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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ________)*
McFarland Energy, Inc.
- -------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, Par Value $1.00 Per Share
- -------------------------------------------------------------------------------
(Title of Class of Securities)
580432 10 2
------------------------------------------------------
(CUSIP Number)
Terry L. Anderson, Esq. Monterey Resources, Inc.
5201 Truxtun Avenue, Bakersfield, California 93309 (805) 864-3008
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
June 17, 1997
------------------------------------------------------
(Date of Event which Requires Filing of this
Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
1
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SCHEDULE 13D
<TABLE>
<CAPTION>
CUSIP NO. 580432 10 2 PAGE 2 OF 7 PAGES
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Monterey Acquisition Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- -----------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
BK
- -----------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY
EACH -----------------------------------------------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
----------------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
- -----------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -----------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.00%
- -----------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
2
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SCHEDULE 13D
<TABLE>
<CAPTION>
CUSIP NO. 580432 10 2 PAGE 3 OF 7 PAGES
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Monterey Resources, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- -----------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
BK
- -----------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY
EACH -----------------------------------------------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
----------------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
- -----------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -----------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.00%
- -----------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
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</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
3
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SCHEDULE 13D
<TABLE>
<CAPTION>
CUSIP NO. 580432 10 2 PAGE 4 OF 7 PAGES
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Santa Fe Energy Resources, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- -----------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
BK
- -----------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -----------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY
EACH -----------------------------------------------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
----------------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
- -----------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
- -----------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
- -----------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.00%
- -----------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
CO
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
4
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Item 1. Security and Issuer
This statement relates to the shares (the "Shares") of common
stock, par value $1.00 per share (the "Common Stock"), of McFarland Energy,
Inc., a Delaware corporation (the "Company"), which has its principal executive
offices at 10425 South Painter Avenue, Santa Fe Springs, California 90670.
Item 2. Identity and Background
(a) - (c); (f) This statement is filed on behalf of Monterey
Acquisition Corporation, a Delaware corporation (the "Purchaser"), Monterey
Resources, Inc., a Delaware corporation ("Monterey") and Santa Fe Energy
Resources, Inc., a Delaware corporation ("Santa Fe"). The Purchaser, Monterey
and Santa Fe are referred to herein collectively as the "Reporting Persons."
The information contained in section 8 captioned "Certain Information
Concerning The Purchaser and Monterey" in Exhibit 1 hereto is hereby
incorporated herein by reference.
The name, business address, present principal occupation or
employment and citizenship of each of the Reporting Persons and of each
executive officer and director of each of the Reporting Persons are contained
in Schedule I of Exhibit 1 hereto and are hereby incorporated herein by
reference.
(d) - (e) Except as set forth in Schedule I of Exhibit 1
hereto, which is hereby incorporated herein by reference, during the last five
years, neither the Purchaser, Monterey, Santa Fe nor, to the best knowledge of
the Purchaser, Monterey and Santa Fe, any of the executive officers and
directors of the Purchaser, Monterey or Santa Fe has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
has been a party to a civil proceeding of a judicial or administrative body
resulting in its or his being subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal
or state securities laws or finding any violation of such laws.
Item 3. Source and Amount of Funds or Other Consideration
The information contained in Section 9 captioned "Source and
Amount of Funds" in Exhibit 1 hereto is hereby incorporated herein by
reference.
Item 4. Purpose of Transaction
(a) - (g); (j) The information contained in Section 11
captioned "Purpose of the Offer; the Merger; the Merger Agreement; Plans for
the Company" in Exhibit 1 hereto is hereby incorporated herein by reference.
(h) - (i) The information contained in Section 12 captioned
"Effect of the Offer on the Market for Shares; Nasdaq Listing; Registration
Under the Exchange Act" in Exhibit 1 hereto is hereby incorporated herein by
reference.
Item 5. Interest in Securities of the Issuer
The Purchaser and Monterey have filed a Tender Offer
Statement on Schedule 14D-1 with respect to the offer by the Purchaser to
purchase all outstanding Shares of the Company at $18.55 per Share, net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase and in the related Letter of
Transmittal, pursuant to the terms of a Merger Agreement executed as of June
16, 1997 among the Company, the Purchaser and Monterey. In addition, as of June
17, 1997, Monterey and the Purchaser executed a stockholders agreement (the
"Stockholders Agreement"), with
5
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the McFarland Family Trust (which owns 527,696 Shares), Mr. J.C. McFarland and
his wife Carolyn J. McFarland (who together own 75,295 Shares and have rights
to 140,500 Shares issuable upon exercise of options) and William Carl, a
director of the Company (who owns 116,362 Shares and has rights to 5,000 Shares
issuable upon exercise of options). Pursuant to the Stockholders Agreement,
each of the McFarland Family Trust, Mr. and Mrs. McFarland and Mr. Carl
severally agreed to tender all Shares owned by such stockholder into the Offer
prior to the expiration of the Offer and not to withdraw any Shares so
tendered. In addition, each of the McFarland Family Trust, Mr. and Mrs.
McFarland and Mr. Carl severally agreed to sell to the Purchaser, and the
Purchaser agreed to purchase all Shares held by such person at a price per
Share equal to $18.55 or such higher price per Share as may be offered by the
Purchaser in the Offer, provided that such obligations to purchase and sell are
both subject to the Purchaser having accepted Shares for payment under the
Offer and the Minimum Condition (as defined in the Offer to Purchase), minus
any Shares which are the subject of the Stockholders Agreement but are not
purchased in the offer) having been satisfied.
In view of the conditional nature of any purchase by the
Purchaser under the Stockholders Agreement, the Reporting Persons disclaim
beneficial ownership of Shares subject to the Stockholders Agreement.
Nonetheless, the Reporting Persons have elected to file this Schedule 13D in
order to avoid any issue as to whether they have met applicable filing
requirements. If the Shares subject to the Stockholders Agreement were deemed
to be beneficially owned by the Reporting Persons, such Shares (including
Shares issuable upon conversion of the options subject to the Stockholders
Agreement) would amount to 14.72% of the outstanding Shares of the Company.
In addition, the information contained in Section 8 captioned
"Certain Information Concerning the Purchaser and Monterey", in Section 12
captioned "Background of the Offer, Past Contacts, Transaction, or Negotiations
with the Company" is hereby incorporated herein by reference.]
Item 6. Contracts, Arrangements, Understandings or Relationships with
respect to Securities of the Issuer
See Item 5 above. In addition, the information in Section 9
captioned "Source and Amount of Funds" and in Section 16 captioned "Fees and
Expenses" in Exhibit 1 hereto is hereby incorporated herein by reference.
Item 7. Material to be filed as Exhibits
Exhibit 1 -- Offer to Purchase, dated June 23, 1997.
Exhibit 2 -- Stockholders Agreement, dated as of June 17,
1997 between Monterey Resources, Inc., Monterey
Acquisition Corporation and the McFarland
Family Trust, J.C. McFarland and Carolyn J.
McFarland, and William E. Carl.
6
<PAGE> 7
SIGNATURE
After reasonable inquiry and to the best of our knowledge and
belief, the undersigned certify that the information set forth in this
statement is true, complete and correct.
Date: June 27, 1997
MONTEREY ACQUISITION CORP.
By: /s/ Terry Anderson
-----------------------------------
Title: Vice President and Secretary
MONTEREY RESOURCES, INC.
By: /s/ Terry Anderson
----------------------------------
Title: General Counsel
SANTA FE ENERGY RESOURCES, INC.
By: /s/ David L. Hicks
----------------------------------
Title: Vice President -- Law and
General Counsel
7
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
Exhibit 1 Offer to Purchase, dated June 23, 1997.
Exhibit 2 Stockholders Agreement, dated as of June 17, 1997 between
Monterey Resources, Inc., Monterey Acquisition Corporation and
the McFarland Family Trust, J.C. McFarland and Carolyn J.
McFarland, and William E. Carl.
<PAGE> 1
EXHIBIT 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
MCFARLAND ENERGY, INC.
AT
$18.55 NET PER SHARE
BY
MONTEREY ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY
OF
MONTEREY RESOURCES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, JULY 21, 1997, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN AT THE EXPIRATION DATE A NUMBER OF SHARES WHICH WHEN
COMBINED WITH SHARES SUBJECT TO THE STOCKHOLDERS AGREEMENT CONSTITUTES A
MAJORITY OF THE COMPANY'S OUTSTANDING SHARES ON A FULLY DILUTED BASIS.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY HAS DETERMINED THAT THE
OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND
ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT HOLDERS OF SHARES ACCEPT
THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (a) complete and sign the enclosed Letter of Transmittal
(or a facsimile copy thereof) in accordance with the instructions in the Letter
of Transmittal and mail or deliver it together with the certificate(s)
representing tendered Shares, and any other required documents, to the Paying
Agent or tender such Shares pursuant to the procedure for book-entry transfer
set forth in Section 3 or (b) request such stockholder's broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
such stockholder. A stockholder whose Shares are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must contact
such broker, dealer, commercial bank, trust company or other nominee if such
stockholder desires to tender such Shares.
Any stockholder who desires to tender such stockholder's Shares and whose
certificates representing such Shares are not immediately available or who
cannot comply with the procedures for book-entry transfer on a timely basis may
tender such Shares by following the procedures for guaranteed delivery set forth
in Section 3.
Questions and requests for assistance may be directed to the Information
Agent at its address and telephone number set forth on the back cover of this
Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of
Transmittal, the Notice of Guaranteed Delivery and other related materials may
be obtained from the Information Agent or from brokers, dealers, commercial
banks and trust companies or other nominees.
June 23, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction................................................ 1
Section 1. Terms of the Offer............................ 2
Section 2. Acceptance for Payment and Payment............ 3
Section 3. Procedures for Tendering Shares............... 4
Section 4. Withdrawal Rights............................. 6
Section 5. Certain Tax Consequences...................... 7
Section 6. Price Range of Shares; Dividends.............. 8
Section 7. Certain Information Concerning the Company.... 8
Section 8. Certain Information Concerning the Purchaser
and Monterey ................................. 10
Section 9. Source and Amount of Funds.................... 11
Section 10. Background of the Offer, Past Contacts,
Transactions or Negotiations with the Company
.............................................. 12
Section 11. Purpose of the Offer; the Merger; Merger
Agreement; Plans for the Company ............. 12
Section 12. Effect of the Offer on the Market for Shares;
Nasdaq Listing; Registration Under the
Exchange Act.................................. 21
Section 13. Dividends and Distributions................... 22
Section 14. Conditions to the Offer....................... 22
Section 15. Certain Legal Matters; Required Regulatory
Approvals .................................... 24
Section 16. Fees and Expenses............................. 26
Section 17. Miscellaneous................................. 26
Schedule I -- Directors and Executive Officers of the
Purchaser, Monterey and Santa Fe.......................... I-1
</TABLE>
i
<PAGE> 3
To Holders of Common Stock of
McFarland Energy, Inc.
INTRODUCTION
Monterey Acquisition Corporation, a Delaware corporation (the "Purchaser")
and a wholly owned subsidiary of Monterey Resources, Inc., a corporation
organized under the laws of Delaware ("Monterey"), hereby offers to purchase all
outstanding shares of common stock, par value $1.00 per share (the "Shares"), of
McFarland Energy, Inc., a Delaware corporation (the "Company"), at $18.55 per
Share, net to the seller in cash, without interest thereon, upon the terms and
subject to the conditions set forth in this Offer to Purchase and in the related
Letter of Transmittal (which together constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage commissions
or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer
taxes on the purchase of Shares by the Purchaser pursuant to the Offer. However,
any tendering stockholder or other payee who fails to complete and sign the
Substitute Form W-9 that is included in the Letter of Transmittal may be subject
to a required backup federal income tax withholding of 31% of the gross proceeds
payable to such stockholder or other payee pursuant to the Offer. See Section 3.
The Purchaser will pay all charges and expenses of Corporate Investor
Communications, Inc., which is acting as the Information Agent (the "Information
Agent"), and First Chicago Trust Company of New York, which is acting as the
Paying Agent (the "Paying Agent"), incurred in connection with the Offer. See
Section 16.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN AT THE EXPIRATION DATE (AS HEREINAFTER DEFINED) A
NUMBER OF SHARES WHICH WHEN COMBINED WITH SHARES SUBJECT TO THE STOCKHOLDERS
AGREEMENT (AS HEREINAFTER DEFINED) CONSTITUTES A MAJORITY OF THE COMPANY'S THEN
OUTSTANDING SHARES ON A FULLY DILUTED BASIS. SEE SECTION 14.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY HAS DETERMINED THAT THE
OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND
ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT HOLDERS OF SHARES ACCEPT
THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
THE BOARD OF DIRECTORS OF THE COMPANY HAS RECEIVED THE OPINION OF
OPPENHEIMER & CO., INC. ("OPPENHEIMER"), THE COMPANY'S FINANCIAL ADVISOR, THAT
THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS OF SHARES PURSUANT TO THE MERGER
AGREEMENT IS FAIR TO SUCH HOLDERS FROM A FINANCIAL POINT OF VIEW.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of June 16, 1997 (the "Merger Agreement"), among Monterey, the 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
result that all of the outstanding common stock of the Company will be
beneficially owned by Monterey. At the effective time of the Merger (the
"Effective Time"), each then-outstanding Share (other than Shares held by
Monterey, the Purchaser or any of their subsidiaries, or in the treasury of the
Company, all of which will be canceled, and Shares held by stockholders who
perfect their appraisal rights under Delaware law) will be converted into the
right to receive $18.55 per Share in cash (or any higher price per Share paid
pursuant to the Offer), without interest thereon. See Section 11.
The Purchaser has been advised by the Company that, to the Company's
knowledge, all of the Company's directors and executive officers currently
intend to tender all Shares owned by them pursuant to the Offer.
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According to the Company, as of May 31, 1997, there were (i) 5,727,422
Shares issued and outstanding, all of which were validly issued, fully paid and
nonassessable, (ii) no Shares were held in the treasury of the Company, (iii) no
Shares were held by the Company's subsidiaries, and (iv) 650,687 Shares were
reserved for future issuance pursuant to the Company's 1996 Incentive Stock
Option, 1986 Stock Option Plan, 1989 Stock Option Plan and 1994 Non-Employee
Director Stock Option Plan of which 443,313 Shares were reserved for issuance
upon exercise of existing options. As of the date hereof, no shares of Company
preferred stock are issued and outstanding.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH STOCKHOLDERS SHOULD READ CAREFULLY BEFORE ANY
DECISION IS MADE WITH RESPECT TO THE OFFER.
SECTION 1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment and pay for all Shares which
are validly tendered prior to the Expiration Date and not withdrawn in
accordance with Section 4. The term "Expiration Date" means 12:00 midnight, New
York City time, on Monday, July 21, 1997 unless and until the Purchaser (subject
to the terms of the Merger Agreement) shall have extended the period of time
during which the Offer is open, in which event the term "Expiration Date" shall
refer to the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OF THE
MINIMUM CONDITION. The "Minimum Condition" is the condition to the Offer that
the number of Shares being validly tendered and not withdrawn prior to the
Expiration Date, when combined with Shares subject to the Stockholders Agreement
constitutes a majority of the outstanding Shares on a Fully Diluted Basis.
"Fully Diluted Basis" means the number of Shares outstanding as of the close of
business on Monday, June 16, 1997, increased by the number of Shares (i) issued
between such date and the Expiration Date, and (ii) issuable pursuant to the
exercise of rights to purchase Shares or upon conversion or exchange of other
securities. See Section 14 which sets forth the other conditions to the Offer.
If any condition to the Purchaser's obligation to purchase Shares under the
Offer is not satisfied prior to the Expiration Date, the Purchaser reserves the
right (but shall not be obligated) to (i) decline to purchase any of the Shares
tendered and terminate the Offer, (ii) waive such unsatisfied condition, subject
to the terms of the Merger Agreement and to compliance with applicable rules and
regulations of the Securities and Exchange Commission (the "SEC"), and purchase
all Shares validly tendered and not withdrawn, (iii) extend the Offer and,
subject to the right of stockholders to withdraw Shares as provided in Section
4, retain the Shares which have been tendered during the period or periods for
which the Offer is extended, or (iv) subject to the terms of the Merger
Agreement, amend the Offer.
The Merger Agreement provides that the Purchaser reserves the right to
increase the price per Share payable in the Offer or to otherwise amend the
Offer; provided, however, that no change may be made which (i) decreases the
price per Share, (ii) reduces the maximum number of Shares to be purchased in
the Offer, (iii) imposes conditions to the Offer in addition to those set forth
in the Merger Agreement, (iv) amends or changes the terms and conditions of the
Offer in any manner materially adverse to the holders of Shares (other than
Monterey and its subsidiaries) or (v) changes or waives the Minimum Condition.
Subject to the foregoing, the Purchaser expressly reserves the right, at any
time or from time to time, subject to the terms of the Merger Agreement and
regardless of whether or not any of the events set forth in Section 14 shall
have occurred or shall have been determined by the Purchaser to have occurred,
(i) to extend the period of time during which the Offer is open and thereby
delay acceptance for payment of, and the payment for, any Shares, by giving oral
or written notice of such extension to the Paying Agent, and (ii) to amend the
Offer in any respect by giving oral or written notice of such amendment to the
Paying Agent. The rights reserved by the Purchaser in this paragraph are in
addition to the Purchaser's rights to terminate the Offer described in Section
14. There can be no assurance, however, that the Purchaser will exercise its
rights to extend the Offer. Any extension, amendment or termination will be
followed as promptly as practicable by public announcement thereof, the
announcement in the case of an extension to be issued no later than 9:00 a.m.,
New York
2
<PAGE> 5
City time, on the next business day after the previously scheduled Expiration
Date in accordance with the announcement requirements of Rule 14d-4(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Without
limiting the obligation of the Purchaser under such Rule or the manner in which
the Purchaser may choose to make any public announcement, the Purchaser
currently intends to make announcements by issuing a release to the Dow Jones
News Service.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then without prejudice to the Purchaser's rights under the Offer, the
Paying Agent may retain tendered Shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in Section 4. However, the ability of
the Purchaser to delay the payment for Shares which the Purchaser has accepted
for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of holders of securities promptly after the termination or
withdrawal of the Offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in percentage of securities
sought, will depend upon the facts and circumstances, including the relative
materiality of the terms or information. With respect to a change in price or a
change in percentage of securities sought, a minimum period of ten business days
is required to allow for adequate dissemination to stockholders and investor
response. If prior to the Expiration Date, the Purchaser should decide to
increase the price per Share being offered in the Offer, such increase will be
applicable to all stockholders whose Shares are accepted for payment pursuant to
the Offer. As used in this Offer to Purchase, "business day" has the meaning set
forth in Rule 14d-1 under the Exchange Act.
The Company has provided to the Purchaser its list of stockholders and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal and
other relevant materials will be mailed to record holders of Shares and
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
SECTION 2. ACCEPTANCE FOR PAYMENT AND PAYMENT.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will purchase, by accepting for payment, and will pay
for, all Shares validly tendered prior to the Expiration Date (and not properly
withdrawn in accordance with Section 4) promptly after the Expiration Date. Any
determination concerning the satisfaction of such terms and conditions shall be
within the sole discretion of the Purchaser. See Section 14. The Purchaser
expressly reserves the right to delay acceptance for payment of, or, subject to
Rule 14e-1(c) under the Exchange Act, payment for, Shares in order to comply, in
whole or in part, with any applicable law, including the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). The Purchaser
does not believe that the Offer and the Merger are subject to the notification
or waiting period requirements of the HSR Act. See Sections 14 and 15.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Paying Agent of (i) certificates for such
Shares or timely confirmation of book-entry transfer (a "Book-Entry
Confirmation") of such Shares into the Paying Agent's account at The Depository
Trust Company or the Philadelphia Depository Trust Company (each, a "Book-Entry
Transfer Facility") pursuant to the procedures set forth in Section 3, (ii) a
properly completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof), with any required signature guarantees or an Agent's Message
(as defined
3
<PAGE> 6
below) in connection with a book-entry transfer, and (iii) any other documents
required by the Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Paying Agent and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Purchaser may enforce such
agreement against such participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment (and thereby purchased) tendered Shares, if, as and when the
Purchaser gives oral or written notice to the Paying Agent of the Purchaser's
acceptance of such Shares for payment pursuant to the Offer. In all cases,
payment for Shares purchased pursuant to the Offer will be made by deposit of
the purchase price with the Paying Agent, which will act as agent for tendering
stockholders for the purpose of receiving payment from the Purchaser and
transmitting payment to tendering stockholders. Under no circumstances will
interest on the purchase price of the Shares be paid by the Purchaser.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates submitted represent more Shares than are tendered,
certificates for such Shares not purchased or tendered will be returned, without
expense to the tendering stockholder (or, in the case of Shares tendered by
book-entry transfer into the Paying Agent's account at a Book-Entry Transfer
Facility pursuant to the procedures set forth in Section 3, such Shares will be
credited to an account maintained at such Book-Entry Transfer Facility),
promptly after the expiration, termination or withdrawal of the Offer.
SECTION 3. PROCEDURES FOR TENDERING SHARES.
For Shares to be validly tendered pursuant to the Offer, a properly
completed and duly executed Letter of Transmittal or facsimile thereof, with any
required signature guarantees, or an Agent's Message in connection with a
book-entry delivery of Shares, and any other requirements, must be received by
the Paying Agent at one of its addresses set forth on the back cover of this
Offer to Purchase prior to the Expiration Date. In addition, either (i) the
certificates for Shares must be received by the Paying Agent along with the
Letter of Transmittal or Shares must be tendered pursuant to the procedures for
book-entry transfer described below and a Book-Entry Confirmation must be
received by the Paying Agent, in each case prior to the Expiration Date, or (ii)
the tendering stockholder must comply with the guaranteed delivery procedures
described below. The Paying Agent will establish an account with respect to the
Shares at each Book-Entry Transfer Facility for purposes of the Offer within two
business days after the date of this Offer to Purchase. Any financial
institution that is a participant in any of the Book-Entry Transfer Facilities'
systems may make book-entry delivery of Shares by causing a Book-Entry Transfer
Facility to transfer such Shares into the Paying Agent's account at a Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Shares may be effected
through book-entry transfer at a Book-Entry Transfer Facility, the Letter of
Transmittal or facsimile thereof properly completed and duly executed, with any
required signature guarantees, or an Agent's Message in connection with a
book-entry transfer, and any other required documents, must, in any case, be
transmitted to and received by the Paying Agent at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date
or the tendering stockholder must comply with the guaranteed delivery procedures
described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE PAYING AGENT.
Signatures on all Letters of Transmittal must be guaranteed by a member
firm of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc. ("NASD") or a commercial bank or trust
company having an office or correspondent in the United States (each of the
foregoing being referred to as an "Eligible Institution"), unless the Shares
tendered thereby are tendered (i) by a registered holder of Shares who has not
completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Payment Instructions" on the Letter of Transmittal, or (ii)
for the
4
<PAGE> 7
account of an Eligible Institution. See Instruction 1 of the Letter of
Transmittal. If the certificates are registered in the name of a person other
than the signer of the Letter of Transmittal or if payment is to be made or
certificates for Shares not accepted for payment or not tendered are to be
returned to a person other than the registered holder, then the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered owner or
owners appear on the certificates, with the signatures on the certificates or
stock powers guaranteed as described above. See Instructions 1 and 5 of the
Letter of Transmittal.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL (OR A MANUALLY
SIGNED FACSIMILE THEREOF) AND ANY OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY
THROUGH A BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE
TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
If a stockholder desires to tender Shares pursuant to the Offer and such
stockholder's certificates for Shares are not immediately available or time will
not permit all required documents to reach the Paying Agent on or prior to the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a timely basis, such Shares may nevertheless be tendered if all the following
conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Paying Agent as provided below, on or prior to the
Expiration Date as provided below; and
(iii) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation), together with a Letter of
Transmittal or facsimile thereof, properly completed and duly executed,
with any required signature guarantees (or, in the case of a book-entry
transfer, an Agent's Message) and any other documents required by the
Letter of Transmittal are received by the Paying Agent within three Nasdaq
Stock Market ("Nasdaq") trading days after the date of execution of such
Notice of Guaranteed Delivery. Stockholders may not extend the foregoing
time period for delivery of Shares to the Paying Agent by providing a
second Notice of Guaranteed Delivery with respect to such Shares. A
"trading day" is any day on which Nasdaq is open for business.
The Notice of Guaranteed Delivery may be sent by hand delivery, telegram,
facsimile transmission or mail to the Paying Agent and must include a guarantee
by an Eligible Institution in the form set forth in the Notice of Guaranteed
Delivery.
Notwithstanding any other provision hereof, payment for Shares purchased
pursuant to the Offer will in all cases be made only after timely receipt by the
Paying Agent of certificates for the Shares or a timely Book-Entry Confirmation
of the delivery of such Shares, and a Letter of Transmittal (or manually signed
facsimile thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and any other documents required by the Letter of Transmittal.
Accordingly, payment might not be made to all tendering stockholders at the same
time, and will depend upon when certificates for the Shares or Book-Entry
Confirmations of the delivery of such Shares are received into the Paying
Agent's account at a Book-Entry Transfer Facility.
UNDER THE BACKUP FEDERAL INCOME TAX LAWS APPLICABLE TO CERTAIN STOCKHOLDERS
(OTHER THAN CERTAIN EXEMPT STOCKHOLDERS, INCLUDING, AMONG OTHERS, ALL
CORPORATIONS AND CERTAIN FOREIGN INDIVIDUALS), THE PAYING AGENT MAY BE REQUIRED
TO WITHHOLD 31% OF THE AMOUNT OF ANY PAYMENTS MADE TO SUCH STOCKHOLDERS PURSUANT
TO THE OFFER. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO
PAYMENT OF THE PURCHASE PRICE FOR SHARES PURCHASED PURSUANT TO THE OFFER, A
TENDERING STOCKHOLDER MUST PROVIDE THE PAYING AGENT WITH SUCH STOCKHOLDER'S
CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT
SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 9 TO THE LETTER
OF TRANSMITTAL.
5
<PAGE> 8
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for payment of any tendered Shares pursuant to any of
the procedures described above will be determined in the sole discretion of the
Purchaser, whose determination shall be final and binding. The Purchaser
reserves the absolute right to reject any or all tenders of any Shares
determined by it not to be in proper form if the acceptance for payment of, or
payment for, such Shares may, in the opinion of the Purchaser's counsel, be
unlawful. The Purchaser also reserves the absolute right, in its sole
discretion, subject to the Merger Agreement, to waive any of the conditions of
the Offer or any defect or irregularity in any tender with respect to Shares of
any particular stockholder, whether or not similar defects or irregularities are
waived in the case of other stockholders. The Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
Instructions thereto) will be final and binding. Neither the Purchaser,
Monterey, the Company, the Paying Agent, the Information Agent nor any other
person or entity will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification.
By executing a Letter of Transmittal or by causing the transmission of an
Agent's Message as set forth above, a tendering stockholder irrevocably appoints
designees of the Purchaser as the stockholder's attorneys-in-fact and proxies,
in the manner set forth in the Letter of Transmittal, each with full power of
substitution, to the full extent of the stockholder's rights with respect to the
Shares tendered by the stockholder and accepted for payment by the Purchaser
(and any and all other Shares or other securities issued or issuable in respect
of such Shares on or after the date of the Merger Agreement). All such powers of
attorney and proxies shall be considered to be coupled with an interest in the
tendered Shares. This appointment will be effective when, and only to the extent
that, the Purchaser accepts Shares for payment. Upon acceptance for payment, all
prior powers of attorney and proxies given by the stockholder with respect to
the Shares or other securities will, without further action, be revoked, and no
subsequent powers of attorney or proxies may be given nor any subsequent written
consent executed by such stockholder (and, if given or executed, will not be
deemed to be effective) with respect thereto. The designees of the Purchaser
will, with respect to the Shares and other securities, be empowered to exercise
all voting and other rights of such stockholder as they in their sole discretion
may deem proper at any annual, special or adjourned meeting of the Company's
stockholders, by written consent or otherwise. The Purchaser reserves the right
to require that, in order for Shares to be deemed validly tendered, immediately
upon the Purchaser's acceptance for payment of such Shares, the Purchaser must
be able to exercise full voting and other rights of a record and beneficial
holder, including rights in respect of acting by written consent, with respect
to such Shares.
A tender of Shares pursuant to any one of the procedures described above
will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer. The Purchaser's acceptance for payment for Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
SECTION 4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of Shares made
pursuant to the Offer are irrevocable. Shares tendered pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date and, unless theretofore
accepted for payment by the Purchaser pursuant to the Offer, may also be
withdrawn at any time after August 21, 1997 (or such later date as may apply in
case the Offer is extended).
For a withdrawal to be effective, a written, telegraphic, or facsimile
transmission notice of withdrawal must be timely received by the Paying Agent at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If certificates for Shares have been delivered or otherwise identified
to the Paying Agent, then, prior to the release of such certificates, the serial
numbers of the particular certificates evidencing the Shares to be withdrawn and
a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution, except in the case of Shares tendered for account of an Eligible
Institution, must also be furnished to the Paying Agent as described above. If
Shares have been tendered pursuant to the procedures for book-entry transfer as
set forth in Section 3, any notice of withdrawal must also
6
<PAGE> 9
specify the name and number of the account at the appropriate Book-Entry
Transfer Facility to be credited with the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. Neither the
Purchaser, Monterey, the Company, the Paying Agent, the Information Agent nor
any other person or entity will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any notification.
Any Shares properly withdrawn will be deemed to be not validly tendered for
purposes of the Offer. However, withdrawn Shares may be retendered by following
one of the procedures described in Section 3 at any time prior to the Expiration
Date.
SECTION 5. CERTAIN TAX CONSEQUENCES.
The following is a summary of certain United States federal income tax
consequences of the Offer and the Merger to beneficial owners of Shares whose
Shares are purchased pursuant to the Offer or whose Shares are converted to cash
in the Merger. The discussion is for general information only and does not
purport to consider all aspects of federal income taxation that might be
relevant to beneficial owners of Shares. The discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing and temporary regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject to change. The
discussion applies only to beneficial owners of Shares in whose hands Shares are
capital assets within the meaning of Section 1221 of the Code, and may not apply
to Shares received pursuant to the exercise of employee stock options or
otherwise as compensation, or to certain types of beneficial owners of Shares
(such as insurance companies, tax-exempt organizations and broker-dealers) who
may be subject to special rules. This discussion does not discuss the federal
income tax consequences to a beneficial owner of Shares who, for United States
federal income tax purposes, is a non-resident alien individual, a foreign
corporation, a foreign partnership or a foreign estate or trust, nor does it
consider the effect of any foreign, state or local tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH BENEFICIAL OWNER OF
SHARES SHOULD CONSULT SUCH BENEFICIAL OWNER'S OWN TAX ADVISOR TO DETERMINE THE
APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH BENEFICIAL OWNER AND THE
PARTICULAR TAX EFFECTS TO SUCH BENEFICIAL OWNER OF THE OFFER AND THE MERGER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
The receipt of cash for Shares pursuant to the Offer or the Merger will be
a taxable transaction for federal income tax purposes. In general, for federal
income tax purposes, a beneficial owner of Shares will recognize gain or loss
equal to the difference between the beneficial owner's adjusted tax basis in the
Shares sold pursuant to the Offer or converted to cash in the Merger and the
amount of cash received therefor. Gain or loss must be determined separately for
each block of Shares (i.e., Shares acquired at the same cost in a single
transaction) sold pursuant to the Offer or converted to cash in the Merger,
although, under proposed legislation not yet effective, gain or loss would be
determined based on the average tax basis of all Shares held by the beneficial
owner. Such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the beneficial owner held the Shares for more than one
year as of the date of sale (in the case of the Offer) or the Effective Time (in
the case of the Merger). Long-term capital gain of individuals currently is
taxed at a maximum rate of 28%. Legislation has been proposed which, if enacted,
would favorably affect the taxation of capital gains. It is uncertain whether,
in what form, and with what effective date any such legislation will be enacted.
However, the chairmen of the House Ways and Means Committee and the Senate
Finance Committee have stated their present intention that any capital gains
legislation will be effective with respect to transactions occurring on or after
May 7, 1997.
Payments in connection with the Offer or the Merger may be subject to
"backup withholding" at a rate of 31%, unless a beneficial owner of Shares (a)
is a corporation or comes within certain exempt categories and, when required,
demonstrates this fact or (b) provides a correct taxpayer identification number
to the payor, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable withholding rules. A beneficial owner who
does not provide a correct taxpayer identification number may be
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<PAGE> 10
subject to penalties imposed by the Internal Revenue Service. Any amount paid as
backup withholding does not constitute an additional tax and will be creditable
against the beneficial owner's federal income tax liability. Each beneficial
owner of Shares should consult with his or her own tax advisor as to his or her
qualification for exemption from backup withholding and the procedure for
obtaining such exemption. Those tendering their Shares in the Offer may prevent
backup withholding by completing the Substitute Form W-9 included in the Letter
of Transmittal. See Section 3. Similarly, those who convert their Shares into
cash in the Merger may prevent backup withholding by completing a Substitute
Form W-9 and submitting it to the Paying Agent.
Monterey and the Purchaser will be entitled to deduct and withhold from the
consideration otherwise payable pursuant to the Merger Agreement to any holder
of Shares such amounts as Monterey and the Purchaser is required to deduct and
withhold with respect to the making of such payment. To the extent that amounts
are so withheld by Monterey or the Purchaser, such withheld amounts shall be
treated for all purposes as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made by Monterey and the
Purchaser.
SECTION 6. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares are listed and principally traded in the United States on Nasdaq
under the symbol "MCFE". The following table sets forth, for the calendar
quarters indicated, the high and low sales price per Share on Nasdaq. The
Company has never paid cash dividends on its Common Stock and has stated that it
does not intend to pay cash dividends on its Common Stock in the foreseeable
future. The terms of the Company's present credit agreement restrict the payment
of cash dividends when there exists outstanding borrowing under the facility.
All prices set forth below are as reported in published financial sources:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter............................................. 8 57/8
Second Quarter............................................ 8 61/4
Third Quarter............................................. 71/2 63/4
Fourth Quarter............................................ 81/4 61/4
1996
First Quarter............................................. 83/4 71/4
Second Quarter............................................ 103/8 731/32
Third Quarter............................................. 101/2 9
Fourth Quarter............................................ 121/2 10
1997
First Quarter............................................. 13 111/8
Second Quarter (through June 20, 1997).................... 183/8 1125/64
</TABLE>
On June 16, 1997, the last full trading day prior to the announcement of
the Merger Agreement, the reported closing sales price per Share on Nasdaq was
16 5/8. On June 20, 1997, the last full trading day prior to the commencement of
the Offer, the reported closing sales price per Share on Nasdaq was 18 3/8.
Stockholders are urged to obtain a current market quotation for the Shares.
SECTION 7. CERTAIN INFORMATION CONCERNING THE COMPANY.
General. The Company was founded in 1972 as a California corporation and
reincorporated in Delaware in 1987. Its principal executive offices are located
at 10425 South Painter Avenue, Santa Fe Springs, California 90670. According to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (the "Company 10-K"), the Company is principally engaged in the production
and sale of crude oil and natural gas, oil and gas exploration and development,
and proven oil and gas property acquisition and development, all within the
continental United States.
8
<PAGE> 11
Selected Consolidated Financial Data. The following selected consolidated
financial data relating to the Company have been taken or derived from the
audited financial statements contained in the Company 10-K. More comprehensive
financial information (including the notes to the Company's financial
statements) is included in such Company 10-K and other documents filed by the
Company with the SEC, and the financial data set forth below are qualified in
their entirety by reference to such reports and other documents, including the
financial statements (and notes thereto) contained therein. Such reports and
other documents may be examined and copies may be obtained from the offices of
the SEC in the manner set forth below.
SELECTED CONSOLIDATED FINANCIAL DATA FOR MCFARLAND ENERGY, INC.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------
1996 1995(1) 1994 1993(2) 1992
------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating Results
Net operating revenues..................... $25,721 $19,883 $16,270 $12,862 $15,283
Income (loss) from continuing operations
before accounting change................ 7,126 13,641 1,508 (1,566) 925
Per share -- primary.................... 1.26 2.61 0.29 (0.30) 0.18
Per share -- fully diluted.............. 1.26 2.41 0.29 (0.30) 0.18
Net income (loss).......................... 7,126 13,641 1,508 (1,116) 925
Per share -- primary.................... 1.26 2.61 0.29 (0.21) 0.18
Per share -- fully diluted.............. 1.26 2.41 0.29 (0.21) 0.18
Financial Position
Working capital............................ $ 8,758 $ 4,793 $ 2,792 $ 2,902 $ 3,678
Total assets............................... 50,859 47,693 43,545 23,016 25,117
Convertible notes(3)....................... -- 2,600 2,600 2,600 2,592
Production payment notes................... 2,558 3,139 3,481 -- --
Long-term debt............................. -- -- 12,650 -- --
</TABLE>
- ---------------
(1) In January 1995, the Company recorded a litigation settlement of
$17,158,000, net of legal fees and other related costs.
(2) Net loss reflects the $450,000 ($0.09 per share) benefit of the cumulative
effect of the change in accounting for income taxes which resulted from the
Company's adoption of Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes."
(3) In January 1996, the Company elected to convert the convertible note into
400,000 Shares.
The Company is subject to the information and filing requirements of the
Exchange Act and is required to file periodic reports, proxy statements and
other information with the SEC relating to its business, financial condition and
other matters. Information, as of particular dates, concerning the Company's
directors and officers, their remuneration, options granted to them, the
principal holders of the Company's securities and any material interest of such
persons in transactions with the Company is required to be described in proxy
statements distributed to the Company's stockholders and filed with the SEC.
These reports, proxy statements and other information should be available for
inspection and copying at the SEC's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these
materials may also be obtained by mail, upon payment of the SEC's customary
fees, from the SEC's principal office at 450 Fifth Street, N.W., Washington,
D.C. 20549. The SEC also maintains a World Wide Web Site on the Internet at
http://www.sec.gov that contains reports, proxy statements and other information
filed electronically by the Company with the SEC. Such material should also be
available for inspection at the offices of Nasdaq, Corporate Financing
Department, 9513 Key West Avenue, Rockville, MD 20850.
9
<PAGE> 12
Other than as set forth below, the information concerning the Company
contained in this section has been taken from or based upon publicly available
documents on file with the SEC and other publicly available information.
Although neither the Purchaser nor Monterey has any knowledge that would
indicate that statements contained herein based upon such documents are untrue,
neither the Purchaser nor Monterey takes any responsibility for the accuracy or
completeness of the information contained in such documents or for any failure
by the Company to disclose events that may have occurred and may affect the
significance or accuracy of any such information but which are unknown to either
the Purchaser or Monterey.
In March 1997, Monterey and the Company began to engage in preliminary
discussions concerning a possible transaction involving the acquisition of the
Company by Monterey. Monterey conducted a financial due diligence investigation,
and the Company and its representatives discussed with Monterey and its
representatives certain matters regarding the business and financial condition
of the Company. See "Background of the Offer; Past Contacts; Transactions or
Negotiations with the Company." The Company provided Monterey with the budget of
the Company for the 1997 fiscal year. The budget is not publicly available, was
prepared for internal purposes only, and certain portions thereof are being
included in this Offer to Purchase solely because it was furnished to Monterey.
The budget necessarily reflects numerous assumptions with respect to the oil and
gas exploration and production business, general business and economic
conditions and other matters, many of which are inherently uncertain or beyond
the Company's control, and does not take into account any change in ownership of
the Company or any changes to Company operations or capital structure which may
result therefrom. Among the assumptions reflected in the budget are: (i) the
average price for crude oil is $20.00 per barrel of West Texas Intermediate and
(ii) the average price for natural gas delivered at the Henry Hub in Louisiana
is $2.10 per Mcf. It is not possible to predict whether the assumptions made in
preparing the budget will be valid and actual results may prove to be materially
higher or lower than those contained therein. The inclusion of this information
should not be regarded as an indication that Monterey, the Purchaser, the
Company, or anyone who received this information considered it a reliable
predictor of future events, and this information should not be relied on as
such. Neither Monterey, the Purchaser nor the Company assumes any responsibility
for the validity, reasonableness, accuracy or completeness of the budget.
Neither Monterey, the Purchaser nor the Company has made, or makes, any
representation to any person regarding the information contained in the budget
and none of them intends to update or otherwise revise the projections to
reflect circumstances existing after the date when made or to reflect the
occurrence of future events even in the event that any or all of the assumptions
underlying the budget are shown to be in error.
Set forth below is a summary of selected income statement and cash flow
information contained in the Company's budget and provided to Monterey as
described above.
<TABLE>
<CAPTION>
FOR THE YEAR ENDING
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Net revenues................................................ $26,988
Costs and expenses.......................................... 17,864
Pretax income from operations............................... 9,124
Net income.................................................. 6,067
Net cash flow before expenditures........................... 14,456
</TABLE>
SECTION 8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND MONTEREY.
The Purchaser is a newly incorporated Delaware corporation and a wholly
owned subsidiary of Monterey which to date has not conducted any business other
than that incident to its formation, the execution and delivery of the Merger
Agreement and the commencement of the Offer. Accordingly, no meaningful
financial information with respect to the Purchaser is available. The principal
executive offices of Monterey and the Purchaser are located at 5201 Truxtun
Avenue, Bakersfield, California 93309. Monterey, which is a Delaware
corporation, is an independent oil and gas company engaged in the production,
development and acquisition of
10
<PAGE> 13
oil and natural gas in the State of California. Monterey was formed in 1996 to
own the properties and conduct the business of the Western Division of Santa Fe
Energy Resources, Inc. At December 31, 1996, Santa Fe Energy Resources, Inc.
("Santa Fe") owned 82.8% of Monterey's outstanding common stock. Monterey's
stock is listed on the New York Stock Exchange and trades under the symbol
"MRC."
The name, citizenship, business address, present principal occupation or
employment and five-year employment history of each of the directors and
executive officers of the Purchaser, Monterey and Santa Fe are set forth in
Schedule I hereto.
Monterey is subject to the informational filing requirements of the
Exchange Act and is required to file reports and other information with the SEC
relating to its business, financial condition and other matters. Reports and
other information may be inspected and copies may be obtained from the offices
of the SEC in the same manner as set forth with respect to information
concerning the Company in Section 7.
Except as provided in the Merger Agreement, and as otherwise described in
this Offer to Purchase, neither Monterey nor the Purchaser, nor to the best
knowledge of Monterey and the Purchaser, any of the persons listed on Schedule I
hereto, has any contract, arrangement, understanding, or relationship with any
other person with respect to any securities of the Company, including, but not
limited to, any contract, arrangement, understanding or relationship concerning
the transfer or the voting of any securities of the Company, joint ventures,
loan or option arrangements, puts or calls, guarantees of loans, guarantees
against loss of the giving or withholding of proxies. Except as set forth in
this Offer to Purchase, neither Monterey nor the Purchaser, nor, to the best of
their knowledge, any of the persons listed on Schedule I hereto, has had, since
January 1, 1994, any business relationships or transactions with the Company or
any of its executive officers, directors, or affiliates that would require
reporting under the rules of the SEC applicable to this Offer to Purchase.
Except as set forth in this Offer to Purchase, since January 1, 1994, there have
been no contacts, negotiations or transactions between the Purchaser, Monterey
or any of its subsidiaries or, to the best knowledge of Monterey and the
Purchaser, any of the persons listed on Schedule I hereto, and the Company or
its affiliates, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, election of directors or a sale or other
transfer of a material amount of assets. Except as set forth in this Offer to
Purchase, neither Monterey nor the Purchaser, nor, to the best knowledge of
Monterey or the Purchaser, any of the persons listed on Schedule I hereto,
beneficially owns any Shares or has effected any transactions in the Shares in
the past 60 days.
SECTION 9. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required by the Purchaser to purchase all
outstanding Shares is estimated to be approximately $111.2 million. The funds
necessary to purchase Shares pursuant to the Offer and to pay related fees and
expenses will be furnished to the Purchaser (i) by Monterey as a capital
contribution and (ii) through the financings described below.
Monterey, The Chase Manhattan Bank ("Chase"), as the administrative agent
and as lender, and four other lenders are currently parties to a five-year
revolving credit facility, entered into in November 1996, providing for
aggregate extensions of credit thereunder to Monterey of $75 million (the
"Existing Facility"). Chase and Monterey propose to restructure the Existing
Facility to increase to $200 million the aggregate principal amount of financing
initially available to Monterey, to extend the maturity date to a date five
years following closing, and to effect certain other modifications of the
Existing Facility (the "Amended Facility"). Although Chase proposes to syndicate
all or a portion of the Amended Facility to other lenders, it has advised
Monterey of its willingness, subject to customary conditions, to underwrite the
entire amount thereof.
Loans under the Amended Facility will bear interest, at Monterey's
election, at rates based upon Chase's prime rate or the federal funds effective
rate, or on the applicable LIBOR rate for interest periods of one, two, three or
six months. As does the Existing Facility, the Amended Facility will make
provision for issuance of letters of credit, with an availability sublimit of
$50 million. Overall availability of credit under the Amended Facility from time
to time will be a function of the Available Borrowing Base (initially to be
defined as $200 million). The Available Borrowing Base will be redetermined by
Chase from time to time as a function of the total amount of indebtedness that
can be supported by the proved oil and gas reserves of Monterey and
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its restricted subsidiaries, based upon periodic independent engineering
reports, minus their Other Liabilities. Such Other Liabilities will be defined
as liabilities in respect of certain outstanding indebtedness (which would
include, without limitation, for so long as the same shall remain outstanding,
Monterey's 10.61% Senior Notes due March 31, 2005, originally issued and
currently outstanding in the aggregate principal amount of $175 million), and
letter of credit obligations, in each case incurred outside of the Amended
Facility. The documentation relating to the Amended Facility is expected to
contain representations and warranties, affirmative and negative covenants
(including requirements to maintain certain financial ratios and limitations
upon debt incurrence, liens, asset sales, restricted payments and investments,
affiliate transactions, mergers, sale and leaseback transactions and certain
activities of restricted subsidiaries) binding upon Monterey and its restricted
subsidiaries, and events of default, similar to those contained in the Existing
Facility.
SECTION 10. BACKGROUND OF THE OFFER, PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
WITH THE COMPANY.
In late February, 1997 Monterey, through Petrie Parkman & Co., Inc.
("Petrie Parkman"), Monterey's financial advisor, contacted the Company to
explore the Company's desire to be acquired by Monterey. The initial contact was
followed up with a meeting in mid-March, 1997 between Monterey and the Company.
In early April, 1997, the Company advised Monterey that it would engage
Oppenheimer to provide advisory services, and invited Monterey to submit an
offer in writing, including an estimated value for the Company in a cash for
stock transaction. On April 8, 1997, Monterey submitted such an expression of
interest.
In mid-April, 1997, the Company advised Monterey that it would make
additional information available to Monterey subject to the execution by
Monterey of a confidentiality agreement. A confidentiality agreement between the
Company and Monterey was entered into on April 29, 1997, and Monterey
subsequently received additional information about the Company, which Monterey
reviewed with its representatives, including Petrie Parkman.
On May 6, 1997, Oppenheimer advised Monterey that it was soliciting
informal expressions of interest from potential acquirors of the Company. On May
14, 1997, Monterey submitted an expression of interest in response to the
Oppenheimer solicitation. On May 23, 1997, Oppenheimer advised Monterey that
final offers for an acquisition of all shares of the Company should be submitted
by June 9, 1997. On June 9, 1997, Monterey submitted its proposal and on June
11, 1997, the Company advised Monterey that the Company would like to enter into
negotiations to determine whether or not a transaction acceptable to Monterey
and the Company could be structured. During the period immediately following
such proposal, representatives of Monterey and the Company engaged in extensive
negotiations relating to the terms of the Merger Agreement.
On June 16, 1997, following approval by their respective Boards of
Directors, the Company, Monterey and the Purchaser entered into the Merger
Agreement. A summary of the terms of the Merger Agreement is set forth in
Section 11. A copy of the Merger Agreement has been filed as an Exhibit to the
Schedule 14D-1 filed by Monterey and the Purchaser with the SEC and is available
for inspection and copy at the principal office of the SEC in the manner set
forth in Section 7.
On June 23, 1997, the Purchaser commenced the Offer.
SECTION 11. PURPOSE OF THE OFFER; THE MERGER; MERGER AGREEMENT; PLANS FOR THE
COMPANY.
The purpose of the Offer, the Merger and the Merger Agreement is for
Monterey to acquire control of, and the entire equity interest in, the Company.
The Offer and the Merger Agreement are intended to increase the likelihood that
the Merger will be effected as promptly as practicable.
The Merger Agreement. The following summary of the Merger Agreement, a copy
of which is filed as an exhibit to the Schedule 14D-1, is qualified by reference
to the Merger Agreement.
The Offer. The Merger Agreement provides for the making of the Offer. The
obligation of the Purchaser to accept for payment or pay for Shares tendered
pursuant to the Offer is subject to the satisfaction of the Minimum Condition
and certain other conditions that are set forth in Section 14 hereof. The
Purchaser has reserved the right to waive any conditions of the Offer or to
modify any of the terms and conditions of the Offer except that, without the
consent of the Company, the Purchaser may not (i) decrease the price per
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<PAGE> 15
Share, (ii) reduce the maximum number of Shares to be purchased in the Offer,
(iii) impose conditions to the Offer in addition to those set forth the Merger
Agreement, (iv) amend or change the terms and conditions of the Offer in any
manner materially adverse to the holders of Shares (other than Monterey and its
subsidiaries) or (v) change or waive the Minimum Condition.
Recommendation. The Board of Directors of the Company, based in part upon
the opinion of Oppenheimer that the proposed 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 determined that the Offer
and the Merger are fair to and in the best interests of the Company and its
stockholders, approved the Merger Agreement and the transactions contemplated
thereby, and recommended that holders of Shares accept the Offer and tender
their Shares pursuant to the Offer. The Merger Agreement provides that if the
Board of Directors of the Company determines that it will not recommend
acceptance of the Offer and approval of the Merger by the Company's stockholders
(or if such recommendation is withdrawn) based upon the advice of legal counsel
that such action is necessary for the Board of Directors to comply with its
fiduciary duties to stockholders under applicable law, such non-recommendation
or withdrawal of the recommendation shall not constitute a breach of the Merger
Agreement but will entitle the Purchaser to receive a termination fee under
certain circumstances. See "Termination."
Board Representation. The Merger Agreement provides that, upon the
Purchaser's acquisition of a majority of the outstanding Shares pursuant to the
Offer, and from time to time thereafter so long as Monterey and/or any of its
direct or indirect wholly owned subsidiaries (including the Purchaser) owns a
majority of the outstanding Shares, the Purchaser shall be entitled to designate
up to such number of directors, rounded up to the next whole number, on the
Board of Directors as shall give the Purchaser representation on the Board of
Directors equal to the product of the total number of directors on the Board of
Directors (giving effect to the directors elected as described in this sentence)
multiplied by the percentage that the aggregate number of Shares beneficially
owned by the Purchaser or any affiliate of the Purchaser at such time bears to
the total number of Shares then outstanding, and the Company shall, at such
time, promptly take all actions necessary to cause 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.
At such times, the Company shall use its best efforts to cause persons
designated by the Purchaser to constitute the same percentage as persons
designated by the Purchaser shall constitute of the Board of Directors of (i)
each committee of the Board of Directors (some of whom may be required to be
independent as required by applicable law or rules of Nasdaq), (ii) each board
of directors of each domestic subsidiary and (iii) each committee of each such
board, in each case only to the extent permitted by applicable law, subject to
Section 14(f) of the Exchange Act; provided, that, until the time the Purchaser
acquires a majority of the then outstanding Shares on a Fully Diluted Basis, the
Company shall use its best efforts to ensure that all the members of its Board
of Directors and each committee of its Board of Directors and such boards and
committees of domestic subsidiaries as of the date hereof who are not employees
of the Company shall remain members of its Board of Directors and of such boards
and committees.
The Merger. The Merger Agreement provides that, unless the Merger Agreement
is terminated or abandoned (see "Termination" below), at the Effective Time, the
Purchaser will be merged with and into the Company, whereupon the separate
corporate existence of the Purchaser will cease and the Company will be the
surviving corporation in the Merger (the "Surviving Corporation"). The Merger
Agreement further provides that (i) subject to certain requirements in the
Merger Agreement, the Certificate of Incorporation and the By-Laws of the
Purchaser as in effect at the Effective Time shall be the Certificate of
Incorporation and the By-Laws of the Surviving Corporation, (ii) the directors
of the Purchaser immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, and (iii) the officers of the Company
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation.
Consideration to be Paid in the Merger. The Merger Agreement provides that
each Share outstanding immediately prior to the Effective Time (other than
Shares held in the treasury of the Company, Shares owned by Monterey, the
Purchaser, any other direct or indirect wholly owned subsidiary of Monterey, or
of the Company, and other than Dissenting Shares (as defined below under
"Dissenters' Rights")) shall, at the Effective Time, be canceled and converted
automatically into a right to receive in cash an amount per Share
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equal to the highest price per Share paid by the Purchaser pursuant to the
Offer, without interest, upon the surrender of the certificate formerly
representing such Share and each Share held in the treasury of the Company, and
each Share held by Monterey, the Purchaser or any direct or indirect subsidiary
of Monterey, or of the Company, immediately prior to the Effective Time shall,
at the Effective Time, be canceled without any conversion thereof and no payment
or distribution will be made with respect thereto. Each share of common stock of
the Purchaser, par value $.01 per share, issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock, par value
$1.00 per share, of the Surviving Corporation.
Company Options. The Merger Agreement provides that prior to the date on
which the Purchaser shall have accepted for payment all Shares validly tendered
and not withdrawn prior to the Expiration Date (the "Tender Offer Acceptance
Date"), the Company shall enter into an agreement with each holder of an
employee or director stock option to purchase Shares (in each case, an "Option")
that provides that, immediately prior to the Effective Time, each Option that is
then outstanding, whether or not then exercisable or vested, shall be canceled
by the Company, and each holder of a canceled Option shall be entitled to
receive from the Purchaser at the time of such cancelation, an amount in cash
equal to the product of (i) the number of Shares previously subject to such
Option, whether or not then exercisable or vested, and (ii) the excess, if any,
of the amount per Share paid pursuant to the Offer over the exercise price per
Share applicable to such Option, reduced by any applicable withholding.
Stockholders' Meeting. In the Merger Agreement, the Company agreed to take
all action necessary in accordance with applicable law and its Certificate of
Incorporation and By-Laws to duly call, give notice of, convene and hold a
meeting of its stockholders as soon as practicable following the consummation of
the Offer to consider and vote upon the adoption of the Merger Agreement, if
such stockholder approval is required by applicable law. To the extent permitted
by law, Monterey and the Purchaser each agreed to vote all Shares beneficially
owned by them in favor of the Merger. Subject to its fiduciary duties under
applicable law, the Board of Directors of the Company will recommend that the
Company's stockholders approve adoption of the Merger Agreement, if such
stockholder approval is required.
Dissenters' Rights. Holders of Shares will not have appraisal rights as a
result of the Offer. If the Merger is consummated, however, persons who hold
Shares at the time would have the right to appraisal of their Shares in
accordance with Section 262 of the Delaware General Corporation Law. Such
appraisal rights, if the statutory procedures are complied with, would result in
a judicial determination of the "fair value" of the Shares (excluding any
element of value arising from the accomplishment or expectation of the Merger)
owned by such holders. In addition, such dissenting stockholders may be entitled
to receive payment of a fair rate of interest from the date of consummation of
the Merger on the amount determined to be the fair value of their Shares. Any
such judicial determination of the fair value of the Shares could be based upon
considerations other than or in addition to the price paid in the Offer and the
Merger and the market value of the Shares, including asset values, the
investment value of the Shares and any other valuation considerations generally
accepted in the investment community. The value so determined for Shares could
be more or less than the value of the consideration per Share to be paid
pursuant to the Offer or the Merger and payment of such consideration would take
place subsequent to payment pursuant to the Offer.
In addition, several decisions by the Delaware courts have held that a
controlling stockholder of a corporation involved in a merger has a fiduciary
duty to the other stockholders which requires that the merger be fair to such
other stockholders. In determining whether a merger is fair to minority
stockholders, the Delaware courts have considered, among other things, the type
and amount of consideration to be received by the stockholders and whether there
was fair dealing among the parties. In Weinberger v. UOP, Inc., the Delaware
Supreme Court stated, among other things, that although the remedy ordinarily
available in a merger that is found not to be "fair" to minority stockholders is
the right to appraisal described above, such appraisal remedy may not be
adequate "in certain cases, particularly where fraud, misrepresentation, self-
dealing, deliberate waste of corporate assets, or gross and palpable
overreaching are involved," and that in such cases the Delaware Chancery Court
would be free to fashion any form of appropriate relief.
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If the Purchaser purchases Shares pursuant to the Offer, and the Merger or
another merger or other business combination is consummated more than one year
after the completion of the Offer, or if such a merger or other business
combination were to provide for the payment of consideration less than that paid
pursuant to the Offer, compliance by the Purchaser with Rule 13e-3 under the
Exchange Act would be required, unless the Shares were to be deregistered under
the Exchange Act prior to such transaction. See Section 12. Rule 13e-3 would
require, among other things, that certain financial information concerning the
Company and certain information relating to the fairness of the proposed
transaction and the consideration offered to minority stockholders therein be
filed with the SEC and disclosed to minority stockholders prior to consummation
of the transaction.
Representations and Warranties. The Merger Agreement contains
representations and warranties by the Company, relating to, among other things,
(i) the organization of the Company and its subsidiaries and other corporate
matters, (ii) the capital structure of the Company, (iii) the authorization,
execution, delivery and consummation of the transactions contemplated by the
Merger Agreement, (iv) consents and approvals, (v) documents filed by the
Company with the SEC and the accuracy of the information contained therein, (vi)
the absence of certain changes and events, (vii) the accuracy of the information
contained in documents filed with the SEC in connection with the Offer and the
Merger, (viii) litigation, (ix) tax, insurance, and labor matters, and (x)
matters relating to Title IV of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder. In
addition, the Merger Agreement contains representations and warranties by
Monterey and the Purchaser related to, among other things, (i) the organization
of Monterey and the Purchaser and other corporate matters, (ii) the
authorization, execution, delivery and consummation of the transactions
contemplated by the Merger Agreement, including, without limitation, each of the
Offer and the Merger (the "Transactions"), (iii) consents and approvals, (iv)
the existence of written commitments with respect to financing the Transactions,
and (v) the accuracy of the information contained in documents filed with the
SEC in connection with the Offer and the Merger.
Agreements with Respect to the Conduct of Business Pending the Merger. The
Merger Agreement provides that, between the date of the Merger Agreement and the
election or appointment of the Purchaser's designees to the Board of Directors
upon the purchase by the Purchaser of any Shares pursuant to the Offer (the
"Purchaser's Election Date"), unless Monterey shall otherwise agree in writing,
the businesses of the Company and its subsidiaries shall be conducted only in,
and the Company and its subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice; and
the Company shall use its reasonable best efforts to preserve substantially
intact the business organization of the Company and its subsidiaries, to keep
available the services of the current officers, employees and consultants of the
Company and its subsidiaries and to preserve the goodwill of those current
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any subsidiary has significant business
relations. By way of amplification and not limitation, except as contemplated by
the Merger Agreement, the Company will not, between the date of the Merger
Agreement and the Purchaser's Election Date, directly or indirectly do, or
propose to do, any of the following without the prior written consent of
Monterey:
(a) amend or otherwise change the certificate of incorporation or
bylaws or equivalent organizational documents of the Company or its
subsidiaries;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, (i) any
shares of capital stock of any class of the Company or any subsidiary, or
any options, warrants, convertible securities or other rights of any kind
to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the
Company or any subsidiary (except for the issuance of Shares issuable
pursuant to Options outstanding on the date of the Merger Agreement) or
(ii) any assets of the Company or any subsidiary, except for sales of
products in the ordinary course of business and in a manner consistent with
past practice;
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(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock (except for such declarations, set asides,
dividends and other distributions made from any subsidiary to the Company);
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of assets other than in the ordinary course of business;
(ii) incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or
advances or capital contribution to, or investments in, any other person
(other than such of the foregoing as are made by the Company to or in a
wholly-owned subsidiary of the Company), except in the ordinary course of
business and consistent with past practice; or (iii) enter into or amend
any contract, agreement, commitment or arrangement with respect to any
matter referred to in this paragraph;
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any
subsidiary who are not officers of the Company or any subsidiary, or grant
any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of the
Company or any subsidiary, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, officer or employee;
(g) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(h) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or
reserved against in the Company's December 31, 1996 balance sheet or
subsequently incurred in the ordinary course of business and consistent
with past practice;
(i) settle or compromise any pending or threatened suit, action or
claim which is material or which relates to any of the Transactions;
(j) undertake any capital commitment not reflected in the Company's
budget in an individual amount greater than $100,000 or, when aggregated
with all other capital commitment not reflected in the Company's budget, in
an aggregate amount greater than $1,000,000; or
(k) take or offer or propose to take, or agree to take in writing, or
otherwise, any of the actions described in paragraphs (a) through (j) above
or any action which would result in any of the conditions to the Offer not
being satisfied (other than as contemplated by the Merger Agreement).
No Solicitation. The Merger Agreement provides that until the Merger
Agreement has been terminated in accordance with its terms, neither the Company
nor any subsidiary shall, directly or indirectly, through any officer, director
or agent or any investment banker, financial advisor, attorney, accountant or
other representative retained by the Company or any subsidiary or otherwise,
solicit, initiate or encourage, or take any other action to facilitate any
inquiries regarding the submission of any proposal or offer from any person
relating to any acquisition or purchase of all or (other than in the ordinary
course of business) any substantial portion of the assets of, or any equity
interest in, the Company or any business combination with the Company
(including, without limitation, any take-over bid or tender offer or exchange
offer, merger, consolidation, or similar transaction involving the Company or
any of its subsidiaries (other than the transactions contemplated by the Merger
Agreement) (any of such transactions being an "Acquisition Transaction") or any
business combination with the Company or, except to the extent required by
fiduciary obligations under applicable law
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as advised by independent counsel, participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that nothing referred to herein shall prohibit the Board of
Directors of the Company from furnishing information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
(from the date of the Merger Agreement) proposal in writing by such person to
acquire the Company pursuant to a merger, consolidation, share exchange,
business combination or other similar transaction or to acquire all or
substantially all of the assets of the Company or any of its subsidiaries, if,
and only to the extent that, (i) the Board of Directors of the Company, after
consultation with independent counsel (which may include its regularly engaged
independent counsel), determines in good faith that such action is required for
the Board of Directors to act in a manner that is consistent with its fiduciary
duties to stockholders imposed by Delaware Law (such determination having been
made by the full Board and not having been delegated to any committee thereof)
and (ii) prior to furnishing such information to, or entering into discussions
or negotiations with, such person the Company obtains from such person an
executed confidentiality agreement on terms no less favorable to the Company
than those contained in the confidentiality agreement entered into between the
Company and Monterey on April 29, 1997. The Company immediately shall cease and
cause to be terminated all existing discussions or negotiations with any parties
conducted prior to, or on the date of the execution of the Merger Agreement with
respect to any of the foregoing. The Company is required to notify Monterey
promptly if any such proposal or offer, or any inquiry or contact with any
person with respect thereto, is made after the execution of the Merger
Agreement. The Company agrees not to release any third party from, or waive any
provision of, any confidentiality or, subject to the fiduciary duties of its
Board of Directors, standstill agreement to which the Company is or may become a
party.
Indemnification of Directors.
(a) The Purchaser and Monterey agreed in the Merger Agreement that the
certificate of incorporation of the Surviving Corporation and each of its
subsidiaries will contain provisions no less favorable with respect to
limitation of liability than are set forth in Article VII of the Restated
Certificate and Article V of the By-Laws of the Company as of the date of the
Merger Agreement, which provisions will not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would affect adversely the rights thereunder of individuals who at any time from
and after the date of the Merger Agreement and to and including the Effective
Time were directors, officers, employees, fiduciaries or agents of the Company
or any of its subsidiaries in respect of actions or omissions occurring at or
prior to the Effective time (including, without limitation, the matters
contemplated by the Merger Agreement), unless such modification is required by
law. From and after the Purchaser's Election Date, the Company has agreed not to
amend, repeal or otherwise modify the limitation or advancement of expenses
provisions in the Restated Certificate of any of the Company's subsidiaries in
any manner that would adversely affect the rights thereunder of individuals who
at any time from and after the date of the Merger Agreement and to and including
the Effective Time were directors, officers, employees, fiduciaries or agents of
the Company or any of its subsidiaries in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
matters contemplated by the Merger Agreement), unless such modification is
required by law.
(b) Pursuant to the Merger Agreement, Monterey has agreed for a period of
six years after the Effective Time, to cause the Surviving Corporation to
indemnify, defend and hold harmless the present and former officers, directors,
employees and agents of the Company and its subsidiaries (an "Indemnified
Party") against all costs and expenses (including attorneys' fees), judgments,
fines, losses, claims, damages or liabilities and settlement amounts paid in
connection with any threatened or actual claim, action, suit, proceeding or
investigation (whether arising or asserted or claimed before, on or after the
Effective Time) ("Claim") to the full extent provided under Delaware law, the
Certificate of Incorporation and By-Laws of the Company in effect at the date of
the Merger Agreement (and shall pay any expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted under Delaware Law, upon receipt from the Indemnified
Party to whom expenses are advanced of any undertaking to repay such advances
required under Delaware Law). In the event of any such claim, action, suit,
proceeding or investigation, (i) the Indemnified Parties may retain counsel
(including local counsel)
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satisfactory to them and the Company or the Surviving Corporation, as the case
may be, shall pay the reasonable fees and expenses of such counsel, promptly
after statements therefor are received and (ii) the Company and the Surviving
Corporation shall use all reasonable efforts in the vigorous defense of any such
matter; provided, however, that neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld); and provided further
that neither the Company nor the Surviving Corporation shall be obligated
pursuant to the provision referred to herein to pay the fees and expenses of
more than one counsel (plus appropriate local counsel) for all Indemnified
Parties in any single action unless there is, as determined by counsel to the
Indemnified Parties, under applicable standards of professional conduct, a
conflict or a reasonable likelihood of a conflict on any significant issue
between the positions of any two or more Indemnified Parties, in which case such
additional counsel (including local counsel) as may be required to avoid any
such conflict or likely conflict may be retained by the Indemnified Parties at
the expense of the Company or the Surviving Corporation; and provided further
that, in the event that any claim for indemnification is asserted or made within
such six-year period, all rights to indemnification in respect of such claim
shall continue until the disposition of such claim.
(c) The Company has agreed that it will, from and after the date of the
Merger Agreement and to and including the Effective Time, and the Surviving
Corporation shall, for six years from the Effective Time, maintain in effect the
current directors' and officers' liability insurance policies maintained by the
Company (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous to such officers and directors so long
as substitution does not result in gaps or lapses in coverage) with respect to
matters occurring prior to the Effective Time.
(d) Except as otherwise provided in the Merger Agreement and only to the
extent permitted by applicable law and public policy, the Surviving Corporation,
Monterey and the Purchaser have agreed to release and discharge each Indemnified
Party from, and covenant not to sue any Indemnified Party with regard to, any
Claim, whether civil, criminal, administrative or investigative, arising out of
or pertaining to any action or omission in their capacity as an officer,
director, employee, fiduciary or agent (including, without limitation, any Claim
arising out of the Merger Agreement or any of the transactions contemplated
thereby or the operations of the Company or the condition of the assets of the
Company). Such release and covenant not to sue include Claims resulting in any
way from the negligence or strict liability of any Indemnified Party, whether
the negligence or strict liability is active, passive, joint, concurrent, or
sole.
(e) In the event the Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, the Merger
Agreement provides that proper provision shall be made so that the successors
and assigns of the Company or the Surviving Corporation, as the case may be, or
at Monterey's option, Monterey will assume the obligations referred to in this
paragraph.
(f) Pursuant to the Merger Agreement, the By-laws of the Surviving
Corporation and each of its subsidiaries will contain the provisions with
respect to indemnification, defense and advancement of expenses set forth in the
By-laws of the Company on the date of the Merger Agreement, and such provisions
will not be amended, repealed or otherwise modified for a period of six years
after the Effective Time in any manner that would affect adversely the rights
thereunder of individuals who at any time from and after the date of the Merger
Agreement and to and including the Effective Time were directors, officers,
employees, fiduciaries or agents of the Company or any of its subsidiaries in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by the Merger
Agreement), unless such modification is required by law or is desired to conform
such provisions with comparable provisions in the By-laws of Monterey, which
By-law provisions shall be at least as favorable to such individuals as the
provisions contained in the By-laws of Monterey on the date of the Merger
Agreement. From and after the Purchaser's Election Date, the Company will not
amend, repeal or otherwise modify the indemnification, defense and advancement
of expenses provisions of the By-laws of the Company or the indemnification,
defense and advancement of expenses provisions in the By-laws of any of the
Company's
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subsidiaries in any manner that would adversely affect the rights thereunder of
individuals who at any time from and after the date of the Merger Agreement and
to and including the Effective Time were directors, officers, employees,
fiduciaries or agents of the Company or any of its subsidiaries in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the matters contemplated by the Merger Agreement), unless
such modification is required by law or is desired to conform such provisions
with comparable provisions in the By-laws of Monterey, which By-law provisions
shall be at least as favorable to such individuals as the provisions contained
in the By-laws of Monterey on the date of the Merger Agreement.
(g) The obligations of the Company or the Surviving Corporation referred to
in the Merger Agreement will not be terminated or modified in such a manner as
to adversely affect any director, officer, employee, fiduciary and agent to whom
the foregoing provisions apply without the consent of each elected director,
officer, employee, fiduciary and agent (it being expressly agreed that the
directors, officers, employees, fiduciaries and agents to whom the foregoing
provisions apply shall be third-party beneficiaries of such provisions).
(h) In the event that the Company or the Surviving Corporation should fail,
at any time from and after the Purchaser's Election Date, to comply with any of
the foregoing obligations referred to in the Merger Agreement, for any reason,
Monterey will be responsible therefor and will perform such obligations
unconditionally without regard to any defense or other basis for nonperformance
which the Company or the Surviving Corporation may have or claim (except as
would be prohibited by applicable Delaware Law), it being the intention of the
parties to the Merger Agreement that the officers, directors, employees,
fiduciaries and agents of the Company and its subsidiaries shall be fully
indemnified and that the provisions of the Merger Agreement referred to above be
a primary obligation of Monterey and not merely a guarantee by Monterey of the
obligations of the Company or the Purchaser.
Monterey's Undertaking. Pursuant to the Merger Agreement, Monterey agreed
to take all action necessary to cause the Purchaser to perform all of the
Purchaser's, and the Surviving Corporation to perform all of the Surviving
Corporation's, agreements, covenants, and obligations under the Merger Agreement
and to consummate the Offer and the Merger on the terms set forth in the Merger
Agreement. The Merger Agreement further provides that Monterey would be liable
for any breach of any representation, warranty, covenant or agreement of the
Purchaser and for any breach of the covenant referred to in the preceding
sentence.
Termination. The Merger Agreement may be terminated and the Merger and the
other Transactions may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of the Merger Agreement and
the Transactions by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Monterey, the Purchaser and the Company prior to the
Purchaser's Election Date; or
(b) by Monterey, the Purchaser or the Company if (i) the Effective
Time shall not have occurred on or before September 30, 1997; provided,
however, that the right to terminate the Merger Agreement will not be
available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date or (ii) any court of
competent jurisdiction in the United States or other governmental authority
shall have issued an order, decree, ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final or nonappealable; or
(c) by Monterey if (i) due to an occurrence or circumstance that
results in a failure to satisfy any condition set forth in Section 14
hereof, the Purchaser shall have (A) failed to commence the Offer within 10
days following the date of the Merger Agreement, (B) terminated the Offer
without having accepted any Shares for payment thereunder or (C) failed to
pay for Shares pursuant to the Offer within 90 days following the
commencement of the Offer, unless any such failure listed above shall have
been caused by or resulted from the failure of Monterey or the Purchaser to
perform in any material respect any material covenant or agreement of
either of them contained in the Merger Agreement or the material
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breach by Monterey or the Purchaser of any material representation or
warranty of either of them contained in the Merger Agreement or (ii) prior
to the purchase of Shares pursuant to the Offer, the Board of Directors or
any committee thereof (A) shall have withdrawn or modified in a manner
adverse to the Purchaser or Monterey its approval or recommendation of the
Offer, the Merger Agreement, the Merger or any other Transaction or (B)
shall have recommended another Acquisition Transaction with a third party.
(d) By the Company, upon approval of the Board of Directors, if (i)
the Purchaser shall have (A) failed to commence the Offer within 10 days
following the date of the Merger Agreement, (B) terminated the Offer
without having accepted any Shares for payment thereunder or (C) failed to
pay for Shares pursuant to the Offer within 90 days following the
commencement of the Offer, unless such failure to pay for Shares shall have
been caused by or resulted from the failure of the Company to satisfy the
conditions set forth in paragraphs (f) or (g) of Section 14 hereof or (ii)
prior to the purchase of Shares pursuant to the Offer, the Board, after
consultation with independent counsel, shall have withdrawn or modified in
a manner adverse to the Purchaser or Monterey its approval or
recommendation of the Offer, the Merger Agreement or the Merger as a result
of a proposal by a third party for an Acquisition Transaction.
Except as specified below, all costs and expenses incurred in connection
with the Merger Agreement and the Transactions will be paid by the party
incurring such expenses, regardless of whether any Transaction is consummated.
To compensate Monterey for entering into the Merger Agreement, taking actions to
consummate the Transactions and incurring the costs and expenses related thereto
and other losses and expenses, including the foregoing, the pursuit of other
opportunities by Monterey, the Company and Monterey agreed to the following:
(i) Provided that neither Monterey nor the Purchaser shall be in
material breach of its obligations under the Merger Agreement (which breach
has not been cured promptly following receipt by Monterey or the Purchaser,
as the case may be, of written notice thereof by the Company specifying in
reasonable detail the basis of such alleged breach), the Company has agreed
to pay to Monterey the sum of $2,780,000 (the "Termination Fee") if (i) the
Merger Agreement is terminated either (A) by the Company under the
provisions referred to in clause (d)(ii) above or (B) by Monterey or the
Purchaser under the provisions (c)(ii) above.
(ii) Any payment required by paragraph (i) above shall become payable
upon termination of the Merger Agreement in the manner provided in such
paragraph.
(iii) The Company has acknowledged that the agreements above regarding
the Termination Fee are an integral part of the transactions contemplated
in the Merger Agreement, and that, without these agreements, Monterey would
not enter into the Merger Agreement; accordingly, if the Company fails to
promptly pay the Termination Fee when due, the Company will in addition
thereto pay to Monterey all costs and expenses (including fees and
disbursements of counsel) incurred in collecting such Termination Fee, as
the case may be, together with interest on the amount of the Termination
Fee (or any unpaid portion thereof) from the date such payment was required
to be made until the date such payment is received by Monterey at the prime
rate of The Chase Manhattan Bank, N.A., as in effect from time to time
during such period.
Stockholders Agreement. On June 16, 1997, Monterey and the Purchaser
executed a stockholders agreement (the "Stockholders Agreement"), with the
McFarland Family Trust (which owns 527,696 Shares), Mr. J. C. McFarland and his
wife Carolyn J. McFarland (who together own 75,295 Shares and have rights to
140,500 Shares issuable upon exercise of options) and William Carl, a director
of the Company (who owns 116,362 Shares and has rights to 5,000 Shares issuable
upon exercise of options). Pursuant to the Stockholders Agreement, each of the
McFarland Family Trust, Mr. and Mrs. McFarland and Mr. Carl severally agreed to
tender all Shares owned by such stockholder into the Offer prior to the
expiration of the Offer and not to withdraw any Shares so tendered. In addition,
each of the McFarland Family Trust, Mr. and Mrs. McFarland and Mr. Carl
severally agreed to sell to the Purchaser, and the Purchaser agreed to purchase
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all Shares held by such person at a price per Share equal to $18.55 or such
higher price per Share as may be offered by the Purchaser in the Offer, provided
that such obligations to purchase and sell are both subject to (i) the Purchaser
having accepted Shares for payment under the Offer and the Minimum Condition
(minus any Shares which are the subject of the Stockholders Agreement but are
not purchased in the Offer) having been satisfied, and (ii) the expiration or
termination of any applicable waiting period under the HSR Act.
Consulting Agreement. Monterey has asked Mr. McFarland, the Chairman and
Chief Executive Officer of the Company, to become a consultant to Monterey and
to serve as a director of Monterey. Among other things, Mr. McFarland would be
paid his current annual base salary, agree not to compete with Monterey for a
specified period of time and be expected to spend up to one-half of his
professional time working for Monterey.
Short Form Merger. Under Delaware Law, if the Purchaser acquires at least
90% of the outstanding Shares, the Purchaser will be able to approve the merger
without a vote of the Company's stockholders. In such event, the Purchaser
anticipates that it will take all necessary and appropriate action to cause the
Merger to become effective as soon as reasonably practicable after such
acquisition without a meeting of the Company's stockholders. If the conditions
to the Purchaser's obligation to purchase Shares in the Offer are satisfied
prior to the tender of 90% of the outstanding Shares being tendered in the
Offer, the Purchaser may, subject to certain limitations set forth in the Merger
Agreement, delay its purchase of the Shares tendered to it in the Offer. See
Section 1. If the Purchaser does not acquire at least 90% of the outstanding
Shares pursuant to the Offer or otherwise, a significantly longer period of time
may be required to effect the Merger, because a vote of the Company's
stockholders would be required under Delaware Law. Pursuant to the Merger
Agreement, the Company has agreed to take all action necessary under Delaware
Law and its Certificate and Bylaws to convene a meeting of its stockholders
promptly following consummation of the Offer to consider an vote on the Merger,
if a stockholders' vote is required. If the Purchaser owns a majority of the
outstanding Shares, approval of the Merger may be obtained without the
affirmative vote of any other stockholder of the Company.
State Takeover Statutes. The Merger Agreement provides that the Company
will use its reasonable best efforts to (a) exempt the Company, the Offer and
the Merger from the requirements of any state takeover law by action of the
Company's Board of Directors or otherwise and (b) assist in any challenge by the
Purchaser to the validity or applicability to the Offer or the Merger of any
state takeover law. See Section 5.
SECTION 12. EFFECT OF THE OFFER ON THE MARKET FOR SHARES; NASDAQ LISTING;
REGISTRATION UNDER THE EXCHANGE ACT.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares,
which could adversely affect the liquidity and market value of the remaining
shares held by stockholders other than the Purchaser.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NASD for continued inclusion
on Nasdaq, which requirements include that an issuer have at least (i) 100,000
publicly held shares having a market value of at least $200,000, (ii) 300
stockholders, (iii) capital and surplus of at least $1 million and (iv) total
assets of at least $2 million. If the Shares ceased to be traded on Nasdaq, it
is possible that the Shares would continue to trade in the over-the-counter
market and that price or other quotations would be reported by other sources.
The extent of the public market for Shares and the availability of such
quotations would depend, however, upon such factors as the number of
stockholders and/or the aggregate market value of such Shares remaining at such
time, the interest in maintaining a market in the Shares on the part of
securities firms, the possible termination of registration under the Exchange
Act as described below and other factors. The Purchaser cannot predict whether
the reduction in the number of shares that might otherwise trade publicly would
have an adverse or beneficial effect on the market price for, or marketability
of, the Shares or whether it would cause future market prices to be greater or
lesser than the price offered pursuant the Offer.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of the Shares. Depending upon factors similar to those
described
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above regarding listing and market quotations, following the Offer it is
possible that the Shares would no longer constitute "margin securities" for the
purposes of the margin regulations of the Federal Reserve Board and therefore
could no longer be used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application by the
Company to the SEC if the Shares are not listed on a national securities
exchange and there are fewer than 300 record holders of the Shares. Termination
of registration of the Shares under the Exchange Act would reduce substantially
the information required to be furnished by the Company to its stockholders and
would make certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b), the requirement of furnishing a
proxy statement in connection with stockholders' meetings pursuant to Section
14(a) and the requirements of Rule 13e-3 under the Exchange Act with respect to
"going private" transactions no longer applicable to the Company. Furthermore,
if the Purchaser acquires a substantial number of Shares or the registration of
the Shares under the Exchange Act were to be terminated, the ability of
"affiliates" of the Company and persons holding "restricted securities" of the
Company to dispose of such securities pursuant to Rule 144 under the Securities
Act may be impaired or eliminated. If registration of the Shares under the
Exchange Act were terminated prior to the consummation of the Merger, the Shares
would no longer be "margin securities" or be eligible for Nasdaq reporting. It
is the present intention of the Purchaser to seek to cause the Company to make
an application for termination of registration of the Shares as soon as possible
following the Offer if the requirements for termination of registration are met.
SECTION 13. DIVIDENDS AND DISTRIBUTIONS.
If, on or after June 16, 1997, the Company should, except as permitted
under the Merger Agreement, (i) split or combine the Shares, or otherwise change
the Shares or its capitalization, (ii) issue or sell any additional securities
of the Company (other than Shares issued or sold upon the exercise (in
accordance with the present terms thereof) of Company Options outstanding on
June 16, 1997), or (iii) acquire currently outstanding Shares or otherwise cause
a reduction in the number of outstanding Shares, then, without prejudice to the
Purchaser's rights under Sections 1 and 14, the Purchaser, in its sole
discretion (subject to the terms of the Merger Agreement), may make such
adjustments as it deems appropriate in the purchase price and other terms of the
Offer and the Merger including, without limitation, the amount and type of
securities offered to be purchased.
If, on or after June 16, 1997, the Company should, except as permitted
under the Merger Agreement, declare or pay any dividend on the Shares or make
any distribution (including, without limitation, the issuance of additional
Shares pursuant to a stock dividend or stock split, the issuance of other
securities or the issuance of rights for the purchase of any securities) with
respect to the Shares that is payable or distributable to stockholders of record
on a date prior to the transfer to the name of the Purchaser or its nominee or
transferee on the Company's stock transfer records of the Shares purchased
pursuant to the Offer, then, without prejudice to the Purchaser's rights under
Sections 1 and 14, (i) the purchase price per Share payable by the Purchaser
pursuant to the Offer will be reduced by the amount of any such cash dividend or
cash distribution and (ii) any such non-cash dividend, distribution or right to
be received by the tendering stockholders will be received and held by the
tendering stockholders for the account of the Purchaser and will be required to
be promptly remitted and transferred by each tendering stockholder to the Paying
Agent for the account of the Purchaser, accompanied by appropriate documentation
of transfer. Pending such remittance and subject to applicable law, the
Purchaser will be entitled to all rights and privileges as owner of any such
non-cash dividend, distribution or right and may withhold the entire purchase
price or deduct from the purchase price the amount or value thereof, as
determined by the Purchaser in its sole discretion.
SECTION 14. CONDITIONS TO THE OFFER.
Notwithstanding any other provision of the Offer, the Purchaser will not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
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not have been satisfied or (ii) at any time on or after the date of the Merger
Agreement, and prior to the acceptance for payment of Shares, any of the
following conditions shall exist:
(a) there shall have been issued and remain in effect any temporary
restraining order, preliminary or final injunction, order or decree by any
court or governmental, administrative or regulatory authority or agency,
domestic or foreign, resulting from any action or proceeding brought by any
person which (i) restrains or prohibits the making of the Offer or the
consummation of any other Transaction, (ii) prohibits or limits ownership
or operation by the Company, Monterey or the Purchaser of all or any
material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, Monterey or any of their subsidiaries, or
compels the Company, Monterey or any of their subsidiaries to dispose of or
hold separate all or any material portion of the business or assets of the
Company, Monterey or any of their subsidiaries or imposes any material
limitation on the ability of Monterey or the Purchaser to conduct such
business or own such assets, in each case as a result of the Transactions;
(iii) imposes material limitations on the ability of Monterey or the
Purchaser to exercise effectively full rights of ownership of any Shares,
including, without limitation, the right to vote any Shares acquired by the
Purchaser pursuant to the Offer, or otherwise on all matters properly
presented to the Company's stockholders, including, without limitation, the
approval and adoption of the Merger Agreement and the Transactions; (iv)
requires divestiture by Monterey or the Purchaser of any Shares;
(b) there shall have been any action taken, or any statute, rule,
regulation, order or injunction enacted, entered, enforced, promulgated,
amended, issued or deemed applicable to (i) Monterey, the Company or any
subsidiary or affiliate of Monterey or the Company or (ii) any Transaction,
by any legislative body, court, government or governmental, administrative
or regulatory authority or agency, domestic or foreign, in the case of both
(i) and (ii);
(c) there shall have occurred and be continuing (i) any general
suspension of trading in, or limitation on prices for, trading in
securities on the NYSE or on the over-the-counter market, (ii) a
declaration of a banking moratorium or any limitation or suspension of
payments in respect of banks in the United States, (iii) any limitation
(whether or not mandatory) by any U.S. federal or state government, or
governmental, administrative or regulatory authority or agency on the
extension of credit by banks or other lending institutions, (iv) a
commencement of war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, or (v) in the
case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof, or
(d) any representation and warranty of the Company in the Merger
Agreement shall not be true and correct and the failure to be true and
correct has a material adverse effect and such failure shall not have been
cured (provided five days' written notice of such failure has been provided
by the Purchaser to the Company) (if a representation and warranty of the
Company shall, by its terms, only be not true and correct if the
consequences thereof constitute a material adverse effect, then the failure
of such representation and warranty to be true and correct shall be deemed
to have a material adverse effect within the meaning of this paragraph
(d)); or
(e) (i) the Board of Directors shall have withdrawn or modified in a
manner adverse to Monterey or the Purchaser the approval or recommendation
of the Offer, the Merger or the Merger Agreement or approved or recommended
any takeover proposal or any other acquisition of Shares other than the
Offer and the Merger or (ii) the Board shall have resolved to do any of the
foregoing;
(f) (i) the Company shall have failed to perform in any material
respect any material obligation or to comply in any material respect with
any material agreement or covenant of the Company to be performed or
complied with by it under the Merger Agreement and shall not have cured
such default (provided five days' written notice of such failure has been
provided by the Purchaser to the Company);
(g) the Merger Agreement shall have been terminated in accordance with
its terms; or
(h) the Purchaser and the Company shall have agreed that the Purchaser
shall terminate the Offer or postpone the acceptance for payment of or
payment for Shares thereunder.
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The foregoing conditions are for the sole benefit of Monterey and the
Purchaser and may be asserted by Monterey or the Purchaser regardless of the
circumstances giving rise to any such condition or may be waived by Monterey or
the Purchaser in whole or in part at any time and from time to time in their
sole discretion. The failure by Monterey or the Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
SECTION 15. CERTAIN LEGAL MATTERS; REQUIRED REGULATORY APPROVALS.
Except as set forth in this Offer to Purchase, based on a review of
publicly available filings by the Company with the SEC and other publicly
available information regarding the Company, neither Monterey nor the Purchaser
is aware of any licenses or regulatory permits that appear to be material to the
business of the Company and its subsidiaries, taken as a whole, and that might
be adversely affected by the Purchaser's acquisition of Shares (and the indirect
acquisition of the stock of the Company's subsidiaries) as contemplated herein,
or any approvals or other actions by or with any domestic, foreign or
supranational governmental authority or administrative or regulatory agency that
would be required for the acquisition or ownership of the Shares (or the
indirect acquisition of the stock of the Company's subsidiaries) by the
Purchaser pursuant to the Offer as contemplated herein. Should any such approval
or other action be required, it is presently contemplated that such approval or
action would be sought except as described below under "State Takeover Laws."
Should any such approval or other action be required, there can be no assurance
that any such approval or action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to the
Company's or its subsidiaries' businesses, or that certain parts of the
Company's, Monterey's, the Purchaser's or any of their respective subsidiaries'
businesses might not have to be disposed of or held separate or other
substantial conditions complied with in order to obtain such approval or action
or in the event that such approvals were not obtained or such actions were not
taken. The Purchaser's obligation to purchase and pay for Shares is subject to
certain conditions, including conditions with respect to injunctions and
governmental actions. See the Introduction and Section 14 for a description
thereof.
State Takeover Laws. A number of states (including Delaware, where the
Company is incorporated) have adopted takeover laws and regulations which
purport, to varying degrees, to be applicable to attempts to acquire securities
of corporations which are incorporated in such states or which have substantial
assets, stockholders, principal executive offices or principal places of
business therein. To the extent that certain provisions of certain of these
state takeover statutes purport to apply to the Offer or the Merger, the
Purchaser believes that such laws conflict with federal law and constitute an
unconstitutional burden on interstate commerce. In 1982, the Supreme Court of
the United States, in Edgar v. Mite Corp., invalidated on constitutional grounds
the Illinois Business Takeover Statute which, as a matter of state securities
law, made takeovers of corporations meeting certain requirements more difficult,
and the reasoning in such decision is likely to apply to certain other state
takeover statutes. In 1987, however, in CTS Corp. v. Dynamics Corp. of America,
the Supreme Court of the United States held that the State of Indiana could, as
a matter of corporate law and, in particular, those aspects of corporate law
concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without the prior
approval of the remaining stockholders, provided that such laws were applicable
only under certain conditions. Subsequently, in TLX Acquisition Corp. v. Telex
Corp., a federal district court in Oklahoma ruled that the Oklahoma statutes
were unconstitutional insofar as they apply to corporations incorporated outside
Oklahoma in that they would subject such corporations to inconsistent
regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a federal district
court in Tennessee ruled that four Tennessee takeover statutes were
unconstitutional as applied to corporations incorporated outside Tennessee. This
decision was affirmed by the United States Court of Appeals for the Sixth
Circuit. In December 1988, a federal district court in Florida held in Grand
Metropolitan PLC v. Butterworth that the provisions of the Florida Affiliated
Transactions Act and Florida Control Share Acquisition Act were unconstitutional
as applied to corporations incorporated outside of Florida.
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The Purchaser has not attempted to comply with any state takeover statutes
in connection with the Offer or the Merger. The Purchaser reserves the right to
challenge the validity or applicability of any state law allegedly applicable to
the Offer or the Merger and nothing in this Offer to Purchase nor any action
taken in connection herewith is intended as a waiver of that right. In the event
that it is asserted that one or more takeover statutes apply to the Offer or the
Merger, and it is not determined by an appropriate court that such statute or
statutes do not apply or are invalid as applied to the Offer or the Merger, as
applicable, the Purchaser may be required to file certain documents with, or
receive approvals from, the relevant state authorities, and the Purchaser might
be unable to accept for payment or purchase Shares tendered pursuant to the
Offer or be delayed in continuing or consummating the Offer. In such case, the
Purchaser may not be obligated to accept for purchase, or pay for, any Shares
tendered. See Section 14.
Antitrust. The Purchaser does not believe that the Offer and Merger are
subject to the notification or waiting period requirements of the HSR Act, which
provides that certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission ("FTC") and certain waiting period requirements have been satisfied.
If the acquisition of Shares is delayed pursuant to a request by the FTC or
the Antitrust Division for information or documentary material pursuant to the
HSR Act, the Offer may, at the discretion of the Purchaser (subject to the terms
and conditions of the Merger Agreement) be extended and, in any event the
purchase of and payment for Shares will be deferred until the applicable waiting
period expires or is terminated. Unless the Offer is extended, any extension of
the waiting period will not give rise to any additional withdrawal rights. See
Section 4.
In practice, complying with a request for information or documentary
material can take a significant amount of time. In addition, if the Antitrust
Division or the FTC raises substantive issues in connection with a proposed
transaction, the parties frequently engage in negotiations with the relevant
governmental agency concerning possible means of addressing those issues and may
agree to delay consummation of the transaction while such negotiations continue.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer and the Merger. At any time before or after the
Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the acquisition of Shares pursuant
to the Offer or otherwise or seeking divestiture of Shares acquired by the
Purchaser or divestiture of substantial assets of Monterey or its subsidiaries.
Private parties and state attorneys general may also bring legal action under
the antitrust laws under certain circumstances. Based upon an examination of
publicly available information relating to the businesses in which Monterey and
the Company are engaged, Monterey and the Purchaser believe that the acquisition
of Shares by the Purchaser will not violate the antitrust laws. Nevertheless,
there can be no assurance that a challenge to the Offer or other acquisition of
Shares by the Purchaser on antitrust grounds will not be made or, if such a
challenge is made, of the result. See Section 14 for certain conditions to the
Offer, including conditions with respect to injunctions and certain governmental
actions.
25
<PAGE> 28
SECTION 16. FEES AND EXPENSES.
Corporate Investor Communications, Inc. has been retained by the Purchaser
as Information Agent in connection with the Offer. The Information Agent may
contact holders of Shares by mail, telephone, telex, telegraph and personal
interview and may request brokers, dealers and other nominee stockholders to
forward material relating to the Offer to beneficial owners of Shares. The
Purchaser will pay the Information Agent reasonable and customary compensation
for all such services in addition to reimbursing the Information Agent for
reasonable out-of-pocket expenses in connection therewith.
In addition, First Chicago Trust Company of New York has been retained as
the Paying Agent. The Purchaser will pay the Paying Agent reasonable and
customary compensation for its services in connection with the Offer, will
reimburse the Paying Agent for its reasonable out-of-pocket expenses in
connection therewith.
Except as set forth above, neither Monterey nor the Purchaser will pay any
fees or commissions to any broker, dealer or other person for soliciting tenders
of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust
companies and other nominees will, upon request, be reimbursed by Monterey or
the Purchaser for customary clerical and mailing expenses incurred by them in
forwarding offering materials to their customers.
SECTION 17. MISCELLANEOUS.
The Purchaser is not aware of any jurisdiction in which the making of the
Offer is not in compliance with applicable law. If the Purchaser becomes aware
of any jurisdiction in which the making of the Offer would not be in compliance
with applicable law, the Purchaser will make a good faith effort to comply with
any such law. If, after such good faith effort, the Purchaser cannot comply with
any such law, the Offer will not be made to (nor will tenders be accepted from
or on behalf of) the holders of Shares residing in such jurisdiction. In those
jurisdictions whose securities or blue sky laws require the Offer to be made by
a licensed broker or dealer, the Offer is being made on behalf of the Purchaser
by one or more registered brokers or dealers which are licensed under the laws
of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Purchaser or Monterey not contained in this
Offer to Purchase or in the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized.
The Purchaser has filed with the SEC the Schedule 14D-1 pursuant to Rule
14d-3 under the Exchange Act, furnishing certain additional information with
respect to the Offer, and may file amendments thereto. The Schedule 14D-1 and
any amendments thereto, including exhibits, may be inspected and copies may be
obtained at the same places and in the same manner as set forth in Section 7
(except that they will not be available at the regional offices of the SEC).
MONTEREY ACQUISITION CORPORATION
26
<PAGE> 29
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER,
MONTEREY AND SANTA FE
1. Directors and Executive Officers of the Purchaser.
The following table sets forth the name, current business address and
present principal occupation or employment and material occupations, positions,
offices or employments for the past five years of each director and executive
officer of the Purchaser. Unless otherwise indicated, the current business
address of each person is c/o 5201 Truxtun Avenue, Bakersfield, California
93309, and each occupation set forth opposite an individual's name refers to
employment with the Purchaser. Each such person is a citizen of the United
States, unless otherwise indicated.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND CURRENT BUSINESS ADDRESS;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---- ---------------------------------------------------------------------------------
<S> <C>
R. Graham Whaling....... Director; Chief Executive Officer; see "Directors and Executive Officers of
Monterey."
D.B. Kilpatrick......... President; see "Directors and Executive Officers of Monterey."
Gerald R. Carman........ Director; Vice President and Chief Financial Officer; see "Directors and
Executive Officers of Monterey."
Terry L. Anderson....... Director; Vice President and Secretary; see "Directors and Executive Officers of
Monterey."
</TABLE>
2. Directors and Executive Officers of Monterey.
The following table sets forth the name, business address and present
principal occupation or employment, and material occupations, positions, offices
or employments for the past five years of each director and executive officer of
Monterey. Unless otherwise indicated, the current business address of each such
person is c/o 5201 Truxtun Avenue, Bakersfield, California 93309, and each
occupation set forth opposite an individual's name refers to employment with
Monterey. Each such person is a citizen of the United States, unless otherwise
indicated.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND CURRENT BUSINESS ADDRESS;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---- ---------------------------------------------------------------------------------
<S> <C>
Hugh L. Boyt........... Director since 1996. Mr. Boyt has also acted as Senior Vice President --
Production of Santa Fe since March 1990.
Michael A. Morphy...... Director since 1996. Mr. Morphy was a director of Santa Fe from 1990 to 1996, is
the Retired Chairman and Chief Executive Officer of California Portland Cement
Company, and is also currently a director of Cyprus Amax Minerals Co. and Santa
Fe Pacific Pipelines, Inc.
Robert F. Vagt......... Director since 1996. Mr. Vagt was a director of Santa Fe from 1992 to 1996;
Chairman of the Board, President, Chief Executive Officer and director of Global
Natural Resources, Inc. (Oil and gas exploration and production) from May 1992 to
October 1996; President and Chief Executive Officer of Adobe Resources
Corporation (oil and gas exploration and production) from November 1990 to May
1992. Mr. Vagt is also currently a director of First Albany Corporation
(brokerage firm).
</TABLE>
I-1
<PAGE> 30
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND CURRENT BUSINESS ADDRESS;
MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS AND BUSINESS ADDRESSES
NAME THEREOF
- -------------------------------- --------------------------------------------------------------------------------
<S> <C>
1993.Robert J. Wasielewski...... Director since 1996. Mr. Wasielewski has been employed by GKH Partners, L.P.
("GKH") since October 1991. GKH is an investment partnership whose general
partners include entities controlled by Jay and Tom Pritzker, Dan W. Lufkin and
Melvyn N. Klein. From July 1996 to the present Mr. Wasielewski has held the
position of Managing Director of GKH. He was employed by Citicorp in the
Leveraged Capital Division from September 1987 to October 1991, serving as
assistant Vice President from December 1990 until joining GKH. Mr. Wasielewski
serves as a director and officer of various privately held affiliates of GKH.
GKH through an affiliate, HC Associates, a Delaware general partnership,
currently holds approximately 5.5% of Santa Fe's outstanding common stock.
James L. Payne.................. Director since 1996. Mr. Payne has been Chairman of the Board, President and
Chief Executive Officer of Santa Fe since 1990. He is also a director of Pool
Energy Services Co., an oil field services corporation.
R. Graham Whaling............... Director and Chief Executive Officer since 1996. Mr. Whaling was Senior Vice
President and Chief Financial Officer of Santa Fe from January 1995 to November
1996. Prior to that time, he was with CS First Boston, an investment banking
firm, as Vice President, Corporate Finance from 1991 to 1994 and Director,
Corporate Finance from 1994 to 1995. Prior to joining First Boston, Mr. Whaling
served as a petroleum engineer from Sun Oil Corporation and petroleum reservoir
consulting engineer from Ryder Scott.
David B. Kilpatrick............. President and Chief Operating Officer since November 1996. Mr. Kilpatrick was
Division Manager -- Production for Santa Fe's Western Division from January 1990
until November 1996.
Gerald R. Carman................ Vice President, Chief Financial Officer and Treasurer. Mr. Carman was Treasurer
of Santa Fe from January 1995 until December 1996. Prior to 1995, Mr. Carman was
Director of Corporate Planning and Manager of Tax Planning for Santa Fe.
Terry L. Anderson............... General Counsel and Secretary since November 1996. Mr. Anderson was
Manager -- Business Development of Santa Fe from December 1994 until November
1996. Prior to that time and beginning in 1988, Mr. Anderson was Senior Counsel
of Santa Fe.
C. Ed Hall...................... Vice President -- Public Affairs since November 1996. Mr. Hall was Vice
President Public Affairs of Santa Fe from March 1991 until November 1996.
Jeffrey B. Williams............. Vice President -- Development since November 1996. Mr. Williams was Corporate
Production Manager of Santa Fe from July 1996 until November 1996. Prior to that
time, Mr. Williams was employed by Santa Fe as Regional, Corporate or Division
Production Manager, a position he assumed in 1983.
Lou E. Shuflin.................. Director -- Administration since November 1996. Mr. Shuflin was
Manager -- Strategic Analysis of Santa Fe from September 1994 until November
1996. Mr. Shuflin also served as Santa Fe's Corporate Manager -- Production from
May 1993 to August 1993 and District Manager -- Production beginning in 1987.
</TABLE>
I-2
<PAGE> 31
3. Directors and Executive Officers of Santa Fe.
The following table sets forth the name, business address and present
principal occupation or employment, and material occupations, positions, offices
or employments for the past five years of each director and executive officer of
Santa Fe. Unless otherwise indicated, the current business address of each such
person is c/o 1616 South Voss, Houston, Texas 77057, and each occupation set
forth opposite an individual's name refers to employment with Santa Fe. Each
such person is a citizen of the United States, unless otherwise indicated.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND CURRENT BUSINESS ADDRESS;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---- ---------------------------------------------------------------------------------
<S> <C>
Marc J. Shapiro........ Director since 1990; Chairman and Chief Executive Officer of Texas Commerce Bank
National Association (banking) since 1987, and a member of the Policy council of
Chase Manhattan Corporation (successor to the Management Committee of Chemical
Banking Corporation) since December 1991. Mr. Shapiro is also a director of
Browning-Ferris Industries, Burlington Northern Santa Fe Corporation and a
trustee of Wingarten Realty Investors.
William E. Greehey..... Director since 1991; Chairman of the Board, Chief Executive Officer and director
of Valero Energy Corporation (refining and marketing, gas transmission and
processing) since 1983. Greehey is also a director of Weatherford-Enterra.
Melvyn N. Klein........ Director since 1993; Attorney and Counsel at Law; private investor; the sole
stockholder of a general partner in GKH Partners, L.P., Mr. Klein is also a
principal of Questor Management Company, and director of Anixter International
and Bayou Steel Corporation (specialty steel manufacturer).
James L. Payne......... Director since 1986; Chairman of the Board, President and Chief Executive Officer
of Santa Fe since June 1990. Mr. Payne was President of Santa Fe Energy Company,
a predecessor in interest of Santa Fe from January 1986 to January 1990 when he
became President of Santa Fe. Mr. Payne is also a director of Pool Services Co.
(oilfield services), and Monterey.
Allan V. Martini....... Director since 1990; Retired Vice President Exploration/Production and director
of Chevron Corporation (petroleum operations) since August 1988. Mr. Martini
served in that position from July 1986 until his retirement.
Reuben F. Richards..... Director since 1992; Chairman of the Board, Terra Industries Inc. (agribusiness)
from December 1982 until retirement in March 1996. Chief Executive Officer
thereof from December 1982 to May 1991 and President thereof from July 1983 to
May 1991; Chairman of the Board, Engelhard Corporation (specialty chemicals,
engineered materials and precious metals management services) from May 1985 to
December 1994 and director thereof since prior to 1990; Director, Minorco
(U.S.A.) Inc., Chairman of the Board from May 1990 to March 1996 and Chief
Executive Officer and President from February 1994 to March 1996. Mr. Richards is
also a director of Ecolab, Inc. (cleaning and sanitizing products), Engelhard
Corporation, Potlatch Corporation (forest product), and Minorco.
Kathryn D. Wriston..... Director since 1990; Director of various corporations and organizations for the
past five years, including Northwestern Mutual Life Insurance Company and the
Stanley Works and a trustee of the Financial Accounting Foundation.
Hugh L. Boyt........... Senior Vice President -- Production since March 1, 1990. From 1989 until March
1990, Mr. Boyt served as Corporate Production Manager.
</TABLE>
I-3
<PAGE> 32
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND CURRENT BUSINESS ADDRESS;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS AND BUSINESS ADDRESSES THEREOF
---- ---------------------------------------------------------------------------------
<S> <C>
Jerry L. Bridwell...... Senior Vice President -- Exploration and Land since 1986.
Janet S. Clark......... Vice President and Chief Financial Officer since January 1997. Ms. Clark was with
Southcoast Capital Corporation from January 1994 until she joined Santa Fe. While
with Southcoast Capital, Ms. Clark served as Vice President from January 1994 to
June 1996 and as Director, Corporate Finance, from June 1996 to December 1996.
From December 1992 to January 1994 Ms. Clark served as Senior Vice President with
Williams MacKay Jordan & Company. Prior to December 1992 Ms. Clark was an
independent financial consultant.
E. Everett Deschner.... Vice President -- Engineering and Evaluation since April 1990.
Charles G. Hain........ Vice President -- Human and Data Resources since 1994. Vice President -- Employee
Relations from 1988 until 1994.
Kathy Hager............ Vice President -- Public Affairs since January 1997. From January 1994 to January
1997 Ms. Hager served as Director, Investor Relations and from September 1990 to
January 1994 as Manager, Investor Relations.
David L. Hicks......... Vice President -- Law and General Counsel since March 1991.
Mark A. Older.......... Secretary
Michael S. Wilkes...... Controller
</TABLE>
I-4
<PAGE> 33
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each stockholder
of the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Paying Agent at one of its addresses set forth below:
The Paying Agent for the Offer is:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<C> <C> <C> <C>
By Mail: By Hand: By Facsimile By Overnight Courier:
Tenders & Exchanges Tenders & Exchanges Transmission: Tenders & Exchanges
PO Box 2569 -- Suite c/o The Depository Trust (201) 222-4720 14 Wall Street, Suite
4660 Company or 4680
Jersey City, New Jersey 55 Water Street (201) 222-4721 8th Floor
07303-2569 DTC TAD (for Eligible New York, New York
Vietnam Veterans' Institutions Only) 10005
Memorial Plaza
New York, New York
10041
</TABLE>
To Confirm Receipt of Guaranteed Delivery:
(201) 222-4707
Any questions or requests for assistance may be directed to the Information
Agent at its address and telephone number listed below. Additional copies of the
Offer to Purchase, this Letter of Transmittal and other tender offer materials
may be obtained from the Information Agent as set forth below, and will be
furnished promptly at the Purchaser's expense. You may also contact your broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
CORPORATE INVESTOR COMMUNICATIONS, INC.
111 Commerce Road
Carlstadt, New Jersey 07072
Call Toll Free: (888) 264-3343
Call Collect: (201) 896-1900
<PAGE> 1
EXHIBIT 2
STOCKHOLDERS AGREEMENT dated as of June 17, 1997, among
Monterey Resources, Inc., a Delaware corporation ("Parent"), Monterey
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
Parent ("Purchaser"), and the other parties identified on Schedule A hereto
(each, a "Stockholder").
WHEREAS, each Stockholder desires that McFarland Energy, Inc.,
a Delaware corporation (the "Company"), Parent and Purchaser enter into an
Agreement and Plan of Merger dated as of the date hereof (as the same may be
amended or supplemented, the "Merger Agreement") with respect to the merger of
Purchaser with and into the Company (the "Merger"); and
WHEREAS, each Stockholder is executing this Agreement as an
inducement to Parent and Purchaser to enter into and execute the Merger
Agreement.
NOW, THEREFORE, in consideration of the execution and delivery
by Parent and Purchaser of the Merger Agreement and the mutual covenants,
conditions and agreements contained herein and therein, the parties agree as
follows:
Section 1. Representations and Warranties. Each
Stockholder severally, and not jointly, represents and warrants to Parent and
Purchaser as follows:
(a) Such Stockholder is the record or beneficial owner of
the number of shares of Common Stock, par value $1.00 per share, of
the Company (the "Company Common Stock"), and holds options for shares
of Company Common Stock, each as set forth opposite such Stockholder's
name in Schedule A hereto (as may be adjusted from time to time
pursuant to Section 4, such Stockholder's "Shares"). Except for such
Stockholder's Shares, such Stockholder is not the record or beneficial
owner of any shares of Company Common Stock. Any of such Shares which
are described on Schedule A as option shares shall be deemed "Option
Shares" for the purposes of this Agreement. All other shares shall be
deemed "Owned Shares." Any Option Shares which are exercised prior to
the termination of this Agreement shall be deemed to be "Owned
Shares."
(b) This Agreement has been duly authorized, executed and
delivered by such Stockholder and constitutes the legal, valid and
binding obligation of such Stockholder, enforceable against such
Stockholder in accordance with its terms. Neither the execution and
delivery of this Agreement nor the consummation by such Stockholder of
the transactions contemplated hereby will result in a violation of, or
a default under, or conflict with, any contract, trust, commitment,
agreement, understanding, arrangement or restriction of any kind to
which such Stockholder is a party or bound or to which such
Stockholder's Shares are subject. To the best of such Stockholder's
knowledge, consummation by such Stockholder of the transactions
contemplated hereby will not violate, or require any consent,
approval, or notice under, any provision of any judgment, order,
decree, statute, law, rule or regulation applicable to such
Stockholder or such Stockholder's Shares, except for any necessary
filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), or state takeover laws.
<PAGE> 2
(c) Such Stockholder's Owned Shares and the certificates
representing such Owned Shares are now and at all times during the
term hereof will be held by such Stockholder, or by a nominee or
custodian for the benefit of such Stockholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances
whatsoever, except for any such encumbrances arising hereunder.
(d) Such Stockholder understands and acknowledges that
Parent is entering into, and causing Purchaser to enter into, the
Merger Agreement in reliance upon such Stockholder's execution and
delivery of this Agreement.
Section 2. Purchase and Sale of Shares. So long as the
Per Share Amount in the Offer is not less than $18.55 in cash (net to the
seller), each Stockholder hereby severally agrees that it shall tender its
Shares into the Offer prior to the expiration of the Offer and that it shall
not withdraw any Shares so tendered (it being understood that the obligation
contained in this sentence is unconditional). In addition, each Stockholder
hereby severally agrees to sell to Purchaser, and Purchaser hereby agrees to
purchase, all such Stockholder's Owned Shares at a price per Share equal to
$18.55, or such higher price per Share as may be offered by Purchaser in the
Offer, provided that such obligations to purchase and sell are both subject to
(i) Purchaser having accepted Shares for payment under the Offer and the
Minimum Condition (as defined in the Merger Agreement) (minus any Shares which
are the subject of this Agreement but are not purchased in the Offer) having
been satisfied, and (ii) the expiration or termination of any applicable
waiting period under the HSR Act.
Section 3. Covenants. Each Stockholder severally, and
not jointly, agrees with, and covenants to, Parent and Purchaser as follows:
such Stockholder shall not, except as contemplated by the terms of this
Agreement, during the term of this Agreement, (i) transfer (which term shall
include, without limitation, for the purposes of this Agreement, any sale,
gift, pledge or other disposition), or consent to any transfer of, any or all
of such Stockholder's Shares or any interest therein, (ii) enter into any
contract, option or other agreement or understanding with respect to any
transfer of any or all of such Shares or any interest therein, (iii) grant any
proxy, power-of-attorney or other authorization or consent in or with respect
to such Shares, (iv) deposit such Shares into a voting trust or enter into a
voting agreement or arrangement with respect to such Shares or (v) take any
other action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated
hereby; provided that each Stockholder shall be entitled to transfer all or any
portion of such Shareholder's Shares to any person or entity which agrees in
writing to be bound by the provisions of this Agreement.
Section 4. Certain Events. Each Stockholder agrees that
this Agreement and the obligations hereunder shall attach to such Stockholder's
Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Shares shall pass, whether by operation of law or
otherwise, including without limitation such Stockholder's heirs, guardians,
administrators or successors. In the event of any stock split, stock dividend,
merger, reorganization, recapitalization or other change in the capital
structure of the Company affecting the Company Common Stock, or the acquisition
of additional shares of Company Common Stock or other securities or rights of
the
-2-
<PAGE> 3
Company by any Stockholder, the number of Owned Shares and Option Shares listed
on Schedule A beside the name of such Stockholder shall be adjusted
appropriately and this Agreement and the obligations hereunder shall attach to
any additional shares of Company Common Stock or other securities or rights of
the Company issued to or acquired by such Stockholder.
Section 5. Transfer. Each Stockholder agrees with and
covenants to Parent that such Stockholder shall not request that the Company
register the transfer (booked as entry or otherwise) of any certificated or
uncertificated interest representing any of the securities of the Company,
unless such transfer is made in compliance with this Agreement.
Section 6. Voidability. If prior to the execution
hereof, the Board of Directors of the Company shall not have duly and validly
authorized and approved by all necessary corporate action the acquisition of
Company Common Stock by Parent and Purchaser and other transactions
contemplated by this Agreement and the Merger Agreement, so that by the
execution and delivery hereof Parent or Purchaser would become, or could
reasonably be expected to become, an "interested stockholder" with whom the
Company would be prevented for any period pursuant to Section 203 of the DGCL
from engaging in any "business combination" (as such terms are defined in
Section 203 of the DGCL), then this Agreement shall be void and unenforceable
until such time as such authorization and approval shall have been duly and
validly obtained.
Section 7. Stockholder Capacity. No person executing
this Agreement who is or becomes during the term hereof a director or officer
of the Company makes any agreement or understanding herein in his or her
capacity as such director or officer. Each Stockholder signs solely in his or
her capacity as the record holder and beneficial owner of such Stockholder's
Shares and nothing herein shall limit or affect any actions taken by a
Stockholder in its capacity as an officer or director for the Company to the
extent specifically permitted by the Merger Agreement.
Section 8. Further Assurances. Each Stockholder shall,
upon request of Parent or Purchaser, execute and deliver any additional
documents and take such further actions as may reasonably be deemed by Parent
or Purchaser to be necessary or desirable to carry out the provisions hereof.
Section 9. Termination. This Agreement, and all rights
and obligations of the parties hereunder, shall terminate upon the earlier of
(a) the date upon which the Merger Agreement is terminated by the Company,
Parent or Purchaser for any reason in accordance with its terms or (b) the date
that Parent or Purchaser shall have purchased and paid for the Shares of each
Stockholder pursuant to Section 2.
Section 10. Miscellaneous.
(a) Capitalized terms used and not otherwise defined in
this Agreement shall have the respective meanings assigned to such
terms in the Merger Agreement.
-3-
<PAGE> 4
(b) All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier
(providing proof of delivery) to the parties at the following
addresses (or such other address for a party as shall be specified by
like notice): (i) if to Parent or Purchaser, to the address set forth
in Section 9.03 of the Merger Agreement; and (ii) if to a Stockholder,
to the address set forth on Schedule A hereto, or such other address
as may be specified in writing by such Stockholder.
(c) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same
agreement, and shall become effective (even without the signature of
any other Stockholder) as to any Stockholder when one or more
counterparts have been signed by each of Parent, Purchaser and such
Stockholder and delivered to Parent, Purchaser and such Stockholder.
(e) This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement, and
supersedes all prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof.
(f) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of
conflicts or laws thereof.
(g) Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in
whole or in party, by operation of law or otherwise, by any of the
parties without the prior written consent of the other parties, except
by laws of descent. Any assignment in violation of the foregoing
shall be void.
(h) If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any
extent, be held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions herein and the application thereof to any
other circumstances, shall remain in full force and effect, shall not
in any way be affected, impaired or invalidated, and shall be enforced
to the fullest extent permitted by law.
(i) Each Stockholder agrees that irreparable damage would
occur and that Parent and Purchaser would not have any adequate remedy
at law in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that Parent and
Purchaser shall be entitled to an injunction or injunctions to prevent
breaches by any Stockholder of this Agreement and to enforce
specifically the terms and provisions of this Agreement.
-4-
<PAGE> 5
(j) No amendment, modification or waiver in respect of
this Agreement shall be effective against any party unless it shall be
in writing and signed by such party.
-5-
<PAGE> 6
IN WITNESS WHEREOF, Parent, Purchaser and the Stockholders
have caused this Agreement to be duly executed and delivered as of the date
first written above.
MONTEREY RESOURCES, INC.
By: /s/ R. Graham Whaling
-------------------------------------
R. Graham Whaling
Chairman of the Board and
Chief Executive Officer
MONTEREY ACQUISITION CORPORATION
By: /s/ R. Graham Whaling
-------------------------------------
R. Graham Whaling
Chairman of the Board and
Chief Executive Officer
McFARLAND FAMILY TRUST
By: /s/ J. C. McFarland
-------------------------------------
J.C. McFarland, Trustee
By: /s/ Ruth S. McFarland
-------------------------------------
Ruth S. McFarland, Trustee
/s/ J. C. McFarland
-------------------------------------
J.C. McFARLAND
/s/ Carolyn J. McFarland
-------------------------------------
CAROLYN J. McFARLAND
/s/ William E. Carl
-------------------------------------
WILLIAM E. CARL
-6-
<PAGE> 7
Schedule A
----------
<TABLE>
<CAPTION>
Number of Shares of Common Stock
Number of Shares of Issuable upon Exercise of
Stockholder (including address) Common Stock Owned Options
------------------------------- ------------------ ---------------------------------
<S> <C> <C>
McFarland Family Trust 527,696 0
10425 So. Painter Avenue
Santa Fe Springs, CA 90670
J.C. McFarland and 75,295 140,500
Carolyn J. McFarland
10425 So. Painter Avenue
Santa Fe Springs, CA 90670
William E. Carl 116,362 5,000
RR HCR8
Box 641
Beeville, TX 78104
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