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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED):
MAY 1, 1998
EXCO RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF TEXAS 0-9204 74-1492779
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
5735 PINELAND DRIVE
SUITE 235
DALLAS, TEXAS 75231
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 368-2084
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ITEM 5. OTHER EVENTS
MERGER AGREEMENT
EXCO Resources, Inc. ("EXCO") entered into an Agreement and Plan of
Merger (the "Merger Agreement") on May 1, 1998 with Gladstone Resources, Inc.
("Gladstone"). Gladstone is a Dallas, Texas based oil and natural gas
production company with properties in Kent, Stonewall, Schleicher, Pecos and
Madison Counties, Texas, and San Juan County, New Mexico. Under terms of the
Merger Agreement, Gladstone shareholders will receive approximately $1.4
million, or $.33 per share, in cash. The purchase price was determined as a
result of arms-length negotiations between the parties. The price was based,
among other factors, upon Gladstone's proved reserves, current assets and
collectibility of accounts receivable, cash flow, working capital position, and
drilling prospects. The Merger Agreement provides, among other things, for the
merger (the "Merger") of Gladstone with and into EXCO, with EXCO surviving the
Merger (the "Surviving Corporation"). It is currently anticipated that the
transaction will close during the third quarter of 1998. The transaction is
subject to customary conditions to closing including review by the Securities
and Exchange Commission of Gladstone's proxy materials, approval by Gladstone's
board of directors and shareholders, approval by EXCO's board of directors and
due diligence inspection by EXCO.
In addition to the Merger Agreement, EXCO entered into a Stock Option
Agreement dated as of May 1, 1998 with Mr. E.B. Brooks, Jr. ("Mr. Brooks") to
acquire from Mr. Brooks 1,910,000 shares, or approximately 44.8%, of Gladstone's
issued and outstanding common stock, no par value (the "Gladstone Common
Stock"), at a price of $.33 per share. Mr. Brooks is Chairman and President of
Gladstone. As of May 1, 1998, EXCO also entered into three Shareholder
Agreements whereby Deborah Brooks Garrett, Rebecca B. Feldt and Carol Brady,
have agreed (i) to vote their shares in favor of the Merger, (ii) to vote their
shares against any action that would impede or interfere with the Merger and
(iii) not to sell or transfer their shares. Each of these shareholders owns
351,000 shares or approximately 8.3% of Gladstone Common Stock.
PARTIES TO THE MERGER
EXCO. EXCO is an independent oil and natural gas company founded in
1955. EXCO is a Texas corporation principally engaged in the acquisition and
exploitation of oil and natural gas properties. Its existing properties are
primarily located in Texas and Louisiana. The principal executive offices of
EXCO are located at 5735 Pineland Drive, Suite 235, Dallas, Texas 75231, and the
telephone number at that address is (214) 368-2084.
Gladstone. Gladstone, a corporation organized in 1916 under the name
Gladstone Mountain Mining Company, is currently based in Dallas, Texas and
incorporated in the State of Washington. This independent energy company is
principally engaged in the ownership and operation of various oil and natural
gas leases located in Kent, Stonewall, Schleicher, Pecos and Madison Counties,
Texas, and San Juan County, New Mexico. The principal executive offices of
Gladstone are located at 5646 Milton, Suite 210, Dallas, Texas 75206, and the
telephone number at that address is (214) 363-3432.
CERTAIN TERMS OF THE MERGER
Effects of Merger. Gladstone will be merged with and into EXCO, with
EXCO as the Surviving Corporation. Pursuant to and subject to the terms and
conditions of the Merger Agreement, at the Effective Time (defined below), all
then-outstanding shares of Gladstone
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Common Stock (other than (A) shares of Gladstone Common Stock held in the
treasury of Gladstone or owned by any subsidiary of Gladstone, all of which
will be canceled without payment of any consideration, and (B) shares of
Gladstone Common Stock held by shareholders who perfect their appraisal rights
under Chapter 23B.13 of the Washington Business Corporation Act ("WBCA")) will
be converted into the right to receive, in cash, $.33 per share of Gladstone
Common Stock, without interest.
The Merger shall have the effects set forth in Section 5.06 of the
Texas Business Corporation Act ("TBCA"). The corporate existence of EXCO, with
all its purposes, powers and objects, shall continue unaffected and unimpaired
by the Merger and, as the Surviving Corporation, it shall be governed by the
laws of the State of Texas and shall succeed to all rights, assets,
liabilities, properties, privileges, powers, franchises and obligations of
Gladstone in accordance with Texas law.
Effective Time of the Merger. The Effective Time of the Merger (the
"Effective Time") will be the date and time when properly executed articles of
merger, in such forms as are required by the TBCA and the WBCA, are duly filed
with the Secretaries of State of the States of Texas and Washington, or at such
later time as the parties to the Merger Agreement designate in such filings as
the Effective Time. It is anticipated that, subject to the satisfaction or
waiver, if permissible, of the conditions to consummation of the Merger set
forth in the Merger Agreement, such filings will be made as promptly as
practicable after the Merger Agreement has been approved by Gladstone's
shareholders.
Conditions of the Merger. The respective obligations of Gladstone and
EXCO to effect the Merger are subject to the satisfaction, or waiver if
applicable, at or prior to the Effective Time, of various conditions,
including, among other things, (i) the approval and adoption of the Merger
Agreement and the Merger by the requisite vote of the holders of Gladstone
Common Stock; and (ii) the absence of any pending action, proceeding or
investigation brought by any person or entity before any governmental entity
challenging, affecting or seeking material damages in connection with the
transactions contemplated by the Merger Agreement. Furthermore, EXCO has
additional conditions to its obligation to consummate the Merger. Among the
conditions to EXCO consummating the Merger are that (i) Gladstone shall have
performed its agreements contained in the Merger Agreement and the
representations and warranties of Gladstone contained in the Merger Agreement
shall be true and correct; (ii) at the Effective Time, Gladstone meets a
minimum net working capital (current assets less current liabilities) test
related to the cost of drilling four wells described in the Merger Agreement;
and (iii) the number of shares of Gladstone Common Stock held by shareholders
dissenting in accordance with Chapter 23B.13 of the WBCA shall not exceed 10%
of the outstanding shares of Gladstone Common Stock. Accordingly, although the
holders of Gladstone Common Stock may approve and adopt the Merger Agreement
and the Merger at the Special Meeting, there can be no assurance that the
Merger will be consummated if any of the foregoing conditions have not yet been
satisfied.
Dissenting Shares. Under Chapter 23B.13 of the WBCA, holders of
Gladstone Common Stock have the right to dissent from the Merger and, subject
to certain conditions, to receive payment of the "fair value" of their shares
of Gladstone Common Stock, as provided in Sections 23B.13.010 through
23B.13.310 of the WBCA in lieu of accepting the payment to be made pursuant to
the Merger. If any shareholder fails to perfect or withdraws or loses the
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right to dissent, such shareholder's shares shall thereupon be deemed to have
been converted as of the Effective Time into the right to receive the Merger
consideration.
Termination. Under certain conditions, the Merger Agreement may be
terminated at any time prior to the Effective Time, whether prior to or after
approval of the Merger Agreement by the shareholders of Gladstone. In the event
of the termination of the Merger Agreement, there will be no obligation or
liability on the part of any party thereto, except as expressly provided for in
the Merger Agreement; provided, however, that no termination pursuant to the
termination provisions will relieve any party from liability for any breach of
the Merger Agreement.
Business of Gladstone. Gladstone has agreed that during the period
from the date of the Merger Agreement to the Effective Time, except as
otherwise contemplated by the Merger Agreement or unless EXCO otherwise
consents in writing, Gladstone will conduct its operations in the ordinary
course of business, consistent with the past practices. In addition, unless
EXCO consents in writing or except as otherwise permitted pursuant to the
Merger Agreement, prior to the Effective Time, Gladstone is not permitted to
engage in certain actions specified in the Merger Agreement.
OBLIGATIONS OF EXCO
EXCO has agreed to use its reasonable best efforts to refrain from
taking any action that would, or reasonably might be expected to result in any
of its representations and warranties set forth in the Merger Agreement being
or becoming untrue in any material respect as of the Effective Time, or in any
of the conditions to the Merger not being satisfied, or (unless such action is
required by applicable law) that would adversely affect the ability of EXCO to
obtain any of the regulatory approvals required to consummate the Merger, as
contemplated hereby.
OBLIGATIONS OF GLADSTONE AND EXCO
Each of Gladstone and EXCO has agreed to use its reasonable best
efforts to refrain from taking any action that would, or reasonably might be
expected to, result in any of its representations and warranties set forth in
the Merger Agreement being or becoming untrue in any material respect as of the
Effective Time, or in any of the conditions to the Merger not being satisfied,
or (unless such action is required by applicable law) that would adversely
affect the ability of Gladstone or EXCO to obtain any of the regulatory
approvals required to consummate the Merger.
NO SOLICITATION OF OTHER BIDS
Prior to the Effective Time, Gladstone has agreed not to, and has
agreed not to authorize or permit any of its officers, directors or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it to, directly or indirectly, initiate, solicit,
negotiate or encourage (including by way of furnishing information), or take
any other action to facilitate or entertain, any inquiries or the making of any
proposal that constitutes, or may be reasonably expected to lead to, any
proposal or offer to acquire all or substantially all of the business of
Gladstone, or all or substantially all of the capital stock of Gladstone,
whether by merger, purchase of assets, tender offer,
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exchange offer or otherwise, whether for cash, securities or any other
consideration or combination thereof or agree to endorse or recommend any such
transactions or enter into an agreement relating to any such transactions;
unless Gladstone's board of directors determines in good faith, based upon the
advice of counsel to Gladstone given to Gladstone's board of directors, that
there is a significant risk that the failure to negotiate with the potential
acquiror could constitute a breach of such board's fiduciary duty to
Gladstone's shareholders.
SOURCES AND AMOUNTS OF FUNDS
The total amount of funds required by EXCO to acquire all of the
then-outstanding shares of capital stock of Gladstone is estimated to be
approximately $1.4 million. The actual amount payable will depend, in part, on
the number of shares of Gladstone Common Stock outstanding at the Effective
Time and entitled to receive the Merger consideration. EXCO expects to fund
this acquisition through (i) proceeds from a common stock rights offering, if
the rights offering is completed before the Effective Time or (ii) funds from a
credit facility with NationsBank of Texas, N.A., if the rights offering is not
completed before the Effective Time. The obligation of EXCO to consummate the
Merger under the Merger Agreement is not subject to a condition that any
financing be available to EXCO.
OPERATION AND MANAGEMENT OF SURVIVING CORPORATION AFTER THE MERGER
The Surviving Corporation is expected to continue to manage and
operate Gladstone's business and properties substantially as before the Merger.
The directors of the Surviving Corporation will be the current
directors of EXCO, namely: Douglas H. Miller, T.W. Eubank, J. Douglas Ramsey,
T. Boone Pickens, Earl E. Ellis, J. Michael Muckleroy and Stephen F. Smith. The
officers of the Surviving Corporation will be the current officers of EXCO.
If the Merger is consummated, trading of Gladstone Common Stock will
cease and the registration of Gladstone Common Stock under the Exchange Act is
expected to be terminated.
CERTAIN FEDERAL INCOME TAX REQUIREMENTS
The receipt of cash for shares of Gladstone Common Stock pursuant to
the Merger or pursuant to the exercise of appraisal rights will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local, foreign or other tax laws. For
United States federal income tax purposes, in general, a shareholder who
receives cash for shares of Gladstone Common Stock pursuant to the Merger will
recognize a gain or loss equal to the difference between the shareholder's tax
basis for the shares of Gladstone Common Stock converted into the right to
receive cash in such transaction and the amount of cash received in exchange
therefor. Assuming that the shares of Gladstone Common Stock constitute capital
assets in the hands of the shareholder, such gain or loss will be a long-term
capital gain or loss if, as of the date of disposition, such shares of
Gladstone Common Stock have been held for more than eighteen months.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The financial statements of Gladstone Resources, Inc.
are incorporated by reference from the Annual Report on Form
10-K for the fiscal year ended December 31, 1997 and the
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
(b) Pro Forma Financial Information.
The ProForma financial statements for Gladstone
Resources, Inc. entitled "ProForma Combined Condensed Financial
Statements" and the Notes thereto found in File No. 333-49135,
Pre-Effective Amendment No. 1 to Form S-3 on Form S-2 are
hereby incorporated by reference.
(c) Exhibits. The following exhibits are included herein:
2.1 Agreement and Plan of Merger dated May 1, 1998,
between EXCO Resources, Inc., and Gladstone
Resources, Inc., incorporated by reference from the
Schedule 13D dated May 13, 1998, filed by EXCO in
respect of EXCO's acquisition of beneficial ownership
of shares of common stock of Gladstone Resources,
Inc.
2.2 Stock Option Agreement dated May 1, 1998, among EXCO
Resources, Inc., on the one hand, and Mr. E.B.
Brooks, Jr., on the other, incorporated by reference
from the Schedule 13D dated May 13, 1998, filed by
EXCO in respect of EXCO's acquisition of beneficial
ownership of shares of common stock of Gladstone
Resources, Inc.
99.1 Shareholder Agreement dated May 1, 1998, among EXCO
Resources, Inc., on the one hand, and Ms. Rebecca B.
Feldt, on the other, incorporated by reference from
the Schedule 13D dated May 13, 1998, filed by EXCO in
respect of EXCO's acquisition of beneficial ownership
of shares of common stock of Gladstone Resources,
Inc.
99.2 Shareholder Agreement dated May 1, 1998, among EXCO
Resources, Inc., on the one hand, and Ms. Carol
Brady, on the other, incorporated by reference from
the Schedule 13D dated May 13, 1998, filed by EXCO in
respect of EXCO's acquisition of beneficial ownership
of shares of common stock of Gladstone Resources,
Inc.
99.3 Shareholder Agreement dated May 1, 1998, among EXCO
Resources, Inc., on the one hand, and Ms. Deborah
Brooks Garrett, on the other, incorporated by
reference from the Schedule 13D dated May 13, 1998,
filed by EXCO in respect of EXCO's acquisition of
beneficial ownership of shares of common stock of
Gladstone Resources, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
EXCO RESOURCES, INC.
By: /s/ J. DOUGLAS RAMSEY
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Name: J. Douglas Ramsey
Title: Chief Financial Officer
Dated: June 2, 1998
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