that is in
effect and that prohibits, enjoins or otherwise restrains the consummation of
the Merger; (iii) all material filings required to be made prior to the
Effective Time with, and all material consents, approvals, permits and
authorizations required to be obtained prior to the Effective Time from,
governmental and regulatory authorities or third parties in connection with the
Merger and the consummation of the other transactions contemplated by the Merger
Agreement shall have been made or obtained, as the case may be; and (iv) the
Purchaser shall have purchased Shares pursuant to the Offer.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are owned by the Company, any Shares owned by the Parent
or any wholly owned subsidiary of the Parent or any of their respective
affiliates, or any Shares which are held by stockholders exercising dissenters'
rights, if any, under Delaware law) will be converted into the right to receive
the Merger Consideration, and (ii) each issued and outstanding share of capital
stock of the Purchaser will be converted into one share of common stock of the
Surviving Corporation.
The Company Board. The Merger Agreement provides that upon the purchase and
payment by the Parent or the Purchaser of Shares representing at least a
majority of the outstanding Shares, the Parent shall be entitled to designate
all members of the Company Board. The current directors of the Company have
indicated to the Parent that they intend to resign as directors of the Company
as soon as reasonably practicable upon the Purchaser purchasing at least a
majority of the outstanding Shares pursuant to the Offer, and the Company shall
exercise reasonable efforts to secure the resignations of all directors to
enable such Parent designees to be so elected or appointed. Such designees will
abstain from any action proposed to be taken by the Company to amend or
terminate the Merger Agreement or waive any action by the Parent or the
Purchaser. The Company's obligations to appoint designees to the Board of
Directors shall be subject to Section 14(f) of the Exchange Act, which provides,
among other things, for dissemination of information to a company's
stockholders.
Stockholders' Meeting. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger: (i) duly call,
give notice of, convene and hold a special meeting of its stockholders (the
"Special Meeting"') as soon as reasonably practicable following the purchase of
Shares by the Purchaser pursuant to the Offer for the purpose of considering and
taking action upon the Merger and the adoption of the Merger Agreement; (ii)
prepare and file with the Commission a preliminary proxy or information
statement relating to the Merger and the Merger Agreement and include in any
preliminary or definitive proxy statement or information statement with respect
to the Special Meeting (the "Proxy Statement"), the recommendation of the
Company Board that stockholders of the Company vote in favor of the approval of
the Merger Agreement and the transactions contemplated thereby; and (iii) use
all reasonable efforts (A) to obtain and furnish the information required to be
included by it in the Proxy Statement and, after consultation with the Parent
and the Purchaser, respond promptly to any comments made by the Commission with
respect to the Proxy Statement and any preliminary version thereof and cause the
Proxy Statement to be mailed to its stockholders at the earliest practicable
time following the expiration or termination of the Offer and (B) obtain the
necessary approvals by its stockholders of the Merger Agreement and the
transactions contemplated thereby. The Parent has agreed that it will vote, or
cause to be voted, all of the Shares then owned by it, the Purchaser or any of
its other subsidiaries and affiliates in favor of the approval of the Merger and
the adoption of the Merger Agreement. If the Purchaser acquires, through the
Offer or otherwise, at least a majority of the outstanding Shares, the Purchaser
will have sufficient voting power to approve the Merger, even if no other
stockholders vote in favor of the Merger.
The Merger Agreement provides that in the event that the Purchaser shall
acquire at least 90% of the then outstanding Shares, the parties agree to take
all necessary and appropriate action to cause the Merger to become effective, in
accordance with Section 253 of the DGCL, as soon as practicable after such
acquisition, without a meeting of the stockholders of the Company.
Options and Warrants. The Company has represented and warranted to the
Purchaser and the Parent in the Merger Agreement that it has taken all action
necessary so that all outstanding options and other rights to acquire Shares
granted to directors, employees or others under any stock option or purchase
plan, program or
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similar arrangement of the Company, whether or not then exercisable or vested,
will be cancelled by the Company upon consummation of the Offer. The holders
thereof shall be entitled to receive, for each Share, in settlement and
cancellation thereof, an amount in cash equal to the positive difference, if
any, between the per Share Merger Consideration and the exercise price per share
of such option. Since all such options have exercise prices in excess of $2.00
per share, none are expected be exercised. The Company has represented and
warranted to the Purchaser and the Parent that all outstanding warrants to
purchase Shares will be converted into the right to receive $2.00 cash instead
of each Share which would otherwise be purchasable by the holder of the warrant
upon the exercise thereof and payment of the warrant exercise price thereunder.
Since all warrants have exercise prices in excess of $2.00 per share, none are
expected to be exercised.
Interim Operations. Pursuant to the Merger Agreement, the Company has
agreed that, except as expressly contemplated by the Merger Agreement or agreed
to in writing by the Parent, prior to the Effective Time, the Company shall (a)
use all commercially reasonable efforts to conduct its business in all material
respects only in the ordinary course of business and consistent with past
practice; (b) not amend its certificate of incorporation or bylaws or declare,
set aside or pay any dividend or other distribution or payment in cash, stock or
property in respect to its capital stock; or acquire, directly or indirectly,
any of its capital stock; (c) not issue, grant, sell or pledge or agree or
authorize the issuance, grant, sale or pledge of any shares of, or rights of any
kind to acquire any shares of, its capital stock other than Shares issuable upon
the exercise of stock options; (d) not acquire, sell, transfer or lease any
assets except in the ordinary course of business and consistent with past
practice or encumber any assets of the Company; (e) use all commercially
reasonable efforts to preserve intact its business organizations and to keep
available the services of its present key officers and employees; provided,
however, that to satisfy the foregoing obligation, the Company shall not be
required to make any payments other than those agreed to with the Parent or
enter into or amend any contractual arrangements or understandings, except in
the ordinary course of business and consistent with past practice; (f) not adopt
a plan of complete or partial liquidation or adopt resolutions provided for the
complete or partial liquidation, consolidation, merger, restructuring or
recapitalization of the Company; (g) not grant any severance or termination pay
(otherwise than pursuant to policies or contracts in effect on the date of the
Merger Agreement) to, or enter into any employment agreement with, any of its
executive officers or directors; (h) not increase the compensation payable or to
become payable to its officers or employees, enter into any contract or other
binding commitment in respect of any such increase with any of its directors, or
officers or other employees, and not establish, adopt, enter into, make any new
grants or awards under or amend, any collective bargaining agreement or Company
Benefit Plan (as defined in the Merger Agreement), except as required by
applicable law, including any obligation to engage in good faith collective
bargaining, to maintain tax-qualified status or as may be required by any
Company Benefit Plan as of the date of the Merger Agreement; (i) not settle or
compromise any material claims or litigation or, except in the ordinary course
of business, modify, amend or terminate any of its material contracts or waive,
release or assign any material rights or claims, or make any payment, direct or
indirect, of any material liability before the same becomes due and payable in
accordance with its terms; (j) not take any action, other than reasonable and
usual actions in the ordinary course of business and consistent with past
practice with respect to accounting policies or procedures (including tax
accounting policies and procedures), except as may be required by the Commission
or the Financial Accounting Standards Board; (k) not make any material tax
election or permit any material insurance policy naming it as a beneficiary or a
loss payable payee to be canceled or terminated without notice to the Parent,
except in the ordinary course of business; (l) confer at such times as the
Parent may reasonably request with one or more representatives of the Parent to
report material operational matters and the general status of ongoing operations
(in each case to the extent the Parent reasonably requires such information) and
to consult with the Parent regarding material operational decisions; (m) not (i)
enter into any loan or credit agreement, or incur any indebtedness (other than
borrowings under its existing credit agreement for the purpose of paying fees
and severance payments disclosed pursuant to the Merger Agreement and expenses
incurred in connection with the transactions contemplated thereunder) or
guarantee any indebtedness or amend any existing loan or credit agreement, (ii)
make or enter into any agreement or contract for capital expenditures, except
for capital expenditures required to be made under the Company's joint operating
agreements and other expenditures on the Company's existing properties up to
$25,000 per expenditure or $100,000 in the aggregate or (iii) enter into any
agreement or contract outside the ordinary course of business
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of the Company; (n) not adjust, split, combine or reclassify its capital stock;
(o) not enter into any agreement, understanding or arrangement with respect to
the sale or voting of its capital stock; (p) not enter into any derivative
instruments; and (q) not authorize or enter into any agreement to do any of the
foregoing.
No Solicitation. Pursuant to the Merger Agreement, the Company shall not,
and shall use its best efforts to cause its officers, directors, employees,
attorneys, accountants, financial advisors, agents or other representatives not
to, directly or indirectly, initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal relating to, or that may reasonably
be expected to lead to, the acquisition of all or a significant part of the
business and properties or capital stock of the Company, whether by merger,
purchase of assets, tender offer or otherwise with a third party other than the
Parent (an "Acquisition Proposal"), or enter into discussions or negotiate with
any person or entity in furtherance of such inquiries or to obtain an
Acquisition Proposal, or agree to or endorse any Acquisition Proposal, or
authorize or permit any of the officers, directors, employees or agents or
representatives of the Company or any investment banker, financial advisor,
attorney, accountant or other representative retained by the Company to take any
such action. The Company shall as promptly as practicable notify the Parent of
all relevant terms of any such inquiries or proposals received by the Company
and, if such inquiry or proposal is in writing, the Company shall as promptly as
practicable deliver or cause to be delivered to the Parent a copy of such
inquiry or proposal. The foregoing is not intended to prohibit the Company Board
from (a) furnishing information to, or entering into discussions or negotiations
with, any persons or entities in connection with an unsolicited bona fide
proposal in connection with an Acquisition Proposal if, and only to the extent
that (i) such unsolicited bona fide proposal is on terms that the Company Board
determines it cannot reject, based on applicable fiduciary duties and the advice
of outside counsel (except with respect to furnishing information) and for which
financing to the extent required is then committed, and (ii) prior to furnishing
such information to or entering into discussions or negotiations with such
person or entity the Company provides written notice to the Parent to the effect
that it is furnishing information to or entering into discussions or
negotiations with, such person or entity; or (b) complying with Rule 14d-9 or
Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal.
Termination; Fees. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
approval of the stockholders of the Company, (a) by mutual written consent of
the Company and the Parent; (b) by either the Company or the Parent, if the
Effective Time shall not have occurred on or before 120 days from the date of
the Merger Agreement; provided, that the right to terminate the Merger Agreement
under this clause (b) shall not be available to any party whose
misrepresentation in the Merger Agreement or whose failure to perform any of the
covenants and agreements or to satisfy an obligation under the Merger Agreement
has been the cause of or resulted in the failure of the Merger to occur on or
before such date; (c) by either the Company or the Parent, if any federal or
state court of competent jurisdiction or other federal or state governmental or
regulatory body shall have issued any judgment, injunction, order or decree
prohibiting, enjoining or otherwise restraining the transactions contemplated by
the Merger Agreement and such judgment, injunction, order or decree shall have
become final and nonappealable (provided, however, that the party seeking to
terminate the Merger Agreement pursuant to this clause (c) shall have used
commercially reasonable efforts to remove such judgment, injunction, order or
decree) or if any statute, rule, regulation or executive order promulgated or
enacted by any federal or state governmental authority after the date of the
Merger Agreement which prohibits the consummation of the Offer or the Merger
shall be in effect; (d) by the Company, if (i) the Parent fails to commence the
Offer within five business days of the public announcement of the execution of
the Merger Agreement, (ii) the Offer expires or is terminated without any Shares
being purchased thereunder or (iii) the Parent fails to purchase validly
tendered Shares in violation of the terms and conditions of the Offer or the
Merger Agreement; (e) by the Parent, if (i) the Offer is not commenced within
five business days of the public announcement of the execution of the Merger
Agreement directly as a result of actions or inaction by the Company or (ii) the
Offer is terminated or expires as a result of the failure of a condition
specified in Section 14 of this Offer to Purchase or on the expiration of the
Offer without the purchase of any Shares thereunder, unless such termination or
expiration has been caused by or resulted from the failure of the Parent or the
Purchaser to perform any covenants and agreements of the Parent or the Purchaser
contained in the Merger Agreement; (f) prior to the consummation of the Offer,
by the Parent, if the Company Board
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withdraws or modifies in a manner materially adverse to the Parent or the
Purchaser its favorable recommendation of the Offer or the Merger or shall have
recommended any Acquisition Proposal with a party other than the Parent or any
of its affiliates; (g) by the Company, if the Merger Agreement is not adopted
or, unless the Merger is consummated without a meeting of stockholders, the
Merger is not approved at the Company's stockholders meeting by the holders of a
majority of the outstanding Shares; (h) by the Parent, if there shall have been
a material breach of any representation, warranty or material covenant or
agreement on the part of the Company, which is incurable or which is not cured
after 30 days' written notice by the Parent to the Company; (i) by the Company,
if there shall have been a material breach of any representation, warranty or
material covenant or agreement on the part of either of the Parent or the
Purchaser, which is incurable or which is not cured after 30 days' written
notice by the Company to the Parent; or (j) by the Company, if (i) as provided
in the Merger Agreement, an unsolicited bona fide proposal is received from any
Person and is on terms that the Company Board determines it cannot reject, based
on applicable fiduciary duties and the advice of outside counsel and for which
financing to the extent required is then committed, the Company Board shall
withdraw, modify or change its approval or recommendation of the Offer or the
Merger or shall have resolved to do any of the foregoing or (ii) any Person or
group of Persons shall have made an Acquisition Proposal the acceptance of which
the Company Board determines, after consultation with outside counsel and after
the Company Board has satisfied itself that the financing for the Acquisition
Proposal has been committed, is required to comply with its fiduciary duties
under applicable law.
In the event that (i) prior to the consummation of the Offer, the Company
Board terminates the Merger Agreement pursuant to clause (j) of the preceding
paragraph or the Parent terminates the Merger Agreement pursuant to clause (f)
of the preceding paragraph and (ii) as a result thereof, the Parent shall have
terminated the Offer, allowed the Offer to expire without purchasing any Shares
thereunder or failed to commence the Offer in accordance with the terms thereof
and (iii) the Company enters into a definitive agreement relating to an
Acquisition Proposal or a business combination or other transaction contemplated
by such Acquisition Proposal shall have been consummated within 12 months
following such termination, then the Company shall thereupon pay to the Parent a
fee of $1,000,000 in cash, payable in same day funds.
Indemnification. Pursuant to the Merger Agreement, for six years after the
Effective Time, the Parent and the Surviving Corporation will indemnify the
present and former officers and directors of the Company with respect to matters
occurring at or prior to the Effective Time to the full extent permitted under
Delaware law, the terms of the Company's charter, by-laws and indemnification
agreements, each as in effect as of the date of the Merger Agreement.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to the Parent and the
Purchaser with respect to, among other things, its organization, capitalization,
authority, financial statements, need for consents or approvals, public filings,
conduct of business, employee benefit plans, employment matters, compliance with
laws, tax matters, insurance, litigation, title to properties, environmental
matters, vote required to approve the Merger Agreement, undisclosed liabilities,
information to be contained in the Proxy Statement and the opinion of its
financial advisor.
Pursuant to the Merger Agreement, the Parent and the Purchaser have made
substantially similar representations and warranties as to their organization,
authority, need for consents or approvals and information to be contained in the
Proxy Statement.
CONFIDENTIALITY AGREEMENT. Pursuant to the Confidentiality Agreement
entered into as of March 17, 1997 by the Parent and SBC Warburg Dillon Read
Inc., on behalf of the Company (the "Confidentiality Agreement"), the Company
and the Parent agreed to provide, among other things, for the confidential
treatment of their discussions regarding a possible transaction and for the
delivery of certain confidential information concerning the Company. The
Confidentiality Agreement is incorporated herein by reference and a copy of it
has been filed with the Commission as an exhibit to the Schedule 14D-9. The
Parent further agreed that, for a period of two years from the date of the
Confidentiality Agreement, the Parent would not, as a result of knowledge or
information obtained from the Confidential Information (as defined therein)
employ or attempt to employ any employee of the Company.
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<PAGE> 9
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors.
On March 26, 1998, the Board of Directors of the Company (the "Company
Board"), after considering, among other factors, the opinion of SBC Warburg
Dillon Read Inc. ("SBC Warburg Dillon Read") that the consideration to be
received by holders of Shares pursuant to the Merger Agreement is fair, from a
financial point of view, to the holders of Shares, unanimously approved the
Offer, the Merger and the Merger Agreement. In addition, the Company Board
determined that the terms of the Offer, the Merger and the Merger Agreement are
fair to, and in the best interests of, the Company and the stockholders of the
Company, and recommends acceptance of the Offer.
A copy of a letter to all stockholders of the Company communicating the
recommendations of the Company Board is filed as Exhibit (a)(10) hereto and is
incorporated by reference.
(b) Background.
In March 1997, the Company Board and the officers of the Company had
extensive discussions regarding: (a) the then positive business environment for
oil and gas exploration and production companies, such as the Company, to
realize a full and fair value for producing and exploratory assets, and (b) the
favorable capital market environment for such companies. As a result of these
discussions, on March 5, 1997, the Company Board authorized the engagement of
SBC Warburg Dillon Read, Rauscher Pierce Refsnes, Inc. and Jefferies & Company,
Inc. (the "Advisors") to advise the Company concerning strategic alternatives
for maximizing shareholder values and to assist in any resultant sale or merger
process undertaken by the Company.
Following that decision the Company's officers had extensive information
exchanges and consultations with the Advisors concerning strategic alternatives
for the Company and its shareholders. The Advisors advised the Company Board
that in their collective opinion the best way to realize the highest value for
the shareholders of the Company was to sell the Company to the highest bidder in
a managed auction process. On March 14, 1997, the Company Board authorized the
Company's officers to begin a sales process with the Advisors to sell the
Company, preferably for cash, to the highest bidder in a managed auction
process.
Information memoranda were prepared, using information provided and
approved by the Company's management, and distributed by SBC Warburg Dillon Read
beginning on March 20, 1997 to potential purchasers who had signed a
confidentiality agreement. Parent was among those potential purchasers. The
Company established data rooms in Houston and at the offices of Bakersfield
Energy Resources and its affiliates ("Bakersfield"), the operator of the
Company's California properties, in Bakersfield, California. Throughout the
process, the Advisors contacted over 100 companies, domiciled principally in the
United States. Over 80% of those contacted requested the information memoranda.
Of this number, 12 companies visited the Bakersfield data room at various times.
The data room established in the Company's Houston office contained appropriate
due diligence information on the Company's non-California properties and certain
corporate matters.
At the Company Board meeting held on April 24, 1997, an initial review of
preliminary indications of interest was presented by SBC Warburg Dillon Read. At
that time a bifurcation of the sales process was discussed. This discussion was
based on a large number of potential purchasers of the California properties
having expressed the desire to see the Company's non-California properties sold
as a separate package. Indications were received suggesting that the Company
would probably receive more value for the non-California properties if they were
offered separately to certain buyers. If the Company was not willing to pursue
such a course, these potential purchasers of the California properties indicated
that they were unwilling to pay full value for the non-California properties.
Parent was among those potential purchasers of the California properties.
The Company consequently bifurcated the sales process during the second
quarter of 1997 and solicited interest from potential buyers for its California
and non-California properties as separate packages. The Company also began
presentations in Houston to potential suitors for its non-California properties.
As a result,
7
<PAGE> 10
the Company received offers or indications of interest on its non-California
properties from several potential buyers that reflected a more acceptable level
of consideration for those properties. Throughout the process, 84 potential
suitors for the non-California properties were contacted, 17 of whom visited the
non-California data room.
On May 8, 1997, six of Parent's personnel visited the Company's California
data room. As was customary at each data room visit, Francis Roth, the Company's
President and Chief Operating Officer, made a joint presentation with Robert
Shore, the Chief Executive Officer of Bakersfield Energy Resources. Also as was
customary, following the first day of data room presentations and initial due
diligence review, a field tour of the Company's properties was conducted on the
second day.
Throughout the last week of May 1997, representatives of SBC Warburg Dillon
Read and Parent discussed broad aspects of a possible transaction for the
California properties. On June 2, 1997, Parent advised SBC Warburg Dillon Read
that it would not make a cash offer.
Also in late May, Mr. Harrington and a representative of SBC Warburg Dillon
Read flew to Calgary, Alberta to discuss the possible co-engagement of the firm
of Griffiths, McBurney to seek potential suitors for the Company in Canada. On
June 4, 1997, the Company engaged that firm for such a task.
On July 25, 1997, the Company was informed that Parent had made an offer to
acquire only the 25% interest in the California properties held by Bakersfield.
A condition of such offer was that the Company consent to the appointment of
Parent as operator of the property. This consent was a material part of Parent's
offer, as the joint operating agreement between the Company and Bakersfield
required operatorship of the California properties to automatically revert to
the Company in the event Bakersfield sold its interest. Parent indicated it had
no intention at that time to make a separate offer for all the shares of the
Company. The Company notified SBC Warburg Dillon Read that it would not consent
to the assignment of operatorship to Parent. Bakersfield did not accept the
Parent's offer for its 25% interest in the California properties.
Discussions and/or data room presentations continued through the summer
with both U.S. and Canadian potential suitors, and representatives of SBC
Warburg Dillon Read continued to have discussions with Parent. In response to
numerous investor inquiries, on October 23, 1997, the Company issued a press
release confirming the status of the ongoing sales process. On November 14,
1997, as part of its third quarter earnings press release, the Company announced
that it had bifurcated the sales process during the second quarter for its
California properties and non-California properties as separate packages and
provided an update on its waterflood program and recent successful drilling on
its California properties. Shortly thereafter, representatives of SBC Warburg
Dillon Read encouraged Parent to make an offer.
On December 4, 1997, SBC Warburg Dillon Read advised the Company that it
had received a verbal indication of interest from Parent. A meeting was held in
Houston at the Company's office on December 5, 1997, attended by James Beck,
President of Parent, John McKnight, Vice President -- Land and Legal of Parent,
two representatives of SBC Warburg Dillon Read and Mark Harrington, Francis Roth
and Gary Peck of the Company. At that meeting, Mr. Beck expressed Parent's
desire to purchase the Company, without its non-California properties, but
contingent upon a simultaneous purchase of Bakersfield's 25% interest in the
California properties. A valuation in a range from 700,000 to 800,000 shares of
stock of National Fuel Gas Company ("National Fuel"), the parent corporation of
Parent, was discussed as consideration for the Company's interest. (National
Fuel common stock is listed on The New York Stock Exchange and traded at
approximately $46.00 per share during this time period.) Such consideration
would be further increased by the retention by the Company of the net proceeds
from the sale of the Company's non-California properties. No offer was made by
Parent at that time.
At a Company Board meeting held on December 9, 1997, the possibility of
receiving a proposal from Parent based on the December 5 meeting was discussed
together with a competing written offer from an independent oil and gas company
that offered cash and stock, but contained a financing contingency. This was the
first written offer for the entire Company. Also, at that meeting, the Company
reviewed definitive offers from five companies for the Company's non-California
properties. The prices proposed under these five offers for the non-California
properties were within 20% of each other; however, all but one contained
financing
8
<PAGE> 11
contingencies. Three other offers for the non-California properties were either
substantially below the range of the five non-California properties finalists,
or the suitors were unable to demonstrate an ability to close.
On December 12, 1997, Mr. Beck and Mr. McKnight again met with Messrs.
Harrington, Roth and Peck. Philip Ackerman, Senior Vice President of National
Fuel, also participated in the meeting. Separately, the Company received a
written indication of interest from Parent to purchase all of the shares of the
Company in exchange for 550,000 shares of National Fuel common stock, after the
sale of the non-California properties was closed and the proceeds were
distributed to the Company's stockholders. This was the second written proposal
to purchase the entire Company.
A competing cash and stock indication of interest from an independent oil
and gas company was reviewed at a Company Board meeting held on December 15,
1997. The Company Board reviewed a number of concerns regarding this indication
of interest, the most important being: the likelihood of a successful closing;
financing contingencies; the competitor's ability to assume and comply with
certain covenants of the Company's Senior Secured Notes; and the requirement of
a concurrent purchase of Bakersfield's 25% interest in the California
properties, after Bakersfield's principals had rejected the competitor's offer.
At that meeting, the Company Board expressed the following concerns regarding
Parent's offer including: the apparent downward price adjustments based on the
Company's net debt levels following a sale of the Company's non-California
properties; requirements of six month lock-ups on blocks of National Fuel
shares; a prohibition on selling National Fuel shares to holders of more than 3%
of its stock; escrows on 50% of the National Fuel shares to cover contingencies;
the contingency of a concurrent acquisition of the Bakersfield 25% interest in
the California properties; and Parent's desire to effect a pooling-of-interests
in the transaction, a result that would have been unattainable in the event of a
non-California asset sale. At the same meeting, the Company Board reviewed the
status of negotiations on definitive agreements with the five non-California
properties finalists.
On December 17, 1997, the Company received a second indication of interest
from Parent that removed the Bakersfield acquisition contingency and adjusted
for the Company's net debt levels. The number of shares of National Fuel stock
being offered under this proposal, however, was decreased significantly to
200,000 shares, with the proviso that if the proceeds of the non-California
properties sale were not distributed to the Company's stockholders, additional
National Fuel shares would be issued.
On December 18, 1997, the Company Board met again to review Parent's
revised indication of interest, review the competitor's proposal, and determine
the final winner of its non-California properties auction. In reviewing the
revised proposal from Parent, it was decided that the Company and SBC Warburg
Dillon Read should continue to work with Parent to increase the economic benefit
to the Company's shareholders of their proposal and remove any unacceptable
contingencies. The competitor's proposal was rejected due to the financing
contingency and what the Company's management regarded as questionable
fundamental value of the competitor's stock relative to its market price. The
Company awarded the sale of the non-California properties to Penroc Oil
Corporation ("Penroc"), whose proposal had no financing contingencies. In
addition, Penroc requested only minor modifications to the Company's proposed
sale agreement and offered the highest price, increasing its bid in ongoing
negotiations with the Company to $13.2 million.
A telephonic conference with analysts and shareholders was held on December
19, 1997, to review the sale of the non-California properties. Also on December
19, 1997, the Company received a revised indication of interest from Parent,
which increased the proposed purchase price to 550,000 shares of National Fuel
stock, plus additional shares to be issued for the proceeds from the sale of the
Company's non-California properties; however, this proposal still contained the
requirement of a pooling-of-interests, that was unattainable. Several of the
other previous contingencies found unacceptable to the Company were removed.
On December 29, 1997, following extensive discussions among the parties, a
fourth indication of interest was received for $5.0 million in cash plus 200,000
shares of National Fuel stock, with additional shares to be issued for the
proceeds of the sale of the Company's non-California properties.
9
<PAGE> 12
During this period of extended negotiations with Parent, the Company and
SBC Warburg Dillon Read revisited the new economics of a sale of the Company at
this price level with a large number of previous suitors who had rejected the
purchase at higher offering prices.
Following intensive negotiations between the parties, on January 22, 1998,
an indication of interest for $2.00 per share in cash for all the issued and
outstanding stock of the Company was received from Parent. Parent submitted a
written letter of intent to the Company proposing to acquire all of the shares
at a price of $2.00 per share, (total cash consideration of $32,536,000) subject
to execution of a definitive agreement, the delivery to Parent of an audit of
the Company's financial statements for the year ending December 31, 1997, to be
performed by Arthur Andersen L.L.P. that revealed no previously undisclosed
material adverse information, the conditions that the Company must be free of
debt and other liabilities except disclosed and scheduled amounts, that $13.2
million in proceeds be received from the sale of the Company's non-California
properties, that there shall be no material adverse change in the Company's
business, and satisfactory completion of a due diligence review of the Company
and other conditions.
Considering that this proposal removed all unacceptable contingencies, and
increased the economic value to the Company's shareholders, the Company Board
approved and executed Parent's letter of intent on January 23, 1998 and issued a
press release announcing such development.
During the weeks following execution of the letter of intent, various due
diligence meetings and conference calls were conducted between Parent, the
Company and their respective advisors, and representatives of Parent conducted
on-site reviews of the Company's operations in Bakersfield, California.
Extensive negotiations were also conducted during this period with respect to
the Agreement and Plan of Merger (the "Merger Agreement") and several revised
drafts were exchanged.
On March 26, 1998, the Company Board met and considered presentations from,
and reviewed the terms and conditions of the current draft of the Merger
Agreement with, among others, senior management of the Company, the Company's
legal advisors and SBC Warburg Dillon Read. SBC Warburg Dillon Read delivered
its opinion as to the fairness, from a financial point of view, of the
consideration to be paid in the Offer and the Merger to the holders of the
outstanding shares. The Company Board then unanimously approved and adopted the
Merger Agreement and approved the transactions contemplated thereby.
On March 31, 1998, Parent, Purchaser and the Company executed the Merger
Agreement and the parties issued a joint press release announcing the
transaction immediately thereafter. A copy of the press release has been filed
with the Commission as an exhibit to the Schedule 14D-1.
On April 6, 1998, Purchaser and Parent commenced the Offer.
REASONS FOR THE BOARD OF DIRECTORS' RECOMMENDATION
In approving the Offer, the Merger, the Merger Agreement and the
transactions contemplated thereby, and recommending that stockholders accept the
Offer and vote for adoption of the Merger Agreement and approval of the
transactions contemplated thereby, the Company Board consulted with the
Company's legal and financial advisors, as well as the Company's management. The
following are material factors considered by the Company Board, certain of which
contain both positive and negative elements.
- The fact that the $2.00 Offer Price represents a premium of approximately
12.3% over the closing sale price of $1.78 per Share as reported on the
NASDAQ Stock Market on March 30, 1998, the last trading day before the
date the Company first publicly announced it had executed the Merger
Agreement;
- The belief by the members of the Company Board, based on their
familiarity with its business, its current financial condition and
results of operations, and its future prospects, and current and
anticipated developments in its businesses (including prices for its
products), and the results of the Company's solicitation of interest from
other potential acquirers, that the consideration to be received by the
Company's stockholders in the Offer and the Merger represents, in their
belief, the best value reasonably obtainable by the stockholders in a
sale of the Company;
10
<PAGE> 13
- The historical market prices and recent trading activity of the Shares
and the Company's book value per Share;
- The opinion of SBC Warburg Dillon Read to the Company Board dated March
26, 1998 (the "SBC Warburg Dillon Read Opinion") to the effect that as of
such date and based upon and subject to the assumptions, limitations and
qualifications set forth therein, the consideration offered to the
stockholders of the Company pursuant to the Merger Agreement is fair to
such holders from a financial point of view; the full text of the SBC
Warburg Dillon Read Opinion is attached as Annex B hereto and should be
read in its entirety;
- A review of the strategic alternatives available to the Company
(including continuing the Company's business in its present configuration
without significant changes, refinancing the Company's long-term debt,
and merging or consolidating with a party or parties other than
Purchaser), none of which the Company Board believed to be reasonably
likely of success or to be as favorable to the Company's stockholders as
the Offer and the Merger;
- The fact that the Offer provides for a prompt cash tender offer for all
Shares, thereby enabling stockholders of the Company to receive cash in
exchange for their Shares at the earliest possible time;
- The likelihood that the Offer and the Merger would be consummated;
including the ability of Parent to internally finance the Offer and the
Merger, and the effects of the Company's business, operations and
financial condition should it not be possible to consummate the Merger
following public announcement that the Merger Agreement had been entered
into; and
- The terms and conditions of the Offer and the Merger, the Merger
Agreement and the transactions contemplated thereby, which were the
product of a thorough managed auction process resulting in the selection
of the most advantageous offer, followed by lengthy arm's-length
negotiations, including the parties' representations, warranties and
covenants, the conditions to their respective obligations, and the
limited ability of Parent and Purchaser to terminate the Offer or the
Merger Agreement.
The foregoing discussion of the factors considered by the Company Board is not
intended to be exhaustive. In view of the wide variety of factors considered
about its evaluation of the Offer and the Merger, the Company Board did not find
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determination.
Rather, the Company Board made its determination based on the total mix of
information available to it, and the judgments of individual directors may have
been influenced to a greater or lesser degree by differing factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement between the Company and SBC Warburg Dillon
Read dated March 6, 1997, the Company agreed to pay SBC Warburg Dillon Read: (i)
$100,000 upon execution of the letter agreement (which shall be credited toward
any additional fee payable under the letter agreement); and (ii) if a
transaction, including the Merger, is consummated, 0.95% of the aggregate of the
total consideration paid to the Company and its stockholders plus the total
principal amount of Company indebtedness assumed by the acquiror in the
transaction. In addition to the foregoing compensation, the Company agreed to
reimburse SBC Warburg Dillon Read for its expenses, including reasonable fees
and expenses of its counsel, and to indemnify SBC Warburg Dillon Read for
liabilities and expenses arising out of the engagement and the transactions in
connection therewith, including liabilities under federal securities laws. In
connection with its engagement by the Company, SBC Warburg Dillon Read agreed to
provide the Company Board with an opinion with respect to the fairness from a
financial point of view of the consideration to be received by the Company's
stockholders in any such transaction.
SBC Warburg Dillon Read is an internationally recognized investment banking
firm which, as a part of its investment banking business, regularly is engaged
in the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
11
<PAGE> 14
The Company Board selected SBC Warburg Dillon Read on the basis of its
experience and independence. In the ordinary course of business SBC Warburg
Dillon Read and its affiliates may actively trade or hold the equity securities
of the Company or Parent for their own accounts and the accounts of their
customers and, accordingly, may at any time hold long or short positions in such
securities.
Except as described herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to stockholders on its behalf concerning
the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, no transactions in the Shares have been
effected by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, all of the Company's executive
officers, directors and affiliates who own Shares currently intend to tender
such Shares to Purchaser pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in this Schedule 14D-9, or as set forth in the
Offer to Purchase, no negotiation is being undertaken or is underway by the
Company in response to the Offer which relates to or would result in: (i) an
extraordinary transaction such as a merger or reorganization, involving the
Company or any subsidiary of the Company, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company, (iii)
a tender offer for or other acquisition of securities by or of the Company, or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) There are no transactions, board resolutions, agreements in principle,
or a signed contract in response to the Offer, other than as described in Item
3(b) and Item 4 above, which relates or would result in one or more of the
matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible designation by Purchaser, pursuant to the Merger
Agreement, of certain persons to be appointed to the Company Board other than at
a meeting of the Company's stockholders. The information contained in the
Exhibits referred to in Item 9 below is incorporated herein by reference.
12
<PAGE> 15
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
(a)(1)* -- Offer to Purchase.
(a)(2)* -- Letter of Transmittal.
(a)(3)* -- Notice of Guaranteed Delivery.
(a)(4)* -- Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(5)* -- Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6)* -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) -- Text of Press Release dated January 23, 1998 issued by
the Company (incorporated by reference to Exhibit 99.1 to
Form 8-K dated January 23, 1998 filed with the Securities
and Exchange Commission (the "Commission") by the
Company).
(a)(8) -- Text of Joint Press Release, dated March 31, 1998, issued
by Parent and the Company (incorporated by reference to
Exhibit 99.1 to Form 8-K dated March 31, 1998 filed by
the Company with the Commission).
(a)(9)* -- Form of Summary Advertisement, dated April 6, 1998.
(a)(10) -- Letter to Company stockholders, dated April 6, 1998.
(c)(1) -- Agreement and Plan of Merger dated March 31, 1998, among
Parent, the Purchaser and the Company (incorporated by
reference to Exhibit 99.2 to Form 8-K dated March 31,
1998, filed with the Commission by the Company).
(c)(2)* -- Confidentiality Agreement, dated as of March 17, 1997,
between Dillon, Read & Co. Inc. and Parent.
(c)(3) -- Opinion of SBC Warburg Dillon Read dated March 26, 1998.
(c)(4) -- Form of Severance Agreement with employees of the Company
(incorporated by reference to Exhibit 10.19 to the
Company's Form 10-K Annual Report for the year ended
December 31, 1997, filed with the Commission).
</TABLE>
- ---------------
* Incorporated by reference to the same exhibit number to the Tender Offer
Statement on Schedule 14D-1, filed with the Commission by Parent and Purchaser
on April 6, 1998.
13
<PAGE> 16
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
HARCOR ENERGY, INC.
By: /s/ MARK G. HARRINGTON
------------------------------------
Mark G. Harrington
Chairman of the Board and
Chief Executive Officer
Dated: April 6, 1998
14
<PAGE> 17
ANNEX A
HARCOR ENERGY, INC.
4400 POST OAK PARKWAY, SUITE 2220
HOUSTON, TEXAS 77027
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND
RULE 14f-1 THEREUNDER
This Information Statement ("Information Statement") is being mailed on or
about April 6, 1998, as a part of the Company's Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record of
shares of common stock, par value $.10 per share, of the Company (the "Shares")
at the close of business on or about March 31, 1998. You are receiving this
Information Statement in connection with the possible election of persons
designated by Purchaser to a majority of the seats on the Company's Board of
Directors.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
April 6, 1998. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on Monday, May 4, 1998, unless the Offer is extended.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-9.
The information contained in this Information Statement or incorporated by
reference herein concerning Parent, Purchaser, or their respective officers,
directors, representatives or affiliates or actions or events with respect to
any of them, was provided by Parent or Purchaser, and the Company takes no
responsibility for such information.
PURCHASER'S RIGHT TO DESIGNATE DIRECTORS
The Merger Agreement provides that, upon Purchaser's acquisition of a
majority of the outstanding Shares pursuant to the Offer, Purchaser shall be
entitled to designate all members of the Company Board. The Company shall, at
such time, upon the request of Purchaser, promptly use its best efforts to take
all actions necessary to cause the persons designated by Purchaser for election
as directors of the Company (the "Purchaser's Designees") to be elected as
Directors of the Company, including increasing the size of the Board of
Directors or securing the resignations of incumbent directors or both.
The Purchaser's Designees will be selected by the Purchaser from among the
individuals listed below. Each of the following individuals has consented to
serve as a Director of the Company if appointed or elected. None of the
following individuals owns any Shares. In addition, none of the following
individuals is a Director of, or holds any position with, the Company. The name,
age, present principal occupation or employment and five-year employment history
of each of the following individuals are set forth below. Each person is a
citizen
<PAGE> 18
of the United States and, unless otherwise noted, the business address of each
person is 1201 Louisiana Street, Suite 400, Houston, Texas 77002.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AGE MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
---- --- -----------------------------------------------------------
<S> <C> <C>
Philip C. Ackerman................ 53 Director of Parent since 1994. Mr. Ackerman serves as
Director and Senior Vice President of National Fuel and has
served as President of National Fuel Gas Distribution
Corporation and is the President of certain subsidiaries of
the Parent. He has been employed by National Fuel or one or
more of its affiliates since 1968. Mr. Ackerman's business
address is 10 Lafayette Square, Buffalo, New York 14203.
James A. Beck..................... 50 Director of Parent since February 1997; President of Parent
since October 1996. Mr. Beck served as the Executive Vice
President of Parent from May 1995 to September 1996, and as
Vice President from January 1994 to April 1995. Mr. Beck
has been employed by Parent since 1989.
David F. Smith.................... 44 Director of Parent since November 1990. Mr. Smith has been
the Senior Vice President and Secretary of National Fuel
Gas Distribution Corporation for more than five years. He
has been employed by National Fuel or one or more of its
affiliates since 1978.
</TABLE>
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
There are currently seven positions on the Company's Board of Directors,
consisting of three Class I positions, two Class II positions (one of which is
currently vacant) and two Class III positions. Each director is elected for a
term of three years, with the Class I directors (Messrs. Harrington, Oakes and
Roth) holding office until the 1998 Annual Meeting of Stockholders, the Class II
director (Mr. Cresci) holding office until the 1999 Annual Meeting of
Stockholders and the Class III directors (Messrs. Dar and Frischkorn, Jr.)
holding office until the 2000 Annual Meeting of Stockholders. In addition, all
directors hold office until their respective successors have been duly elected
and qualified or until their earlier resignation or removal.
The names and ages of the Company's executive officers and directors, the
principal occupation or employment of each of them during the past five years
and at present, the name and principal business of the corporation or other
organization, if any, in which such occupation or employment is or was carried
on, directorships of other public companies or investment companies held by
them, and the period during which the directors have served in that capacity
with the Company are set forth below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRESENT POSITION WITH THE COMPANY SINCE
---- --- ------------------------------------------------ --------
<S> <C> <C> <C>
Mark G. Harrington............ 45 Chairman of the Board of Directors and Chief
Executive Officer 1987
Francis H. Roth............... 60 President, Chief Operating Officer and Director 1989
Gary S. Peck.................. 45 Vice President -- Finance & Administration,
Chief Financial Officer and Corporate Secretary N/A
Albert J. McMullin............ 41 Vice President -- Land, Contracts and
Acquisitions N/A
Robert J. Cresci.............. 54 Director 1994
Vinod K. Dar.................. 47 Director 1992
David E. K. Frischkorn, Jr.... 46 Director 1992
Herbert L. Oakes, Jr.......... 51 Director 1992
</TABLE>
Mr. Harrington has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since May 1987. He also is President of
Harrington and Company International Incorporated
A-2
<PAGE> 19
("Harrington and Company"), an investment company which he founded in 1986.
Harrington and Company is the general or managing partner of several limited
partnerships which in the aggregate own approximately 5% of the outstanding
common stock of the Company. In 1977, he joined Carl H. Pforzheimer and Co., an
investment banking firm, where he became a partner in 1980 and remained as a
partner until December 1985. During his eight years with Carl H. Pforzheimer and
Co., he worked in the firm's research and corporate finance departments. In
1984, Mr. Harrington helped organize Chipco Energy Corporation, the holding
company for the firm's oil and gas assets. He was a director of HCO Energy Ltd.,
a Calgary, Alberta based independent public listed oil company from 1987 until
1997. Mr. Harrington holds a Bachelor of Business Administration degree and a
Master of Business Administration degree, both in finance, from the University
of Texas.
Mr. Roth has been President and Chief Operating Officer of the Company
since March 1989. Prior to that time, he served as Vice President -- Production
of the Company since July 1988. He has been employed in various engineering
positions with both Amoco and Chevron in several geographic locations. Prior to
joining the Company, he had been employed for 16 years by MCO Resources, Inc.,
an oil and gas company, in various positions, including General Manager of
Operations and Engineering. He also served as Vice President of Drilling and
Production and Engineering for MCOR Oil and Gas Corporation, a subsidiary of MCO
Resources, Inc. Mr. Roth holds a Bachelor of Science degree in petroleum
engineering from the University of Kansas, a Master of Science degree in
petroleum engineering from the University of Oklahoma and a Master of Business
Administration degree from the University of California.
Mr. Peck joined the Company as Vice President -- Finance and Chief
Financial Officer in October 1989 and became Secretary in November 1989. Prior
to joining the Company, Mr. Peck acted as a financial consultant to the Company.
Mr. Peck was Director of Finance for Herbert L. Farkas Company (a multi-
location furniture and business equipment concern) from 1987 to 1989 and was
Vice President -- Finance and Chief Financial Officer of RAWA, Inc. (a
franchising and car rental company) from 1982 to 1987. Prior to that, Mr. Peck
had approximately seven years' experience in oil and gas accounting management
with Minoco Southern Corporation and MCO Resources, Inc. He graduated from
California State University at Long Beach in 1977 with a Bachelor of Science
degree in accounting and finance.
Mr. McMullin joined the Company as Vice President -- Land, Contracts and
Acquisitions in August 1992. Prior to joining the Company, Mr. McMullin was a
gas supply manager for Mitchel Marketing Company since 1991 and for Delhi Gas
Pipeline Corporation during 1990 and 1991. Mr. McMullin also worked as an
Accounts Manager for United Gas Pipeline from 1987 to 1989. From 1980 to 1985,
Mr. McMullin worked for Atlantic Richfield Company as a landman. He holds a
Bachelor of Arts degree in petroleum land management from the University of
Texas and earned a Masters in Business Administration from the University of St.
Thomas.
Mr. Cresci has been a Managing Director of Pecks Management Partners Ltd.,
an investment management firm, since September 1990. Mr. Cresci currently serves
on the boards of Bridgeport Machines, Inc., Serv-Tech, Inc., EIS International,
Inc., Sepracor, Inc., Vestro Natural Foods, Inc., Olympic Financial, Ltd.,
GeoWaste, Inc., Hitox, Inc., Natures Elements, Inc, Garnet Resources
Corporation, Meris Laboratories, Inc., Film Roman, Inc., Educational Medical,
Inc. and several private companies.
Mr. Dar is currently a Managing Director of Hagler Bailly Consulting and a
Director of Hagler Bailly, Inc., the parent company of Hagler Bailly Consulting,
an international management consulting firm he helped found in 1980. Mr. Dar was
President and Chairman of Jefferson Gas Systems, Inc. (a natural gas and
electric power co-investment concern) from 1991 to 1995, and the Managing
Director of Dar & Company (a consulting firm to energy companies and financial
institutions) from 1990 to 1995. He was also the Chairman of Sunrise Energy
Services, Inc. between 1992 and 1994. Since 1980, Mr. Dar has held a variety of
executive positions in the natural gas industry and with management consulting
firms. He has been the Senior Vice President of American Exploration Company, an
oil and gas firm, and Executive Vice President and Director of Hadson
Corporation, a diversified public company. He was the founder and Chief
Executive Officer of four major Hadson subsidiaries, Hadson Gas Systems, Hadson
New Mexico, Hadson Liquid Fuels and Hadson Electric. He has a Bachelor of
Science degree in engineering and a Master's degree in management and
A-3
<PAGE> 20
finance from MIT, where he also received his doctoral training in economics. See
"Transactions with Related Parties".
Mr. Frischkorn, Jr. has been Managing Director in the Energy Corporate
Finance Department of Jefferies & Company, Inc. since August 1996. From 1992 to
1996, he was a Senior Vice President and Managing Director in the Energy
Corporate Finance Department of Rauscher Pierce Refsnes, Inc., an investment
banking firm. From 1988 to 1992, he was President of Frischkorn & Co., a
Houston, Texas-based merchant banking firm specializing in oil and gas corporate
finance services. Preceding that he served as Vice President, Energy Group of
Kidder, Peabody & Company and Senior Vice President, Corporate Finance of Rotan
Mosle, Inc. in Houston, Texas. He holds a Bachelor of Arts degree in economics
and German from Tufts University and a Masters of Business Administration from
Columbia.
Mr. Oakes is Managing Director and a principal of Oakes, Fitzwilliams & Co.
Limited, a member of the London Stock Exchange, and which he founded in 1987. In
1973, he joined Dillon, Read & Co. Inc., an investment banking firm, in London.
In 1982, he formed H. L. Oakes & Co. Limited specializing in arranging venture
and development capital for U.S. and U.K. corporations. He is a director of The
New World Power Corporation and a number of private corporations in the U.S. and
the U.K.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a Stock
Option and Compensation Committee. The Company does not have a nominating
committee.
The current members of the Audit Committee are David E. K. Frischkorn, Jr.
and Herbert L. Oakes, Jr. The responsibilities of the Audit Committee include
reviewing the scope and results of audits by the Company's independent auditors,
the Company's compliance with all accounting and financial reporting
requirements, the Company's internal accounting controls, the scope of other
services performed by independent auditors, and the cost of all accounting and
financial services, and to make recommendations to the Board of Directors as to
the appointment of the Company's independent auditors. The Audit Committee held
one meeting during 1997.
The current members of the Stock Option and Compensation Committee are
Vinod K. Dar and Herbert L. Oakes, Jr. The functions of the Stock Option and
Compensation Committee are to monitor the Company's executive compensation
plans, practices and policies, including all salaries, bonus and stock option
awards and fringe benefits, and to make recommendations to the Board of
Directors as to changes in existing executive compensation plans and the
formulation and adoption of new executive compensation plans. The Stock Option
and Compensation Committee held no meeting during 1997 but took action by four
unanimous written consents.
During the year ended December 31, 1997, the Board of Directors held seven
meetings and took action by seven unanimous written consents. In 1997, each
incumbent director attended at least 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings held by all
committees on which he served (in each case held during the periods that he
served).
COMPENSATION OF DIRECTORS
During 1997, nonemployee members of the Board of Directors received annual
compensation of $10,000 plus $1,000 for each meeting of the Board of Directors
attended in person ($250 per telephonic meeting) and reimbursement for their
reasonable expenses incurred in connection with their duties and functions as
directors. Directors of the Company who are also employees do not receive any
compensation for their services as directors.
On October 14, 1992, the Board of Directors adopted the Company's 1992
Nonemployee Directors' Stock Option Plan (the "Directors' Option Plan"). Under
the Directors' Option Plan, upon the latter of the effective date of the
Directors' Option Plan or the date of their initial election or appointment to
the Board of Directors, directors who are not employees of the Company were
granted options to purchase 20,000 shares of common stock at an exercise price
equal to the fair market value of the common stock on the date of grant.
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<PAGE> 21
Thereafter, and so long as the Directors' Option Plan is in effect, upon the
completion of each full year of service on the Board of Directors, each
nonemployee director continuing to serve as a director will automatically be
granted an additional option to purchase 5,000 shares of common stock at an
exercise price equal to 110% of the fair market value of the common stock on the
date of grant. All options granted under the Directors' Option Plan vest in
equal parts over two years.
Upon the third anniversary of his election to the Board of Directors (July
7, 1997), Mr. Cresci was automatically granted an option to purchase 5,000
shares of common stock at an exercise price equal to $6.32 per share, 110% of
the fair market value of the common stock on such date. Upon completion of their
fifth full year of service after the effective date of the Directors' Option
Plan (October 14, 1997), Messrs. Dar and Frischkorn were each automatically
granted an option to purchase 5,000 shares of common stock at an exercise price
equal to $5.43 per share, 110% of the fair market value of the common stock on
such date. Upon the fifth anniversary of his initial election to the Board of
Directors (November 17, 1997), Mr. Oakes was automatically granted an option to
purchase 5,000 shares of common stock at an exercise price equal to $4.54 per
share, 110% of the fair market value of the common stock on such date.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as to the number and percentage
of shares of Common Stock owned beneficially as of March 25, 1998 by (i) each
person known to the Company to be the beneficial owner of more than 5% of the
Common Stock, (ii) each director and each nominee for election as a director,
(iii) each Named Executive Officer(as defined under "Executive Compensation",
below) and (iv) all directors and officers of the Company as a group. Unless
otherwise indicated in the footnotes following the table, each named beneficial
owner had sole voting and investment power over the shares of Common Stock shown
as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY
AS OF PERCENT
BENEFICIAL OWNER(1) MARCH 25, 1998(2) OF CLASS
------------------- ----------------- --------
<S> <C> <C>
Robert J. Cresci(3)......................................... 27,500 *
Vinod K. Dar(3)............................................. 22,500 *
David E.K. Frischkorn, Jr.(3)............................... 17,500 *
Mark G. Harrington(3)(4).................................... 406,812 2.5
Albert J. McMullin(3)....................................... 56,000 *
Herbert L. Oakes, Jr.(3).................................... 22,500 *
Gary S. Peck(3)............................................. 160,500 *
Francis H. Roth(3).......................................... 204,625 1.2
FMR Corp.(5)................................................ 1,244,000 7.4
Trust Company of the West(6)................................ 1,730,710 10.6
Paulson Partners(7)......................................... 1,516,800 9.3
Timothy R. Barakett(8)...................................... 1,046,600 6.4
Turnberry Capital Management, L.L.C.(9)..................... 1,359,200 8.4
All Directors and Officers as a Group (8 persons)(4)(10).... 917,937 5.6
</TABLE>
- ---------------
* Less than 1%
(1) Information with respect to beneficial ownership is based on information
publicly available or furnished to the Company by each person included in
this table.
(2) Includes, in each case, shares deemed beneficially owned by such persons or
entities pursuant to Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended, because such persons or entities have the right to
acquire such shares within 60 days upon the exercise of stock options or
similar rights or because such persons or entities have or share investment
or voting power with respect to such shares.
A-5
<PAGE> 22
(3) Includes, 27,500, 17,500, 17,500, 252,500, 47,500, 17,500, 75,500, and
116,500 shares for Messrs. Cresci, Dar, Frischkorn, Harrington, McMullin,
Oakes, Peck, and Roth, respectively, purchasable within 60 days upon the
exercise of stock options.
(4) Mr. Harrington is the Chief Executive Officer and Chairman of the Board of
Directors of the Company. The number of shares indicated includes 10,126
shares held by Harrington and Company E V Fund I, Ltd., a limited
partnership, of which Harrington and Company International Incorporated is
the general or managing partner. Mr. Harrington is the majority
stockholder, the President and a director of Harrington and Company
International Incorporated. As a result, voting and investment power over
such shares may be deemed to be shared between Mr. Harrington and
Harrington and Company International Incorporated. Mr. Harrington disclaims
beneficial ownership of such shares.
(5) The principal business address for FMR Corp. is 82 Devonshire Street,
Boston, Massachusetts 02109. Includes of 550,000 shares issuable upon
exercise of a warrant granted to Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp., as a result of
Fidelity's acting as investment advisor to various investment companies
registered under the Investment Company Act of 1940. FMR Corp. disclaims
sole power to vote or direct the voting of the shares owned directly by the
Fidelity Funds, which power resides with the Funds' Boards of Trustees.
Fidelity carries out the voting of the shares under written guidelines
established by the Funds' Boards of Trustees. FMR Corp., through its
control of Fidelity, and the Funds share the power to dispose of the
1,244,000 shares owned and assumed to be owned by the Funds.
(6) The business address of Trust Company of the West ("TCW") is 865 South
Figueroa, Suite 1800, Los Angeles, CA 90017. Includes 1,474,359 shares
beneficially owned by a General Mills pension fund, over which TCW controls
voting and investment power as Investment Manager and Custodian. TCW
disclaims beneficial ownership of the 1,474,359 shares.
(7) The principal business address for Paulson Partners LP is 277 Park Avenue,
26th Floor, New York, NY 10172.
(8) The principal business address for Timothy R. Barakett is c/o Atticus
Holdings, L.L.C. is 590 Madison Avenue, 32nd Floor, New York, NY 10022.
Timothy R. Barakett is deemed, through sole voting and sole dispositive
powers, to beneficially own 1,046,600 shares held in the aggregate by
certain managed funds and accounts.
(9) The principal business address for Turnberry Capital Management, L.L.C.
("Turnberry") is Two Greenwich Office Park, Greenwich, CT 06831. Turnberry
is managing general partner for certain investment partnerships which hold
the shares and has sole power to vote all securities owned by them.
(10) Includes 572,000 shares purchasable within 60 days upon the exercise of
stock options.
A-6
<PAGE> 23
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned during the last three years by the Company's Chief Executive Officer and
each of the Company's three other most highly compensated executive officers
(collectively, the "Named Executive Officers") based on salary and bonus earned
in those years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
AWARDS
----------
ANNUAL COMPENSATION SECURITIES
--------------------------------- AND
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND COMPEN- UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUS SATION(1) OPTIONS(2) SATION(3)
------------------ ---- -------- ------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mark G. Harrington............ 1997 $231,800 $99,978 $-0- -0- $4,315
Chairman of the Board 1996 231,800 80,908 -0- 75,000 3,989
and Chief Executive Officer 1995 190,000 70,417 -0- 50,000 3,699
Francis H. Roth............... 1997 152,500 47,867 -0- -0- 5,859
President and Chief 1996 152,500 40,104 -0- 27,000 5,475
Operating Officer 1995 125,000 70,208 -0- 18,000 5,113
Gary S. Peck.................. 1997 122,000 38,292 -0- -0- 2,700
Vice President -- Finance & 1996 122,000 31,333 -0- 24,000 2,490
Administration, Chief 1995 100,000 39,167 -0- 16,000 2,305
Financial Officer and
Corporate Secretary
Albert J. McMullin............ 1997 85,400 17,745 -0- -0- 2,020
Vice President -- Land, 1996 85,400 14,808 -0- 15,000 1,908
Contracts & Acquisitions 1995 73,770 8,026 -0- 10,000 -0-
</TABLE>
- ---------------
(1) Does not include perquisites and other personal benefits because the value
of these items did not exceed the lesser of $50,000 or 10% of reported
salary and bonus of any of the Named Executive Officers.
(2) No stock appreciation rights ("SARs") were granted to any of the Named
Executive Officers during any of the years presented.
(3) Such amounts were premiums paid by the Company for annual disability
insurance for each such officer.
STOCK OPTION GRANTS DURING 1997
There were no stock options granted to the Named Executive Officers in
1997. The Company does not have any outstanding SARs.
A-7
<PAGE> 24
1997 OPTION EXERCISES AND OUTSTANDING STOCK OPTION VALUES AS OF DECEMBER 31,
1997
The following table shows the number of shares acquired by the Named
Executive Officers upon their exercise of stock options during 1997, the value
realized by such Named Executive Officers upon such exercises, the number of
shares of common stock covered by both exercisable and non-exercisable stock
options as of December 31, 1997 and their respective values at such date.
AGGREGATED OPTION EXERCISES IN 1996 AND
AGGREGATED OPTIONS AND OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTION AT
SHARES DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark G. Harrington.......... -0- N/A 252,500 37,500 $-0- $-0-
Francis H. Roth............. -0- N/A 116,500 13,500 -0- -0-
Gary S. Peck................ -0- N/A 47,500 7,500 -0- -0-
</TABLE>
- ---------------
(1) On December 31, 1997, the closing bid price of the common stock as quoted by
NASDAQ was $1.65625 per share. Value is calculated on the basis of the
differences between the option prices and $1.65625, multiplied by the number
of shares of common stock granted at the respective option prices. The
option prices for exercisable and unexercisable options granted to Messrs.
Harrington, Roth, Peck and McMullin covering 290,000, 130,000, 87,500 and
55,000 shares, respectively, range from a low of $2.625 per share to a high
of $5.16 per share. Consequently there was no value ascribed to any of the
options in the above table.
RESTRICTED SHARE VALUES AS OF DECEMBER 31, 1997
The following table shows the number of restricted shares of common stock
held by the Named Executive Officers and their values at December 31, 1997:
RESTRICTED STOCK SHARES AND
RESTRICTED STOCK VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
RESTRICTED RESTRICTED
SHARES SHARE VALUE
NAME (#) ($)
---- ---------- -----------
<S> <C> <C>
Mark G. Harrington.......................................... 23,750 $39,336
Francis H. Roth............................................. 15,625 25,879
Gary S. Peck................................................ 12,500 20,703
Albert J. McMullin.......................................... 8,500 14,078
</TABLE>
- ---------------
(1) The Restricted Shares were originally prohibited from being sold, tendered,
assigned, transferred, pledged or otherwise encumbered prior to the earliest
of April 28, 1997 (lapse date), the date of a grantee's death or disability,
or the date of a "Change of Control" of the Company, as defined in the
Restricted Stock Agreement. The Restricted Stock Agreement was subsequently
amended to designate January 15, 1997, as the lapse date, at which time the
Restricted Shares became unrestricted.
(2) The value of Restricted Shares at December 31, 1997 is calculated by
multiplying the number of Restricted Shares by the December 31, 1997 closing
bid price of the common stock as quoted by NASDAQ, which was $1.65625 per
share.
CHANGE-IN-CONTROL ARRANGEMENTS
Effective April 9, 1997, pursuant to the authority granted by the Board of
Directors to retain the Company's personnel necessary to maximize shareholder
value in any potential sale process and effect an
A-8
<PAGE> 25
orderly transition, the Company entered into Severance Agreements (the
"Agreements") with all employees, including the following Executive Officers:
Mark G. Harrington, Francis H. Roth, Gary S. Peck and Albert J. McMullin. These
Agreements were restated on October 17, 1997 to extend the term of the
agreements through December 31, 1998. The Agreements only become effective if
the Company is sold or a change of control occurs. The Agreements provide that
the said Executive Officers agree to remain employed by the Company and to
devote the their best efforts to the business affairs of the Company until (a)
December 31, 1998, or until (b) the effective date of a "Change of Control" (as
defined therein), whichever first occurs. If an Executive Officer leaves the
Company's employment prior to the Effective Date, the Company is relieved of any
severance obligation for such Officer. The Agreements further provide that the
Executive Officers will not disclose or use any confidential information of the
Company.
Under the Agreements each of the Executive Officers is entitled to receive
a lump sum severance payment equal to 1.5 times Total Cash Compensation (as
defined) paid to such Executive Officer for the tax year 1996, if the employment
of such Executive Officer either with the Company or any successors resulting
from a Change of Control is terminated for any reason, including a voluntary
termination by the Executive Officer, on or after the effective date of a
"Change of Control". The Executive Officers are also entitled to current
benefits under the Company's existing health and life insurance policies for six
months after the effective date, or until such policies contractually expire due
to the dissolution of the Company, whichever occurs first.
The Agreements do not guarantee continued employment by the Company but
permit the Company to terminate the Executive Officers' employment at any time
for cause. Each Executive Officer has agreed, effective upon the payment of
these severance benefits, to release the Company or any successors arising from
a Change of Control from all employment or termination related claims, including
any claim for salary, bonuses, severance pay and benefits.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Vinod K.
Dar and Herbert Oakes Jr.
STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee's (the "Compensation
Committee") principal duties are to review and approve the compensation of the
officers of the Company. In addition, the Compensation Committee administers the
Company's 1994 Stock Option Plan and has the sole authority to make grants to
officers pursuant to such plan. Members of the Compensation Committee are not
eligible to participate in the 1994 Stock Option Plan.
EXECUTIVE COMPENSATION. The Compensation Committee believes that
compensation of executive officers should not only be adequate to attract,
motivate and retain competent executive personnel, but should also serve to
align the interests of executive officers with those of stockholders. To achieve
these ends the Company has adopted both short-term and long-term incentive
compensation plans that are dependent upon the Company's performance. The
Compensation Committee does not currently intend to award levels of compensation
that would result in a limitation on the deductibility of a portion of such
compensation for federal income tax purposes pursuant to Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"); however, the
Compensation Committee may authorize compensation that results in such
limitations in the future if it determines that such compensation is in the best
interest of the Company.
BASE SALARY. While the Compensation Committee believes it is crucial to
provide salaries within a competitive market range in order to attract and
retain personnel who are highly talented, the Compensation Committee has
established a philosophy of generally providing conservative base salaries
coupled with incentive compensation opportunities that strongly emphasize
pay-for-performance. The specific competitive markets considered depend on the
nature and level of the positions in question and the labor markets from which
qualified individuals would be recruited. For 1996, the Compensation Committee
increased base salaries, which had not been increased since 1992, by 12% to
reflect Consumer Price Index increases for the years 1993, 1994 and 1995. Also
an additional increase of 10% was granted, after consultation with an
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<PAGE> 26
independent human resources consulting firm and a review of peer group
information, to be based, in part, on the successful closing of the Company's
equity offering, resulting in a total increase of 22% over 1995 levels. The
Compensation Committee intends to review the executive group's salaries on a
biannual basis and adjust them if they deviate substantially from the average
for other comparable companies or from salary levels implied by other market
data. There was no Compensation Committee review of executive compensation
during 1997.
INCENTIVE BONUS COMPENSATION. The Compensation Committee is responsible for
determining the participants, performance criteria to be used, award levels and
allocation of incentives. Any allocated incentives are awarded to executive
officers based upon performance factors that are reviewed annually to reflect
the Company's goals for that year. It is the overall objective of the Company
that the Incentive Plan not reward employees until the Company's stockholders
have been appropriately rewarded for investing in the Company. The Compensation
Committee is not required to grant awards for all amounts available under the
Incentive Plan. There were no awards granted for the 1997 performance year.
1994 STOCK OPTION PLAN. The Company's 1994 Stock Option Plan authorizes the
Compensation Committee to award stock options to purchase up to 800,000 shares
of Common Stock to the officers and employees of the Company. The Compensation
Committee determined, after consultation with an independent human resources
consulting firm, that this number was comparable to the number of shares
available for grant under stock option plans of similar companies. The
Compensation Committee generally grants non-statutory options at an exercise
price equal to the fair market value of the Company's Common Stock on the date
of grant. Options have five-year terms, with exercise restrictions that lapse
over a two-year period.
Stock option grants are designed to align the long-term interests of the
Company's executive officers with those of its stockholders by linking
compensation to Company goals, as well as by enabling officers to develop and
maintain a significant, long-term equity ownership position in the Company.
There were no awards of stock options to the named executive officers in
1997 pursuant to the 1994 Stock Option Plan.
401(K) PLAN. Under the Company's 401(k) profit sharing plan, eligible
employees, including executive officers, are permitted to defer receipt of up to
15% of their compensation (subject to certain limitations imposed under the
Code). The amounts held under the plan are to be invested among various
investment funds maintained under the plan in accordance with the directions of
each participant. The plan is administered by an outside benefits specialist.
Salary deferral contributions by participants are 100% vested. Participants
or their beneficiaries are entitled to payment of vested benefits upon
termination of employment. In addition, hardship distributions to participants
from the plan are available under certain conditions. The amount of benefits
ultimately payable to a participant under the plan depends on the level of the
participant's elective deferrals under the plan and the performance of the
investment funds maintained under the plan in which contributions are invested.
The Company currently does not have any provisions for matching employee's
deferral contributions in the Plan.
CHIEF EXECUTIVE OFFICER COMPENSATION. As described above, the Company's
executive compensation philosophy, including the compensation of the Company's
Chief Executive Officer, Mark G. Harrington, is a competitive, but conservative,
base salary and incentive compensation based upon the Company's performance. In
setting both the cash-based and the equity-based elements of Mr. Harrington's
compensation, the Compensation Committee made an overall assessment of Mr.
Harrington's leadership in achieving the Company's long-term strategic and
business goals.
BASE SALARY. Mr. Harrington's base salary for 1997 was $231,800. Mr.
Harrington's base salary reflects a consideration of both competitive forces and
the Company's performance. The Company does not assign specific weights to these
categories. It is based upon the criteria set forth above under "Executive
Compensation -- Base Salary."
INCENTIVE COMPENSATION. No incentive bonus compensation was awarded Mr.
Harrington for the 1997 performance year.
A-10
<PAGE> 27
STOCK OPTION PLAN. Mr. Harrington was not granted any options pursuant to
the 1994 Stock Option Plan in 1997.
Compensation Committee
Vinod K. Dar
Herbert Oakes, Jr.
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for a five-year period (December 31, 1992
to December 31, 1997) with the cumulative total return of the NASDAQ Composite
(US) and a peer group described more fully below (the "Peer Group"). Dividend
reinvestment has been assumed and, with respect to Companies in the Peer Group,
the returns of each such Company have been weighted to reflect relative Stock
Market Capitalization as of the beginning of the measurement period.
The Peer Group consists of Abraxas Petroleum Corp., Arch Petroleum, Inc.,
Callon Petroleum Co., Howell Corporation, Lomak Petroleum, Inc., McFarland
Energy, Inc. and PANACO Inc.
A-11
<PAGE> 28
TRANSACTIONS WITH RELATED PARTIES
In December 1997, the Company made an unsecured demand loan to Gary S.
Peck, Vice President -- Finance and Administration of the Company, in the amount
of $90,000 for the purpose of covering a margin call on certain shares of
Company common stock owned by Mr. Peck and held in a margin account with a
brokerage firm. The loan bears interest at 10% per annum, and all interest is
payable at maturity. Mr. Peck currently intends to pay all indebtedness on the
loan either from the severance payment he receives upon a Change in Control of
the Company (see Item 11. Executive Compensation Change-in-Control Arrangements)
or from the proceeds of the sale of his shares of Company common stock upon a
sale of the Company.
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership to the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than 10% stockholders are
required by the Commission regulations to furnish the Company with copies of all
Section 16(a) reports they file. Based solely on its review of copies of such
reports received by it and written representations from certain reporting
persons that no Forms 5 were required for those persons, the Company believes
that, during the period from January 1, 1996 to December 31, 1996 all filing
requirements applicable to its officers, directors and greater than 10%
stockholders were complied with on a timely basis.
A-12
<PAGE> 29
ANNEX B
SBC WARBURG DILLON READ, INC.
March 26, 1998
Mr. Mark Harrington
Chairman and Chief Executive Officer
HarCor Energy, Inc.
5 Post Oak Park
Suite 2220
Houston, Texas 77027
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, of the per share cash consideration to be paid to the holders (the
"Shareholders") of shares of common stock, $0.10 par value per share (the
"Common Stock"), of HarCor Energy, Inc. ("HarCor" or the "Company"), in
connection with the proposed acquisition (the "Acquisition") of the Company by
National Fuel Gas Company ("National Fuel Gas" or "NFG").
You should note that we have also been engaged by Bakersfield Energy
Resources, Inc. in connection with the possible sale of their ownership in
certain properties currently jointly owned with HarCor.
We have assumed that the terms of the Acquisition are as set forth in the
Agreement and Plan of Merger dated as of March 31, 1998 (the "Agreement") among
National Fuel Gas, its acquisition subsidiary (the "Acquisition Subsidiary") and
the Company. We understand that each share of Common Stock will have the right
to receive $2.00 in cash (the "Cash Consideration") upon consummation of the
merger of the Acquisition Subsidiary with and into the Company (the
"Transaction").
You have requested our opinion as to whether the Cash Consideration is
fair, from a financial point of view, to the shareholders of HarCor.
SBC Warburg Dillon Read Inc. ("SBC Warburg Dillon Read") has acted as
financial advisor to the Board of Directors of the Company in connection with
the Transaction and will receive a fee for its services, a substantial portion
of which is contingent upon the consummation of the Transaction. In the ordinary
course of business, SBC Warburg Dillon Read and its affiliates may trade or hold
the equity securities of the Company or NFG for their own accounts and the
accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities.
On December 8, 1997, Swiss Bank Corporation announced its intention to
merge with Union Bank of Switzerland. Accordingly, references to SBC Warburg
Dillon Read Inc. shall include our successor entity following implementation of
the merger with UBS.
In arriving at our opinion, we have, among other things: (i) reviewed the
Agreement, (ii) reviewed certain publicly available business and historical
financial information relating to HarCor, (iii) reviewed certain financial
information and other data relating to the business and prospects of HarCor that
was prepared by the management of the Company, including financial projections
based on the Company's business plan and, in particular, certain estimates of
the proved and probable reserves, as well as the projected annual production of
such reserves, (iv) reviewed and performed analyses based on certain estimates
of HarCor's future ability to meet its capital expenditure and debt service
requirements, which were approved by the management of the Company, (v) reviewed
publicly available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those of
the Company, (vi) reviewed the financial terms of certain other transactions
involving companies which are also in lines of
<PAGE> 30
business we believe are generally comparable to the Transaction, (vii) reviewed
the historical market prices and trading volumes of the common stock of the
Company, (viii) conducted discussions with selected members of the senior
management of the Company and (ix) conducted such other financial studies,
analyses and investigations, and considered such other information, as we deemed
necessary or appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the foregoing information
and have, with your consent, relied on its being complete and accurate in all
material respects. In addition, we have not made any evaluation or appraisal of
any of the assets or liabilities (contingent or otherwise) of HarCor, nor have
we been furnished with any such evaluation or appraisal. With respect to the
financial projections referred to above, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of HarCor's management as to the future financial performance of
the company. At your direction, we independently contacted over 100 prospective
buyers for indications of interest for the acquisition of all, or substantially
all, of the Company. Lastly, our opinion is based on economic, monetary and
market conditions existing on the date hereof.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote with respect to the Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Cash Consideration is fair, from a financial point of view, to
the Company's shareholders.
SBC WARBURG DILLON READ INC.
B-2
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
(a)(1)* -- Offer to Purchase.
(a)(2)* -- Letter of Transmittal.
(a)(3)* -- Notice of Guaranteed Delivery.
(a)(4)* -- Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(5)* -- Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6)* -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) -- Text of Press Release dated January 23, 1998 issued by
the Company (incorporated by reference to Exhibit 99.1 to
Form 8-K dated January 23, 1998 filed with the Securities
and Exchange Commission (the "Commission") by the
Company).
(a)(8) -- Text of Joint Press Release, dated March 31, 1998, issued
by Parent and the Company (incorporated by reference to
Exhibit 99.1 to Form 8-K dated March 31, 1998 filed by
the Company with the Commission).
(a)(9)* -- Form of Summary Advertisement, dated April 6, 1998.
(a)(10) -- Letter to Company stockholders, dated April 6, 1998.
(c)(1) -- Agreement and Plan of Merger dated March 31, 1998, among
Parent, the Purchaser and the Company (incorporated by
reference to Exhibit 99.2 to Form 8-K dated March 31,
1998, filed with the Commission by the Company).
(c)(2)* -- Confidentiality Agreement, dated as of March 17, 1997,
between Dillon, Read & Co. Inc. and Parent.
(c)(3) -- Opinion of SBC Warburg Dillon Read dated March 26, 1998.
(c)(4) -- Form of Severance Agreement with employees of the Company
(incorporated by reference to Exhibit 10.19 to the
Company's Form 10-K Annual Report for the year ended
December 31, 1997, filed with the Commission).
</TABLE>
- ---------------
* Incorporated by reference to the same exhibit number to the Tender Offer
Statement on Schedule 14D-1, filed with the Commission by Parent and Purchaser
on April 6, 1998.
<PAGE> 1
[HARCOR ENERGY, INC. LETTERHEAD]
April 6, 1998
Dear Stockholder:
On behalf of the Board of Directors of HarCor Energy, Inc. (the "Company"),
I am pleased to inform you that the Company entered into an Agreement and Plan
of Merger, dated as of March 31, 1998 (the "Merger Agreement"), with Seneca
Resources Corporation ("Parent") and Seneca West Corp., its wholly owned
subsidiary (the "Purchaser"), pursuant to which the Purchaser has today
commenced a cash tender offer (the "Offer") to purchase all of the outstanding
shares of common stock of the Company (the "Shares") at a price of $2.00 per
share, net to the seller in cash, without interest. The Offer is conditioned
upon, among other things, the tender of at least a majority of the Shares.
Following the successful completion of the Offer, upon the terms and
subject to the conditions contained in the Merger Agreement, the Purchaser will
be merged with and into the Company (the "Merger"), with the Company as the
surviving corporation. At the effective time of the Merger, each remaining
issued and outstanding Share will be converted into the right to receive $2.00
in cash, subject to dissenter's rights.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OFFER AND THE MERGER
AGREEMENT, HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR
TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND THE COMPANY'S STOCKHOLDERS,
AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the enclosed
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which is being filed today with the Securities and Exchange Commission,
including, among other things, the written opinion of SBC Warburg Dillon Read
Inc., the Company's financial advisor, that the consideration to be received by
the stockholders of the Company pursuant to the Offer and the Merger is fair to
such stockholders from a financial point of view.
Additional information with respect to the Board's decision is contained in
the enclosed Schedule 14D-9 and we urge you to consider this information
carefully.
In addition to the attached Schedule 14D-9, enclosed also is the
Purchaser's Offer to Purchase dated April 6, 1998, together with related
materials, including a Letter of Transmittal to be used for tendering your
Shares in the Offer. These documents set forth the terms and conditions of the
Offer and provide instructions as to how to tender your Shares. I urge you to
read and consider the enclosed materials carefully before making your decision
with respect to tendering your Shares pursuant to the Offer.
Very truly yours,
MARK G. HARRINGTON
Chairman of the Board and
Chief Executive Officer
<PAGE> 1
ANNEX B
SBC WARBURG DILLON READ, INC.
March 26, 1998
Mr. Mark Harrington
Chairman and Chief Executive Officer
HarCor Energy, Inc.
5 Post Oak Park
Suite 2220
Houston, Texas 77027
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, of the per share cash consideration to be paid to the holders (the
"Shareholders") of shares of common stock, $0.10 par value per share (the
"Common Stock"), of HarCor Energy, Inc. ("HarCor" or the "Company"), in
connection with the proposed acquisition (the "Acquisition") of the Company by
National Fuel Gas Company ("National Fuel Gas" or "NFG").
You should note that we have also been engaged by Bakersfield Energy
Resources, Inc. in connection with the possible sale of their ownership in
certain properties currently jointly owned with HarCor.
We have assumed that the terms of the Acquisition are as set forth in the
Agreement and Plan of Merger dated as of March 31, 1998 (the "Agreement") among
National Fuel Gas, its acquisition subsidiary (the "Acquisition Subsidiary") and
the Company. We understand that each share of Common Stock will have the right
to receive $2.00 in cash (the "Cash Consideration") upon consummation of the
merger of the Acquisition Subsidiary with and into the Company (the
"Transaction").
You have requested our opinion as to whether the Cash Consideration is
fair, from a financial point of view, to the shareholders of HarCor.
SBC Warburg Dillon Read Inc. ("SBC Warburg Dillon Read") has acted as
financial advisor to the Board of Directors of the Company in connection with
the Transaction and will receive a fee for its services, a substantial portion
of which is contingent upon the consummation of the Transaction. In the ordinary
course of business, SBC Warburg Dillon Read and its affiliates may trade or hold
the equity securities of the Company or NFG for their own accounts and the
accounts of their customers and, accordingly, may at any time hold a long or
short position in such securities.
On December 8, 1997, Swiss Bank Corporation announced its intention to
merge with Union Bank of Switzerland. Accordingly, references to SBC Warburg
Dillon Read Inc. shall include our successor entity following implementation of
the merger with UBS.
In arriving at our opinion, we have, among other things: (i) reviewed the
Agreement, (ii) reviewed certain publicly available business and historical
financial information relating to HarCor, (iii) reviewed certain financial
information and other data relating to the business and prospects of HarCor that
was prepared by the management of the Company, including financial projections
based on the Company's business plan and, in particular, certain estimates of
the proved and probable reserves, as well as the projected annual production of
such reserves, (iv) reviewed and performed analyses based on certain estimates
of HarCor's future ability to meet its capital expenditure and debt service
requirements, which were approved by the management of the Company, (v) reviewed
publicly available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those of
the Company, (vi) reviewed the financial terms of certain other transactions
involving companies which are also in lines of
<PAGE> 2
business we believe are generally comparable to the Transaction, (vii) reviewed
the historical market prices and trading volumes of the common stock of the
Company, (viii) conducted discussions with selected members of the senior
management of the Company and (ix) conducted such other financial studies,
analyses and investigations, and considered such other information, as we deemed
necessary or appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the foregoing information
and have, with your consent, relied on its being complete and accurate in all
material respects. In addition, we have not made any evaluation or appraisal of
any of the assets or liabilities (contingent or otherwise) of HarCor, nor have
we been furnished with any such evaluation or appraisal. With respect to the
financial projections referred to above, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of HarCor's management as to the future financial performance of
the company. At your direction, we independently contacted over 100 prospective
buyers for indications of interest for the acquisition of all, or substantially
all, of the Company. Lastly, our opinion is based on economic, monetary and
market conditions existing on the date hereof.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote with respect to the Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Cash Consideration is fair, from a financial point of view, to
the Company's shareholders.
SBC WARBURG DILLON READ INC.
B-2
