<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 17, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
APACHE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 1311 41-0747868
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
Z. S. KOBIASHVILI
ONE POST OAK CENTRAL ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100 2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400 HOUSTON, TEXAS 77056-4400
(713) 296-6000 (713) 296-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF TELEPHONE NUMBER, INCLUDING AREA
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) CODE, OF AGENT FOR SERVICE)
</TABLE>
Copies to:
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GEOFFREY K. WALKER WILBUR C. DELP, JR.
MAYOR, DAY, CALDWELL & KEETON, L.L.P. SIDLEY & AUSTIN
700 LOUISIANA, SUITE 1900 ONE FIRST NATIONAL PLAZA
HOUSTON, TEXAS 77002-2778 CHICAGO, ILLINOIS 60603
(713) 225-7000 (312) 853-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon the Effective Time of the Merger described in this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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Common Stock, $1.25 par
value.................... 8,850,000 shares(1) $21.4583(2) $189,905,955(2) $65,486
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Common Stock Purchase
Rights(3)................ 8,850,000 rights -- -- None
</TABLE>
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(1) Consists of up to 8,447,603 shares of Apache Common Stock issuable pursuant
to the Merger Agreement upon the exchange of currently outstanding shares of
DEKALB Stock, and up to 402,397 shares of Apache Common Stock issuable in
respect of currently outstanding DEKALB Options.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c), based on the average of the high
and low prices of DEKALB Class B Stock on The Nasdaq Stock Market, Inc., on
January 11, 1995 of $19.3125 and the maximum Exchange Ratio of 0.9 shares of
Apache Common Stock for each share of DEKALB Stock.
(3) Common Stock Purchase Rights are evidenced by certificates for shares of
Apache Common Stock and automatically trade with the Apache Common Stock.
Value attributable to such Common Stock Purchase Rights, if any, is
reflected in the market price of the Apache Common Stock.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
APACHE CORPORATION
CROSS REFERENCE SHEET
BETWEEN ITEMS IN PART I OF THE REGISTRATION STATEMENT
(FORM S-4) AND PROSPECTUS PURSUANT TO ITEM 501(B)
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ITEM OF FORM S-4 LOCATION IN PROSPECTUS
----------------------------------------------------- ---------------------------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page of
Prospectus; Available
Information; Incorporation of
Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................. Outside Front Cover Page of
Prospectus; Summary
4. Terms of the Transaction............................. Outside Front Cover Page of
Prospectus; Summary; The Special
Meeting; The Merger; Certain
Terms of the Merger Agreement;
Stockholder Agreements;
Description of Apache Capital
Stock; Comparative Rights of
Apache and DEKALB Stockholders
5. Pro Forma Financial Information...................... Unaudited Pro Forma Condensed
Financial Information
6. Material Contacts with the Company Being Acquired.... The Merger; Certain Terms of the
Merger Agreement; Stockholder
Agreements; Description of Apache
Capital Stock
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters...... *
8. Interests of Named Experts and Counsel............... *
9. Disclosure of Commission Position on Indemnification
For Securities Act Liabilities..................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.......... *
11. Incorporation of Certain Information by Reference.... Incorporation of Certain
Documents by Reference;
Description of Apache Capital
Stock; Inside Front Cover Page of
Prospectus; Summary; The Special
Meeting; The Merger; Certain
Terms of the Merger Agreement.
12. Information with Respect to S-2 or S-3 Registrants... *
13. Incorporation of Certain Information by Reference.... *
14. Information with Respect to Registrants other than
S-3 or S-2 Registrants............................. *
</TABLE>
<PAGE> 3
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<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
----------------------------------------------------- ---------------------------------
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies............ *
16. Information with Respect to S-2 or S-3 Companies..... Incorporation of Certain
Documents by Reference; Outside
and Inside Front Cover Pages of
Prospectus; Summary; The Special
Meeting; The Merger; Certain
Terms of the Merger Agreement
17. Information with Respect to Companies other than S-3
or S-2 Companies................................... *
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................ Incorporation of Certain
Documents by Reference; Outside
Front Cover Page of Prospectus;
Summary; The Special Meeting; The
Merger; Certain Terms of the
Merger Agreement; Principal
Stockholders of Apache and
DEKALB; Stockholders' Proposals
19. Information if Proxies, Consents or Authorizations
are not to be Solicited in an Exchange Offer....... *
</TABLE>
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* Not applicable or answer is negative.
<PAGE> 4
DEKALB ENERGY COMPANY
10TH FLOOR, 700-9TH AVENUE S.W.
CALGARY, ALBERTA, CANADA T2P 3V4
, 1995
Fellow Shareholders:
On December 21, 1994, we announced that DEKALB Energy Company ("DEKALB")
had entered into a merger agreement with Houston-based Apache Corporation
("Apache") under which outstanding shares of DEKALB Class A Stock and Class B
(nonvoting) Stock will be converted into between .85 and .90 shares of Apache
Common Stock depending upon the price of Apache's Stock during a period shortly
before the merger.
The recommended merger provides DEKALB shareholders with both fair value
for their investment in DEKALB and the opportunity to benefit from Apache's
rapidly expanding and internationally diversified operations. Moreover, Apache's
financial resources will allow for the full exploitation of the exploration and
development opportunities DEKALB has identified.
Your Board has called a Special Meeting of the holders of DEKALB Class A
Stock to consider approval and adoption of the recommended merger. The meeting
will be held at 9:00 a.m., on , 1995 at DEKALB's Calgary office.
The accompanying Proxy Statement/Prospectus contains a detailed description
of the recommended merger, as well as background about the transaction and
Apache's and DEKALB's businesses.
On behalf of the Board, I urge holders of DEKALB Class A Stock to be
represented in person or by proxy at this meeting, regardless of the number of
shares you own or whether you are able to attend the meeting. Please complete,
sign, date and return the enclosed proxy card as soon as possible. This action
will not limit your right to vote in person at the meeting if you wish to do so.
We urge you to vote FOR approval of the recommended merger.
Bruce P. Bickner
Chairman of the Board
<PAGE> 5
DEKALB ENERGY COMPANY
10TH FLOOR, 700-9TH AVENUE S.W.
CALGARY, ALBERTA, CANADA T2P 3V4
NOTICE OF SPECIAL MEETING OF HOLDERS
OF CLASS A STOCK
TO BE HELD ON , 1995
A Special Meeting of the holders of Class A Stock of DEKALB Energy Company,
a Delaware corporation ("DEKALB"), will be held at 9:00 a.m. local time, on
, , 1995 at DEKALB's Calgary office at the address set forth
above. At the Special Meeting, the holders of Class A Stock of DEKALB will:
1. Consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated December 21, 1994 (the "Merger
Agreement"), relating to the merger ("Merger") of a wholly owned subsidiary
of Apache Corporation, a Delaware corporation ("Apache"), with and into
DEKALB pursuant to which each outstanding share of Class A Stock, no par
value ("DEKALB Class A Stock"), and (except for shares held by a subsidiary
of DEKALB) each outstanding share of DEKALB Class B (nonvoting) Stock, no
par value ("DEKALB Class B Stock") (DEKALB Class A Stock and DEKALB Class B
Stock being referred to collectively as "DEKALB Stock"), will be converted
into the right to receive between 0.85 and 0.90 shares of common stock,
$1.25 par value per share, of Apache Corporation, depending on the average
of the closing prices of Apache common stock as reported on The New York
Stock Exchange, Inc. Composite Transactions Reporting System during the ten
consecutive trading day period ending on (and including) the third trading
day prior to the effective time of the Merger, all as more fully set forth
in the accompanying Proxy Statement/Prospectus and in the Merger Agreement,
a copy of which is included as Appendix I thereto; and
2. Transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on ,
1995 as the record date for the determination of stockholders entitled to notice
of and to vote at the Special Meeting or any adjournments thereof. Holders of
record of all shares of DEKALB Stock at the close of business on the record date
are entitled to notice of the Special Meeting. Only holders of record of shares
of DEKALB Class A Stock at the close of business on the record date are entitled
to vote at the Special Meeting. Complete lists of such stockholders will be
available for examination at the offices of DEKALB in Calgary, Alberta during
normal business hours by any holder of DEKALB Stock, for any purpose germane to
the Special Meeting, for a period of ten days prior to the Special Meeting.
Holders of DEKALB Class A Stock who properly dissent in compliance with the
applicable provisions of the Delaware General Corporation Law ("DGCL") will
obtain the right of appraisal as to their shares of DEKALB Class A Stock.
Holders of DEKALB Class B Stock are not entitled to vote on, or to any appraisal
or dissenter's rights under the DGCL in respect of, the Merger. See "The
Merger -- Appraisal Rights of Dissenting DEKALB Class A Stockholders" in the
accompanying Proxy Statement/Prospectus.
The affirmative vote of the holders of a majority of the outstanding shares
of DEKALB Class A Stock is required for approval and adoption of the Merger
Agreement. The holders of a majority of the currently outstanding DEKALB Class A
Stock have signed stockholder agreements obligating them, except in certain
circumstances, to vote in favor of the Merger. Consequently, approval of the
Merger Agreement at the Special Meeting is expected. See "The Special
Meeting -- Quorum and Vote Required" in the accompanying Proxy
Statement/Prospectus.
Holders of DEKALB Class A Stock, whether or not they expect to be present
at the meeting, are requested to sign, vote and date the enclosed proxy and
return it promptly in the envelope enclosed for that purpose. Any person giving
a proxy has the power to revoke it at any time prior to the meeting, and
stockholders who are present at the meeting may withdraw their proxies and vote
in person.
By Order of the Board of Directors:
John H. Witmer, Jr., Secretary
, 1995
<PAGE> 6
APACHE CORPORATION
DEKALB ENERGY COMPANY
PROXY STATEMENT/PROSPECTUS
--------------------------
This Proxy Statement/Prospectus relates to the proposed merger of XPX
Acquisitions, Inc., a Delaware corporation ("Merger Sub"), which is a wholly
owned subsidiary of Apache Corporation, a Delaware corporation ("Apache"), with
and into DEKALB Energy Company, a Delaware corporation ("DEKALB"), pursuant to
the Agreement and Plan of Merger, dated December 21, 1994, among Apache, Merger
Sub and DEKALB (the "Merger Agreement"). The merger contemplated by the Merger
Agreement is referred to herein as the "Merger."
As a result of the Merger, (i) shares of Class A Stock, no par value, of
DEKALB ("DEKALB Class A Stock") and Class B (nonvoting) Stock, no par value
("DEKALB Class B Stock") (DEKALB Class A Stock and DEKALB Class B Stock being
referred to collectively as "DEKALB Stock") outstanding immediately prior to the
effective time of the Merger will be converted into the right to receive, per
share, between 0.85 and 0.90 shares of the common stock of Apache, $1.25 par
value per share ("Apache Common Stock"), depending on the average of the closing
prices of Apache Common Stock as reported on The New York Stock Exchange, Inc.
("NYSE") Composite Transactions Reporting System (the "NYSE Composite Tape")
during the ten consecutive trading day period ending on (and including) the
third trading day prior to the effective time of the Merger, and an equal number
of associated rights to purchase Apache Common Stock, and (ii) DEKALB will
become a wholly owned subsidiary of Apache.
This Proxy Statement/Prospectus is being furnished to holders of DEKALB
Stock in connection with the solicitation of proxies from holders of DEKALB
Class A Stock by the Board of Directors of DEKALB for use at the Special Meeting
of holders of DEKALB Class A Stock to be held on , 1995 (the
"Special Meeting"). This Proxy Statement/Prospectus and the accompanying form of
proxy are being mailed to holders of DEKALB Stock on or about ,
1995. At the Special Meeting, holders of DEKALB Class A Stock will be asked to
consider approval and adoption of the Merger Agreement.
This Proxy Statement/Prospectus also constitutes a prospectus of Apache
with respect to up to 8,850,000 shares of Apache Common Stock to be issued
pursuant to the Merger Agreement in exchange for currently outstanding shares of
DEKALB Stock and to be issued in respect of currently outstanding options to
purchase DEKALB Stock ("DEKALB Options"). It is a condition to consummation of
the Merger that the shares of Apache Common Stock issuable pursuant to the
Merger Agreement be approved for listing on the NYSE, subject to official notice
of issuance.
On , 1995, the per share closing prices of Apache Common Stock
and DEKALB Class B Stock, as reported on the NYSE Composite Tape and The Nasdaq
Stock Market, Inc. ("NASDAQ") National Market System ("NASDAQ/NMS"),
respectively, were $ and $ .
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1995
<PAGE> 7
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY APACHE OR DEKALB. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED
HEREBY SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF APACHE OR DEKALB SINCE THE DATE HEREOF OR THAT THE
INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
THIS PROXY STATEMENT/PROSPECTUS IS ACCOMPANIED BY A COPY OF DEKALB'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 AND A COPY OF
DEKALB'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1994.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. APACHE AND DEKALB EACH
UNDERTAKES TO PROVIDE COPIES OF SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE),
WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF DEKALB STOCK,
TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO APACHE: Z.S. KOBIASHVILI,
SECRETARY, APACHE CORPORATION, ONE POST OAK CENTRAL, 2000 POST OAK BOULEVARD,
SUITE 100, HOUSTON, TEXAS 77046-4400 (TELEPHONE (713) 296-6000), AND, IN THE
CASE OF DOCUMENTS RELATING TO DEKALB: JOHN H. WITMER, JR., SECRETARY, DEKALB
ENERGY COMPANY, 700-9TH AVENUE S.W., CALGARY, ALBERTA, CANADA T2P 3V4 (TELEPHONE
(403) 261-1200). IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE SPECIAL
MEETING, REQUESTS SHOULD BE RECEIVED BY , 1995.
AVAILABLE INFORMATION
Apache and DEKALB are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by Apache and DEKALB can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices 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 such material can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
reports, proxy statements and other information concerning Apache may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005,
and at the offices of the Chicago Stock Exchange, One Financial Place, 440
LaSalle Street, Chicago, Illinois 60605-1070. Reports, proxy statements and
other information concerning DEKALB may be inspected at the offices of NASDAQ,
1735 K Street, Washington, D.C. 20006-1506 and also at the offices of The
Toronto Stock Exchange, The Exchange Tower, 2 First Canadian Place, Toronto,
Ontario, Canada M5X 1J2.
Apache has filed with the Commission a Registration Statement on Form S-4
(together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Apache Common Stock to be issued pursuant
to the Merger Agreement. The information contained herein with respect to Apache
and its affiliates, including Merger Sub, has been provided by Apache, and the
information contained herein with respect to DEKALB and its affiliates has been
provided by DEKALB. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which were
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
are not necessarily complete, and in each instance reference is made to the copy
of such document so filed, each such statement being qualified in its entirety
by such reference.
2
<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
1. Apache's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1993.
2. Apache's Quarterly Reports on Form 10-Q for the periods ended March
31, 1994, June 30, 1994 and September 30, 1994.
3. Apache's Current Reports on Form 8-K dated March 1, 1994, April 28,
1994, November 29, 1994 and December 21, 1994, and on Form 8-K/A dated
December 6, 1994.
4. DEKALB's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
5. DEKALB's Quarterly Reports on Form 10-Q for the periods ended March
31, 1994, June 30, 1994 and September 30, 1994 (including Form 10-Q/A filed
January 4, 1995).
6. DEKALB's Current Reports on Form 8-K dated September 17, 1994 and
December 21, 1994.
All documents filed by Apache pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Proxy Statement/Prospectus
and prior to the date of the final adjournment of the Special Meeting shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document, which also is or is deemed to be incorporated
by reference herein, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement/Prospectus.
3
<PAGE> 9
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION.......................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.................................... 3
SUMMARY........................................ 5
The Companies................................ 5
Recent Apache Developments................... 5
The Special Meeting.......................... 5
The Merger................................... 6
Certain Terms of the Merger Agreement........ 9
Stockholder Agreements....................... 12
Comparative Rights of Apache and DEKALB
Stockholders............................... 12
Market Prices and Dividend Information....... 13
Apache Selected Historical Consolidated
Financial Data............................. 14
DEKALB Selected Historical Consolidated
Financial Data............................. 15
Selected Unaudited Pro Forma Consolidated
Financial Data............................. 16
Comparative Per Share Data................... 17
THE COMPANIES.................................. 19
Apache and Merger Sub........................ 19
DEKALB....................................... 19
RECENT APACHE DEVELOPMENTS..................... 20
Crystal Acquisition.......................... 20
Texaco Acquisition........................... 20
Financing Activities......................... 20
THE SPECIAL MEETING............................ 21
Time, Date, Place and Purpose of
Special Meeting............................ 21
Record Date and Shares Entitled to Vote...... 21
Voting and Revocation of Proxies............. 21
Quorum and Vote Required..................... 21
Solicitation of Proxies...................... 22
Other Matters................................ 22
THE MERGER..................................... 22
General Description of the Merger............ 22
Background................................... 22
Certain Information Provided................. 26
Apache's Reasons for the Merger.............. 26
DEKALB's Reasons for the Merger;
Recommendation of DEKALB's Board of
Directors.................................. 27
Opinion of Merrill Lynch as DEKALB's
Financial Advisor.......................... 28
Interests of Certain Persons in the Merger... 34
Certain Income Tax Consequences.............. 34
Anticipated Accounting Treatment............. 39
Governmental and Regulatory Approvals........ 39
Restrictions on Resales by Affiliates........ 40
Restrictions on Resales by Canadian
Residents.................................. 40
Appraisal Rights of Dissenting DEKALB Class A
Stockholders............................... 40
<CAPTION>
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CERTAIN TERMS OF THE MERGER AGREEMENT.......... 42
Effective Time of the Merger................. 42
Manner of Converting Shares.................. 43
Treatment of DEKALB Options.................. 44
Conditions to the Merger..................... 45
Representations and Warranties............... 46
Certain Covenants; Conduct of Business Prior
to the Merger.............................. 47
No Solicitation.............................. 48
Certain Post-Merger Matters.................. 48
Termination or Amendment of the Merger
Agreement.................................. 49
Expenses..................................... 50
Benefit Plans and Severance.................. 51
Insurance and Indemnification................ 51
STOCKHOLDER AGREEMENTS......................... 51
MARKET PRICES AND DIVIDEND INFORMATION......... 52
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS......................... 53
STATEMENT OF COMBINED REVENUES AND DIRECT
OPERATING EXPENSES FOR THE OIL AND GAS
PROPERTIES OF TEXACO EXPLORATION AND
PRODUCTION INC. TO BE SOLD TO APACHE
CORPORATION.................................. 63
PRINCIPAL STOCKHOLDERS OF APACHE AND DEKALB.... 65
Apache....................................... 65
DEKALB....................................... 65
DESCRIPTION OF APACHE
CAPITAL STOCK................................ 67
Apache Common Stock.......................... 67
Rights....................................... 67
Preferred Stock.............................. 68
COMPARATIVE RIGHTS OF APACHE AND DEKALB
STOCKHOLDERS................................. 68
Number and Classification of Board of
Directors.................................. 68
Power to Call Special Meetings............... 68
Stockholder Vote Required for Certain
Transactions............................... 68
Dissenters' Rights of Appraisal.............. 68
Action by Written Consent.................... 69
Certain Anti-takeover Provisions............. 69
INDEPENDENT PUBLIC ACCOUNTANTS................. 69
LEGAL MATTERS.................................. 70
EXPERTS........................................ 70
STOCKHOLDERS' PROPOSALS........................ 70
Appendices: I -- Merger Agreement............. AI-1
Appendices: II -- Merrill Lynch Fairness
Opinion...................................... AII-1
Appendices: III -- Section 262 of the DGCL.... AIII-1
</TABLE>
4
<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in or
incorporated by reference in this Proxy Statement/Prospectus. Stockholders are
urged to carefully read this Proxy Statement/Prospectus in its entirety. As used
in this Proxy Statement/Prospectus, unless otherwise required by the context,
the term "Apache" means Apache Corporation and its consolidated subsidiaries and
the term "DEKALB" means DEKALB Energy Company and its consolidated subsidiaries.
Capitalized terms used herein without definition are, unless otherwise
indicated, defined in the Merger Agreement and used herein with such meanings.
All terms defined in Rule 4-10(a) of Regulation S-X are used herein with
such meanings. Quantities of natural gas are expressed in terms of thousand
cubic feet (Mcf), million cubic feet (MMcf) or billion cubic feet (Bcf). Oil is
quantified in terms of barrels (bbls), thousands of barrels (Mbbls) and millions
of barrels (MMbbls). Natural gas is compared to oil in terms of barrels of oil
equivalent (boe) or million barrels of oil equivalent (MMboe). Oil and natural
gas liquids are compared with natural gas in terms of million cubic feet
equivalent (MMcfe) and billion cubic feet equivalent (Bcfe). One barrel of oil
is the energy equivalent of six Mcf of natural gas. Daily oil and gas production
is expressed in terms of barrels of oil per day (bopd) and thousands of cubic
feet of gas per day (Mcfd), respectively. With respect to information relating
to a working interest in wells or acreage, net oil and gas wells or acreage is
determined by multiplying gross wells or acreage by the working interest
therein. Unless otherwise specified, all references to wells and acres are
gross.
THE COMPANIES
Apache and Merger Sub. Apache Corporation is an independent energy company
that explores for, develops, produces, gathers, processes and markets natural
gas and crude oil. Merger Sub is a wholly owned subsidiary of Apache. The
principal executive offices of Apache and Merger Sub are located at One Post Oak
Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400, and the
telephone number at such offices is (713) 296-6000.
DEKALB. DEKALB Energy Company is engaged in the exploration for, and the
development and production of, crude oil and natural gas, primarily in Canada.
The principal executive offices of DEKALB are located at 10th Floor, 700-9th
Avenue S.W., Calgary, Alberta, Canada T2P 3V4, and the telephone number at such
offices is (403) 261-1200.
RECENT APACHE DEVELOPMENTS
On December 30, 1994, Apache purchased approximately $96 million in oil and
gas properties from Crystal Oil Company, adding approximately 92 Bcf of gas and
5 MMbbls of oil to Apache's net proved reserves. On December 22, 1994, Apache
executed a purchase and sale agreement with Texaco Exploration and Production
Inc. and affiliates ("Texaco") providing for the purchase by Apache from Texaco
of approximately $600 million of oil and gas properties. It is expected that the
Texaco transaction will close in the first quarter of 1995 and will include
proved reserves of 220 Bcf of gas and 81 MMbbls of oil. See "Recent Apache
Developments." On January 4, 1995, Apache closed the placement of $172.5 million
of 6% Convertible Subordinated Debentures, realizing net proceeds to Apache of
$168.6 million.
THE SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
The Special Meeting of the holders of DEKALB Class A Stock will be held on
, , 1995, at the offices of DEKALB on
the 10th Floor, 700-9th Avenue S.W., Calgary, Alberta, Canada T2P 3V4,
commencing at 9:00 a.m. local time, for the purpose of (i) considering and
voting upon a proposal to approve and adopt the Merger Agreement, and (ii)
transacting such other business as may properly come before the Special Meeting.
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<PAGE> 11
RECORD DATE AND SHARES ENTITLED TO VOTE
Holders of record of all shares of DEKALB Stock at the close of business on
, 1995 (the "Record Date") are entitled to notice of the Special
Meeting. Only holders of record of shares of DEKALB Class A Stock at the close
of business on the Record Date are entitled to vote at the Special Meeting. On
the Record Date, there were shares of DEKALB Class A Stock
outstanding, each of which will be entitled to one vote on each matter to be
acted upon at the Special Meeting. In addition, DEKALB had outstanding at such
date shares of DEKALB Class B Stock, none of which are entitled
to vote.
QUORUM AND VOTE REQUIRED
The presence, in person or by proxy, at the Special Meeting of the holders
of a majority of the shares of DEKALB Class A Stock outstanding and entitled to
vote at the Special Meeting is necessary to constitute a quorum at the meeting.
The affirmative vote of a majority of the shares of DEKALB Class A Stock
outstanding and entitled to vote thereon at the Special Meeting is required to
approve and adopt the Merger Agreement.
AGREEMENT BY CERTAIN DEKALB CLASS A STOCKHOLDERS
The holders of a majority of the DEKALB Class A Stock have signed
stockholder agreements obligating them, except in certain circumstances, to vote
in favor of the Merger. Consequently, approval of the Merger Agreement at the
Special Meeting is expected. See "Stockholder Agreements."
SECURITY OWNERSHIP OF DEKALB MANAGEMENT
As of December 31, 1994, directors and executive officers of DEKALB and
their affiliates were beneficial owners of an aggregate of 222,076 outstanding
shares of DEKALB Class A Stock (approximately 9.65 percent of such shares then
outstanding).
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
At the Effective Time (as hereinafter defined) of the Merger, Merger Sub
will merge with and into DEKALB, with DEKALB being the surviving corporation
(the "Surviving Corporation") and a wholly owned subsidiary of Apache. As a
result of the Merger, each outstanding share of DEKALB Stock (except for shares
held by a subsidiary of DEKALB) will be converted into the right to receive
between 0.85 and 0.90 shares of Apache Common Stock (the "Exchange Ratio"),
determined by adding to 0.85 an amount equal to 0.0125 multiplied by the
difference between $30 and the average of the per share closing prices of Apache
Common Stock as reported on the NYSE Composite Tape during the ten consecutive
trading days ending on (and including) the third trading day prior to the
Effective Time (the "Market Price"). If the Market Price is $26 or lower, the
Exchange Ratio will be 0.90, and if the Market Price is $30 or higher, the
Exchange Ratio will be 0.85. Any resulting fractional shares of Apache Common
Stock will be settled in cash. The full text of the Merger Agreement is included
in this Proxy Statement/Prospectus as Appendix I.
Depending on the Market Price and the number of shares of DEKALB Stock
outstanding as of the Record Date, between and shares of
Apache Common Stock will be issuable pursuant to the Merger Agreement (assuming
no exercise of DEKALB Options prior to the Effective Time and no cancellation of
DEKALB Options in exchange for Apache Common Stock as described below in this
summary under "Certain Terms of the Merger Agreement -- Treatment of DEKALB
Options"), representing between approximately percent and percent of
the total Apache Common Stock expected to be outstanding after such issuance.
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<PAGE> 12
DETERMINATIONS OF THE BOARDS OF DIRECTORS
The Board of Directors of Apache has determined that the Merger is fair to,
and in the best interests of, the stockholders of Apache and has approved the
issuance and reservation for issuance of Apache Common Stock pursuant to the
terms of the Merger Agreement. No vote of the stockholders of Apache is required
in connection with the Merger. See "The Merger -- Background" and "-- Apache's
Reasons for the Merger."
THE BOARD OF DIRECTORS OF DEKALB HAS DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, DEKALB AND ITS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS TO THE HOLDERS OF DEKALB CLASS A STOCK THAT THEY VOTE FOR ADOPTION
AND APPROVAL OF THE MERGER AGREEMENT. See "The Merger -- Background" and
"-- DEKALB's Reasons for the Merger; Recommendation of DEKALB's Board of
Directors." In considering the recommendation of DEKALB's Board of Directors
with respect to the Merger, DEKALB stockholders should be aware that certain
officers, directors and employees of DEKALB have certain interests concerning
the Merger separate from their interests as holders of DEKALB Stock. See "The
Merger -- Interests of Certain Persons in the Merger."
OPINION OF MERRILL LYNCH AS DEKALB'S FINANCIAL ADVISOR
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
delivered its written opinion, dated December 20, 1994, to the Board of
Directors of DEKALB that, as of such date, the Exchange Ratio was fair from a
financial point of view to holders of DEKALB Stock. A copy of the opinion of
Merrill Lynch is attached as Appendix II and incorporated herein by reference.
For information regarding the opinion of Merrill Lynch, including the
assumptions made, matters considered and limitations on the review undertaken,
see "The Merger -- Opinion of Merrill Lynch as DEKALB's Financial Advisor."
STOCKHOLDERS ARE URGED TO READ CAREFULLY IN ITS ENTIRETY THE OPINION OF MERRILL
LYNCH ATTACHED AS APPENDIX II TO THIS PROXY STATEMENT/PROSPECTUS.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of DEKALB's Board of Directors and management have certain
interests concerning the Merger separate from their interests as holders of
DEKALB Stock, including those referred to below under "Certain Terms of the
Merger Agreement -- Treatment of DEKALB Options," "-- Benefit Plans and
Severance" and "-- Insurance and Indemnification." See "The Merger -- Interests
of Certain Persons in the Merger."
CERTAIN INCOME TAX CONSEQUENCES
United States Federal Income Tax. The obligation of each of Apache and
DEKALB to effect the Merger is subject to the receipt of opinions of their
respective counsel substantially to the effect that, for U.S. federal income tax
purposes, the merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), no
gain or loss will be recognized by DEKALB, Apache or Merger Sub as a result of
the Merger, and no gain or loss will be recognized by the stockholders of DEKALB
who are United States persons (within the meaning of the Code) upon the
conversion of their DEKALB Stock into shares of Apache Common Stock pursuant to
the Merger except with respect to cash, if any, received in lieu of fractional
shares of Apache Common Stock or upon exercise of dissenters' rights of
appraisal.
United States persons who are holders of DEKALB Options which are assumed
by Apache as described below under "Certain Terms of the Merger
Agreement -- Treatment of DEKALB Options" generally will not recognize income or
gain for U.S. federal income tax purposes upon such assumption. Holders of
DEKALB Options who elect to exchange their DEKALB Options for Apache Common
Stock as described below under "Certain Terms of the Merger
Agreement -- Treatment of DEKALB Options" will generally recognize ordinary
compensation income as a result of the receipt of the Apache Common Stock in
exchange for such DEKALB Options.
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<PAGE> 13
Special rules may apply to a holder of DEKALB Stock or DEKALB Options who,
for U.S. federal income tax purposes, is a non-resident alien individual, a
foreign corporation, a foreign partnership or a foreign estate or trust.
For a discussion of these and other U.S. federal income tax considerations
in connection with the Merger, see "The Merger -- Certain Income Tax
Consequences."
Canadian Federal Income Tax. Holders of DEKALB Stock who are residents of
Canada for the purposes of the Income Tax Act (Canada) (the "Canadian Tax Act")
will be considered to have disposed of their DEKALB Stock as a result of the
Merger and will therefore realize a taxable gain or loss on the Merger. Holders
of DEKALB Options who are residents of Canada and who elect to exchange DEKALB
Options for shares of Apache Common Stock will be subject to tax under the
Canadian Tax Act on the fair market value of the Apache Common Stock received.
For a discussion of these and other Canadian federal income tax considerations
in connection with the Merger, including treatment of DEKALB Options that are
not exchanged for shares of Apache Common Stock, see "The Merger -- Certain
Income Tax Consequences."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "pooling of interests" for
financial accounting purposes. See "The Merger -- Anticipated Accounting
Treatment."
GOVERNMENTAL AND REGULATORY APPROVALS
On , 1995, Apache and DEKALB each filed a notification
and report, together with requests for early termination of the waiting period,
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Act"), with the U.S. Federal Trade Commission ("FTC") and the Antitrust Division
of the U.S. Department of Justice (the "Justice Department") in respect of the
Merger. Expiration or early termination of the applicable waiting period under
the HSR Act is a condition to the obligations of Apache and DEKALB to consummate
the Merger. The waiting period will expire on , 1995, unless
a request for additional information is received before such date. Apache is
also required to file an Application for Review under the Investment Canada Act
(Canada) ("Investment Canada Act") with Investment Canada, an agency of the
Government of Canada, in respect of the Merger. Approval pursuant to the
Investment Canada Act of the business investment in Canada by Apache resulting
from the Merger is a condition to consummation of the Merger. Review of the
Application is to be completed within 45 days after filing unless the review
cannot be completed by that date, in which case the review period may be
extended by 30 days (or such longer period as may be agreed to by Apache) to
permit completion of the review. See "The Merger -- Governmental and Regulatory
Approvals." Neither Apache nor DEKALB is aware of any other governmental or
regulatory approval required for consummation of the Merger, other than
compliance with applicable securities laws.
RESTRICTIONS ON RESALES
There are certain restrictions on resales of Apache Common Stock to be
received by affiliates of DEKALB and by Canadian residents. See "The
Merger -- Restrictions on Resales by Affiliates" and "-- Restrictions on Resales
by Canadian Residents."
APPRAISAL RIGHTS OF DISSENTING DEKALB CLASS A STOCKHOLDERS
DEKALB Class A Stock. Holders of DEKALB Class A Stock who do not vote in
favor of the Merger will be entitled to statutory rights of appraisal as to
their shares of DEKALB Class A Stock in connection with the Merger as provided
under Section 262 of the Delaware General Corporation Law ("DGCL"). Certain
procedures must be followed by any holder of DEKALB Class A Stock who wishes to
perfect that statutory right of appraisal, including both not voting in favor of
the Merger and filing with DEKALB, before the vote on the Merger is taken, a
written demand for appraisal of shares of DEKALB Class A Stock owned by such
stockholder. Failure to take any of the required steps may result in termination
of such appraisal rights. Holders of DEKALB Class A Stock should note that
surrender to Apache or to the Exchange Agent of
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<PAGE> 14
certificates representing their DEKALB Class A Stock may constitute a waiver of
appraisal rights under the DGCL. See "The Merger -- Appraisal Rights of
Dissenting DEKALB Class A Stockholders" and Appendix III to the Proxy
Statement/Prospectus, which contains the full text of Section 262 of the DGCL.
Apache Common Stock and DEKALB Class B Stock. Under Delaware law, neither
holders of Apache Common Stock nor holders of DEKALB Class B Stock will be
entitled to any appraisal or dissenter's rights as to those shares in connection
with the Merger. See "The Merger -- Appraisal Rights of Dissenting DEKALB Class
A Stockholders."
CERTAIN TERMS OF THE MERGER AGREEMENT
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware (the "Effective Time"),
unless the certificate of merger specifies a later Effective Time, and the
"Effective Date" shall be the date on which the certificate of merger becomes
effective. Assuming all conditions to the Merger contained in the Merger
Agreement are satisfied or waived prior thereto, it is anticipated that the
Effective Time of the Merger will occur as soon as practicable following the
Special Meeting.
MANNER OF CONVERTING SHARES
Promptly after consummation of the Merger, Apache will mail a letter of
transmittal with instructions to each holder of record of DEKALB Stock
immediately before the Effective Time for use in exchanging certificates
formerly representing shares of DEKALB Stock for certificates representing
shares of Apache Common Stock and cash in lieu of any fractional shares of
Apache Common Stock. Certificates should not be surrendered by the holders of
DEKALB Stock until they have received the letter of transmittal from Apache or
the Exchange Agent. See "Certain Terms of the Merger Agreement -- Manner of
Converting Shares."
TREATMENT OF DEKALB OPTIONS
Assumption. As of the Effective Time, Apache will assume each DEKALB Option
that remains unexercised in whole or in part and that has not been properly
surrendered for cancellation in exchange for Apache Common Stock as described
below. Accordingly, each such DEKALB Option will be deemed to remain outstanding
as an option to purchase, in place of the shares of DEKALB Stock previously
subject thereto, that number of shares of Apache Common Stock equal to the
product of the number of shares of DEKALB Stock subject to the DEKALB Option
multiplied by the Exchange Ratio. The exercise price per share of Apache Common
Stock will be equal to the previous exercise price per share under the DEKALB
Option divided by the Exchange Ratio. See "Certain Terms of the Merger
Agreement -- Treatment of DEKALB Options."
Cancellation. As an alternative to having their DEKALB Options assumed by
Apache as described above, holders of DEKALB Options may elect, in their sole
discretion at any time after receipt of this Proxy Statement/Prospectus and
prior to the Effective Time, to surrender any DEKALB Options (whether vested or
unvested) that remain unexercised in whole or in part. As consideration for such
cancellation, Apache will issue a number of shares of Apache Common Stock for
each share of DEKALB Common Stock covered by a cancelled DEKALB Option
determined as follows: (i) the Market Price shall be multiplied by the Exchange
Ratio, then (ii) the applicable exercise price per share under the DEKALB Option
being exchanged shall be subtracted from the product contained in clause (i)
above, and then (iii) the difference contained in clause (ii) above shall be
divided by the Market Price. See "Certain Terms of the Merger
Agreement -- Treatment of DEKALB Options."
Resale of Apache Common Stock by Canadian Residents. Apache will submit
applications to the securities regulatory authorities in the appropriate
provinces and territories of Canada in connection with the resale of Apache
Common Stock issuable to holders of DEKALB Options resident in Canada upon the
exercise of any DEKALB Option or issued in exchange for the cancellation of
DEKALB Options. Upon
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<PAGE> 15
receipt of the orders resulting from the applications, the Apache Common Stock
may be resold without restriction (other than as a result of any "control block"
restrictions which may arise by virtue of the ownership thereof) under
applicable securities laws of the provinces and territories of Canada provided
that such trade is executed through the facilities of a stock exchange outside
of Canada or in the over-the-counter market in the United States if the Apache
Common Stock is quoted on the over-the-counter market at the time of such trade
and such trade is made in accordance with the rules of the stock exchange or
market upon which the trade is made and in accordance with all laws applicable
to such stock exchange or market. THE HOLDERS OF DEKALB OPTIONS RESIDENT IN
CANADA ARE URGED TO CONSULT THEIR LEGAL ADVISORS TO DETERMINE THE EXTENT OF ALL
APPLICABLE RESALE PROVISIONS.
CONDITIONS TO THE MERGER
The respective obligations of Apache and DEKALB to consummate the Merger
are subject to the satisfaction or waiver of certain conditions, including the
following: (i) approval and adoption of the Merger Agreement by the holders of a
majority of the outstanding shares of DEKALB Class A Stock; (ii) expiration or
termination of the applicable waiting period under the HSR Act, and approval
under the Investment Canada Act; (iii) the absence of any order making the
Merger illegal or otherwise prohibiting consummation of the Merger; (iv) Apache
having no reason to believe, based on advice of Arthur Andersen LLP, Apache's
independent public accountants, that the Merger would not be accounted for as a
"pooling of interests" in accordance with generally accepted accounting
principles; (v) the accuracy of the representations and warranties of each party
and compliance with all agreements and covenants by each party; (vi) the receipt
of certain tax opinions; (vii) the effectiveness of the Registration Statement
of which this Proxy Statement/Prospectus is a part; (viii) the approval for
listing on the NYSE of the Apache Common Stock to be issued pursuant to the
Merger Agreement; (ix) the absence of certain material adverse changes; (x) the
receipt of letters from Arthur Andersen LLP and Coopers & Lybrand, Apache's and
DEKALB's independent public accountants, respectively, covering such matters
with respect to the Registration Statement and the Proxy Statement/Prospectus as
reasonably requested by Apache and DEKALB; and (xi) the receipt of other
required third party or governmental approvals or consents.
Apache and DEKALB anticipate that all of the conditions to the consummation
of the Merger will be satisfied prior to or at the time of the Special Meeting.
Either Apache or DEKALB may extend the time for performance of any of the
obligations of the other party or may waive compliance with those obligations at
its discretion. See "Certain Terms of the Merger Agreement -- Conditions to the
Merger."
NO SOLICITATION
The Merger Agreement provides that DEKALB and its officers, directors and
representatives will not (i) solicit, initiate or encourage any offer or
proposal likely to lead to any Takeover Proposal (as defined below), (ii)
participate in any discussions (other than as necessary to clarify the terms and
conditions of any unsolicited offer) or negotiations regarding any Takeover
Proposal, or (iii) furnish any nonpublic information outside the ordinary course
of conducting its business; provided, however, that to the extent required by
their fiduciary duties under applicable law and after consultation with and
based upon the advice of outside legal counsel, DEKALB's Board of Directors and
officers may take the actions described in clauses (ii) and (iii) above in
response to a person who initiates communication with DEKALB without there
having occurred any action prohibited by clause (i) above. DEKALB will promptly
notify Apache of any inquiries, offers or proposals and give it five days'
advance notice of any agreement to be entered into or information to be
furnished in connection with any such inquiries, offers or proposals. A
"Takeover Proposal" is defined to mean any tender offer or exchange offer for 20
percent or more of the outstanding shares of either class of DEKALB Stock, any
proposal or offer for a merger, consolidation, amalgamation or other business
combination involving DEKALB or its subsidiaries or any equity securities (or
securities convertible into equity securities) of DEKALB, or any proposal or
offer to acquire in any manner a 20 percent or greater equity or beneficial
interest in, or a material amount of the assets or value of, DEKALB or its
subsidiaries. See "Certain Terms of the Merger Agreement -- No Solicitation."
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TERMINATION OF THE MERGER AGREEMENT
By Either Party. The Merger Agreement may be terminated prior to the
Effective Time (i) by mutual consent of Apache and DEKALB, or (ii) by either
party if (a) the Merger has not been consummated on or before June 30, 1995
(provided that the terminating party shall not have failed to fulfill any
obligation under the Merger Agreement that resulted in the Merger not having
been consummated), (b) any court or governmental final order shall have
prohibited consummation of the Merger, (c) the required approval of the holders
of DEKALB Class A Stock is not received at the Special Meeting, or (d) if the
Market Price (calculated as if the Effective Date were the date of the Special
Meeting) of Apache Common Stock is less than $22.
By Apache. Apache may terminate the Merger Agreement (i) if DEKALB fails to
comply in any material respect with any covenant or agreement set forth in the
Merger Agreement, or upon DEKALB's breach of one or more representations or
warranties not cured within ten business days following notice, which breaches
would in the aggregate have a Material Adverse Effect on DEKALB, (ii) if any of
the activities described above regarding non-solicitation of a Takeover Proposal
occur, (iii) if the Board of Directors of DEKALB recommends to the stockholders
of DEKALB any Takeover Proposal, or resolves to do so, or (iv) if a tender or
exchange offer for 20 percent or more of the outstanding shares of DEKALB Class
A Stock is commenced, and the Board of Directors of DEKALB does not recommend
that stockholders not tender their shares.
By DEKALB. DEKALB may terminate the Merger Agreement (i) if Apache fails to
comply in any material respect with any covenant or agreement set forth in the
Merger Agreement, or upon Apache's breach of one or more representations or
warranties not cured within ten business days following notice, which breaches
would in the aggregate have a Material Adverse Effect on Apache, or (ii) if the
Board of Directors of DEKALB, to the extent required by their fiduciary duties
and after consultation with and based upon the advice of outside legal counsel,
resolves to recommend or agrees to a Takeover Proposal that provides
stockholders of DEKALB a value per share of DEKALB Stock in excess of a value
equal to the product of (a) the Exchange Ratio (calculated as if the Effective
Date were the date on which DEKALB's Board of Directors considers termination of
the Merger Agreement) multiplied by (b) the average of the per share closing
prices of Apache Common Stock as reported on the NYSE Composite Tape for the ten
consecutive trading days immediately preceding such date.
See "Certain Terms of the Merger Agreement -- Termination or Amendment of
the Merger Agreement."
BENEFIT PLANS AND SEVERANCE
The Merger Agreement provides that, for at least 24 months after the
Effective Time, Apache will maintain benefit plans (including DEKALB's severance
policy) for employees and officers of DEKALB no less favorable than those
provided on the date of the Merger Agreement. For purposes of eligibility to
participate and vest in various Apache benefit plans, employees of DEKALB and
its subsidiaries will be credited with their years of service with DEKALB and
its subsidiaries. In addition, DEKALB is permitted to pay certain bonuses, in
addition to any bonuses pursuant to existing bonus or incentive plans. See
"Certain Terms of the Merger Agreement -- Benefit Plans and Severance" and "The
Merger -- Interests of Certain Persons in the Merger."
INSURANCE AND INDEMNIFICATION
The Merger Agreement provides that, for a period of six years after the
Effective Time, Apache will, subject to certain limitations, provide to DEKALB's
current directors and officers an insurance and indemnification policy that
covers events through the Effective Time with terms no less favorable than the
directors' and officers' liability insurance currently provided to DEKALB's
directors and officers. In addition, after the Effective Time, Apache (i) will
indemnify all past and present officers and directors of DEKALB to the same
extent that such persons were entitled to be indemnified by DEKALB pursuant to
DEKALB's Restated Certificate of Incorporation, as amended ("DEKALB's Charter"),
DEKALB's Restated Bylaws
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("DEKALB's Bylaws"), or any indemnification agreement, for any acts or omissions
occurring at or prior to the Effective Time, including those in connection with
the Merger, and (ii) will advance reasonable litigation expenses incurred by
such officers and directors in connection with defending any action arising out
of such acts or omissions. See "Certain Terms of the Merger
Agreement -- Insurance and Indemnification."
STOCKHOLDER AGREEMENTS
In consideration for Apache's and Merger Sub's execution of the Merger
Agreement, holders of 1,202,403 shares of DEKALB Class A Stock (or approximately
52 percent of the 2,304,007 shares of DEKALB Class A Stock outstanding on
December 15, 1994) executed stockholder agreements ("Stockholder Agreements")
agreeing to vote all shares of DEKALB Class A Stock owned or controlled by such
persons at any meeting of stockholders of DEKALB (or consent in lieu thereof)
(i) in favor of the Merger and adoption of the Merger Agreement, (ii) against
any act that would result in a breach under the Merger Agreement, and (iii)
except as otherwise agreed to in writing in advance by Apache, against any
business combination, sale of assets or reorganization or recapitalization, any
change in DEKALB's Board of Directors, any amendment of DEKALB's Charter or
DEKALB's Bylaws or corporate structure or business, or any other matter that may
interfere with or adversely affect the contemplated economic benefits to Apache
of the Merger or Merger Agreement. The stockholders signing Stockholder
Agreements also agreed (a) not to solicit, initiate or encourage any Takeover
Proposals, (b) not to grant a proxy to another person, sell or otherwise
transfer or encumber their shares, or convert their shares of DEKALB Class A
Stock into shares of DEKALB Class B Stock, and (c) to waive all appraisal rights
with respect to the Merger. The Stockholder Agreements will terminate
automatically on the earliest to occur of the Effective Time or termination of
the Merger Agreement by its terms. The consequence of the Stockholder Agreements
is that approval of the Merger Agreement at the Special Meeting is expected. See
"Stockholder Agreements."
COMPARATIVE RIGHTS OF APACHE AND DEKALB STOCKHOLDERS
Rights of stockholders of DEKALB are currently governed by Delaware law,
DEKALB's Charter and DEKALB's Bylaws. Upon consummation of the Merger, DEKALB
stockholders will become stockholders of Apache and their rights as stockholders
of Apache will be governed by Delaware law, the Restated Certificate of
Incorporation of Apache ("Apache's Charter") and Apache's Bylaws. There are
various differences between the rights of DEKALB stockholders and the rights of
Apache stockholders. Apache's Charter and certain outstanding debt securities
contain certain provisions that have an anti-takeover effect, and Apache's Board
of Directors has granted to holders of Apache Common Stock rights to purchase
additional shares of Apache Common Stock that also have an anti-takeover effect.
See "Comparative Rights of Apache and DEKALB Stockholders" and "Description of
Apache Capital Stock."
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MARKET PRICES AND DIVIDEND INFORMATION
Apache Common Stock is traded on the NYSE and the Chicago Stock Exchange
under the symbol "APA." The DEKALB Class B Stock is traded in the
over-the-counter market and quoted on the NASDAQ/NMS under the symbol "ENRGB,"
and on The Toronto Stock Exchange, Inc. (the "TSE") under the symbol "DKB.B."
The DEKALB Class A Stock is not traded publicly. The following table sets forth,
for the periods indicated, the range of high and low closing prices per share of
Apache Common Stock as reported on the NYSE Composite Tape and of DEKALB Class B
Stock as reported on the NASDAQ/NMS, and the dividend per share of Apache Common
Stock. Dividends were not paid on the DEKALB Stock during such periods.
<TABLE>
<CAPTION>
APACHE COMMON STOCK DEKALB CLASS B STOCK
-------------------------- --------------------------
HIGH LOW DIVIDEND HIGH LOW DIVIDEND
----- ----- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
1992
First Quarter......................... $15 7/8 $12 $0.07 $14 1/2 $11 3/4 --
Second Quarter........................ 18 1/8 13 7/8 0.07 15 3/4 12 --
Third Quarter......................... 22 1/8 15 1/2 0.07 14 1/4 12 --
Fourth Quarter........................ 21 3/8 17 1/8 0.07 13 1/4 10 1/4 --
1993
First Quarter......................... $26 1/4 $17 5/8 $0.07 $15 $10 3/4 --
Second Quarter........................ 30 1/4 24 3/8 0.07 18 3/4 14 1/4 --
Third Quarter......................... 33 1/2 26 3/8 0.07 17 1/4 15 3/4 --
Fourth Quarter........................ 31 1/4 20 3/8 0.07 17 3/8 13 --
1994
First Quarter......................... $26 7/8 $22 1/2 $0.07 $18 1/2 $13 1/4 --
Second Quarter........................ 29 22 1/4 0.07 15 1/2 13 1/4 --
Third Quarter......................... 29 1/4 23 0.07 16 1/2 15 --
Fourth Quarter........................ 28 7/8 23 5/8 0.07 21 1/2 14 3/4 --
1995
First Quarter*........................ $25 1/2 $22 1/2 $0.07+ $21 1/2 $18 3/4 --
</TABLE>
- ---------------
* Through January 13, 1995.
+ Declared; payable January 31, 1995.
On December 20, 1994, the last trading day prior to the announcement by
Apache and DEKALB that they had executed the Merger Agreement, the closing per
share sales prices of Apache Common Stock as reported on the NYSE Composite
Tape, and DEKALB Class B Stock as reported on the NASDAQ/NMS, were $26.00 and
$15.75, respectively. See the cover page of this Proxy Statement/Prospectus for
recent closing prices of Apache Common Stock and DEKALB Class B Stock.
Following the Merger, Apache Common Stock will continue to be traded on the
NYSE and the Chicago Stock Exchange. Following the Merger, DEKALB Class B Stock
will cease to be traded on the NASDAQ/NMS and on the TSE, and there will be no
further market for the DEKALB Class B Stock.
Apache has paid cash dividends on Apache Common Stock for 112 consecutive
quarters and intends to continue the payment of dividends at current levels,
although future dividend payments will depend upon Apache's level of earnings,
financial requirements and other relevant factors.
13
<PAGE> 19
APACHE
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data of Apache and
subsidiaries shown below as of or for each year in the five year period ended
December 31, 1993 have been derived from Apache's audited consolidated financial
statements, and the unaudited financial data as of or for the nine month periods
ended September 30, 1993 and 1994 have been derived from Apache's unaudited
consolidated financial statements that include, in the opinion of Apache's
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the information for such periods. This data should
be read in conjunction with the consolidated financial statements and related
notes and the report of independent public accountants included in Apache's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993, as
amended by Apache's Form 10-K/A, and the unaudited financial statements and
related notes included in Apache's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1994, each of which is incorporated by reference in
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
AT OR FOR THE YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------------------------ -----------------------
1989 1990 1991(1) 1992 1993 1993 1994
-------- -------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Oil and gas production
revenues............... $199,884 $234,570 $ 316,062 $ 394,552 $ 437,342 $ 319,523 $ 365,106
Consolidated revenues.... 246,850 273,410 356,930 454,300 466,638 341,875 397,303
Net income............... 22,122 40,297 34,615(2) 47,776(3) 37,334 24,168 30,177
Net income per
common share........... .64 .90 .76 1.02 .70 .47 .49
Cash dividends per common
share.................. .28 .28 .28 .28 .28 .21 .21
BALANCE SHEET DATA
Working capital
(deficit).............. $ 24,585 $ 15,678 $ (55,023) $ (43,775) $ (62,450) $ (32,412) $ (35,253)
Total assets............. 764,368 829,634 1,209,291 1,218,704 1,592,407 1,526,388 1,715,449
Long-term debt........... 195,622 194,781 490,988 454,373 453,009 409,356 552,744
Shareholders' equity..... $350,263 $386,780 $ 439,941 $ 475,209 $ 785,854 $ 768,322 $ 807,536
Common shares outstanding
at end of period....... 43,949 44,694 46,855 46,936 61,085 60,658 61,427
</TABLE>
- ---------------
(1) Includes financial data for MW Petroleum Corporation after June 30, 1991.
See Note 1 -- Acquisitions and Divestitures to the audited financial
statements of Apache incorporated herein by reference.
(2) Includes a pre-tax charge of $11.1 million ($7.1 million after-tax)
resulting from the relocation of Apache's headquarters to Houston, Texas.
(3) Includes a gain of $28.3 million before-tax ($18.5 million after-tax)
resulting from the sale by Apache of its 31.7 percent interest in Natural
Gas Clearinghouse.
14
<PAGE> 20
DEKALB
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data of DEKALB and
subsidiaries shown below as of or for each year in the five year period ended
December 31, 1993 have been derived from DEKALB's audited consolidated financial
statements, and the unaudited financial data as of or for the nine month periods
ended September 30, 1993 and 1994 have been derived from DEKALB's unaudited
consolidated financial statements that include, in the opinion of DEKALB's
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the information for such periods. This data should
be read in conjunction with DEKALB's consolidated financial statements and
related notes and the report of independent public accountants included in
DEKALB's Annual Report on Form 10-K for the fiscal year ended December 31, 1993,
and the unaudited financial statements and related notes included in DEKALB's
Quarterly Report on Form 10-Q for the nine months ended September 30, 1994, each
of which accompanies and constitutes a part of this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
AT OR FOR THE YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------------------------------ --------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Oil and gas production
revenues................. $ 78,486 $100,880 $ 92,949 $ 59,283 $ 44,506 $ 32,991 $ 34,356
Consolidated revenues...... $ 81,020 $102,903 $ 94,692 $ 60,733 $ 45,903 $ 34,021 $ 35,443
Net income (loss):
Continuing operations.... $ 9,472 $ 15,526 $(62,586)(1) $(69,253)(1) $ 5,672 $ 3,823 $ 6,056
Discontinued
operations............. 16,456 11,633 -- (1,050)(2) -- -- --
Cumulative effect of
change in accounting
principle.............. -- -- -- -- 5,334 5,334 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......... $ 25,928 $ 27,159 $(62,586) $(70,303) $ 11,006 $ 9,157 $ 6,056
========= ========= ========= ========= ========= ========= =========
Net income (loss) per
share:
Continuing operations.... $ .91 $ 1.50 $ (6.51)(1) $ (7.19)(1) $ .59 $ .40 $ .63
Discontinued
operations............. 1.57 1.12 -- (0.11)(2) -- -- --
Cumulative effect of
change in accounting
principle.............. -- -- -- -- .55 .55 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) per
share.................... $ 2.48 $ 2.62 $ (6.51) $ (7.30) $ 1.14 $ .95 $ .63
========= ========= ========= ========= ========= ========= =========
Cash dividends per
common share............... $ .20 $ .29 $ .08 -- -- -- --
BALANCE SHEET DATA
Working capital
(deficit)................ $ 10,576 $ 2,680 $ (2,570) $ 11,020 $ 6,611 $ 4,196 $ (7,787)
Total assets............... 416,263 558,892 425,031 218,985 210,089 193,287 224,399
Long-term debt............. 51,765 191,799 167,407 69,725 51,325 52,325 51,325
Shareholders' equity....... $242,321 $251,251 $184,357 $ 95,587 $100,599 $ 97,890 $101,535
Common shares outstanding
at end of period......... 10,315 9,768 9,609 9,611 9,606 9,606 9,386
</TABLE>
- ---------------
(1) The 1991 loss reflected U.S. writedowns of $94.2 million pre-tax ($66.0
million after-tax). The 1992 loss reflected a pre-tax loss of $34.9 million
($32.3 million after-tax) on the divestiture of U.S. assets, and writedowns
of $24.7 million (pre- and after-tax) on U.S. properties and $28.6 million
pre-tax ($15.9 million after-tax) on Canadian properties.
(2) The 1992 loss on discontinued operations related to a $0.3 million loss on
divestiture of Lindsay Manufacturing Co., and a $0.75 million loss on
divestiture of a commodities brokerage business.
15
<PAGE> 21
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table contains unaudited pro forma data of Apache (i) to give
effect to the Merger using the pooling of interests method of accounting and
(ii) to give effect to the acquisition of Texaco properties (see "Recent Apache
Developments -- Texaco Acquisition") using the purchase method of accounting.
The operations data assume the Merger occurred on January 1, 1991 and the
Texaco acquisition occurred on January 1, 1993. The Merger pro forma data are
based on audited statements of Apache and DEKALB for December 31, 1991, 1992 and
1993 and on unaudited statements for the nine months ended September 30, 1994.
Pro forma data relative to the Texaco acquisition are based on Texaco's
Unaudited Statement of Combined Revenues and Direct Operating Expenses for the
Oil and Gas Properties of Texaco Exploration and Production Inc. To Be Sold to
Apache Corporation and notes thereto ("Texaco's Unaudited Statement of Revenues
and Direct Operating Expenses") for the year ended December 31, 1993 and the
nine months ended September 30, 1994.
Pro forma balance sheet data are based on Apache's and DEKALB's unaudited
September 30, 1994 balance sheets and the assumed purchase price of $600 million
in the Texaco acquisition.
Per share data reflect an assumption of an Exchange Ratio of 0.90.
The pro forma data should be read in conjunction with the Unaudited Pro
Forma Consolidated Condensed Financial Statements and notes thereto included
elsewhere in this Proxy Statement/Prospectus. The unaudited pro forma operations
data are not necessarily indicative of the operating results that would have
resulted had the Merger occurred on January 1, 1991 and the Texaco acquisition
occurred on January 1, 1993, nor are they necessarily indicative of future
operating results.
<TABLE>
<CAPTION>
DEKALB MERGER AND
DEKALB MERGER TEXACO ACQUISITION
--------------------------------------------- ---------------------------
AT OR FOR AT OR FOR
THE NINE THE NINE
FOR THE YEAR ENDED MONTHS FOR THE MONTHS
DECEMBER 31, ENDED YEAR ENDED ENDED
------------------------------ SEPTEMBER 30, DECEMBER 30, SEPTEMBER 30,
1991 1992 1993 1994 1993 1994
-------- -------- -------- ------------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA
Consolidated revenues....... $453,657 $517,403 $512,632 $ 432,812 $ 725,432 $ 562,912
Income (loss) from
continuing operations..... (27,971) (21,477) 43,006 36,233 48,759 30,331
Income (loss) per common
share from continuing
operations................ (.51) (.39) .69 .52 .78 .43
BALANCE SHEET DATA
Total assets.............. $1,939,848 $2,552,348
Long-term debt............ 604,069 1,204,069
Shareholders' equity...... $ 909,071 $ 909,071
Common shares outstanding
at end of period....... 69,875(1) 69,875(1)
</TABLE>
- ---------------
(1) Assuming an Exchange Ratio of 0.85 would result in 69,405,000 common shares
outstanding at September 30, 1994.
16
<PAGE> 22
COMPARATIVE PER SHARE DATA
Set forth below are the net income, cash dividends and book value per share
of Apache and DEKALB on a historical basis, a pro forma basis for Apache, and an
equivalent pro forma basis for DEKALB. Apache's pro forma dividends per common
share assume dividend payments are consistent with Apache's historical dividend
level. The equivalent pro forma data for DEKALB are calculated by multiplying
the Apache pro forma per common share data by an Exchange Ratio of 0.90 (the
Exchange Ratio resulting from a Market Price of Apache Common Stock of $26.00
per share or less).
The information set forth below should be read in conjunction with the
respective audited and unaudited consolidated financial statements and related
notes of Apache and DEKALB incorporated by reference and included elsewhere in
this Proxy Statement/Prospectus, Texaco's Unaudited Statement of Revenues and
Direct Operating Expenses included herein, and the Unaudited Pro Forma
Consolidated Condensed Financial Statements and notes thereto included elsewhere
in this Proxy Statement/Prospectus.
APACHE
<TABLE>
<CAPTION>
AT OR
FOR
THE
NINE
AT OR FOR THE YEAR MONTHS
ENDED DECEMBER 31, ENDED
--------------------------- SEPTEMBER 30,
APACHE HISTORICAL 1991 1992 1993 1994
----- ------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income per share, from
continuing operations...... $ .76 $ 1.02 $ .70 $ .49
Cash dividends per share..... .28 .28 .28 .21
Book value per common
share...................... 9.39 10.13 12.86 13.15
</TABLE>
<TABLE>
<CAPTION>
DEKALB MERGER AND
DEKALB MERGER TEXACO ACQUISITION
------------------------------------ --------------------
AT OR AT OR
FOR AT OR FOR
THE FOR THE
NINE THE NINE
AT OR FOR THE YEAR MONTHS YEAR MONTHS
ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------ SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
APACHE UNAUDITED PRO FORMA 1991 1992 1993 1994 1993 1994
----- ----- ---- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) per share from
continuing operations(1).... $(.51) $(.39) $.69 $ .52 $ .78 $ .43
Cash dividends per share...... .28 .28 .28 .21 .28 .21
Book value per common share... 13.01 13.01
</TABLE>
- ---------------
(1) Income (loss) per share would not change significantly, assuming an Exchange
Ratio of 0.85.
DEKALB
<TABLE>
<CAPTION>
AT OR
FOR
THE
NINE
AT OR FOR THE YEAR MONTHS
ENDED DECEMBER 31, ENDED
---------------------------- SEPTEMBER 30,
DEKALB HISTORICAL 1991 1992 1993 1994
------ ------ ------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Income (loss) per share
from continuing
operations............... $(6.51) $(7.19) $ .59 $ .63
Cash dividends per share... .08 -- -- --
Book value per common
share.................... 19.19 9.95 10.47 10.82
</TABLE>
(Table continued on following page)
17
<PAGE> 23
<TABLE>
<CAPTION>
DEKALB MERGER AND
DEKALB MERGER TEXACO ACQUISITION
------------------------------------------- ---------------------------
AT OR AT OR
FOR AT OR FOR
THE FOR THE
NINE THE NINE
AT OR FOR THE YEAR MONTHS YEAR MONTHS
ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
DEKALB EQUIVALENT 1991 1992 1993 1994 1993 1994
----- ----- ----- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) per share from
continuing operations(1).. $(.46) $(.35) $ .62 $ .47 $ .70 $ .39
Cash dividends per
share(2).................. .25 .25 .25 .19 .25 .19
Book value per common
share(3).................. 11.71 11.71
</TABLE>
- ---------------
(1) Assumes an Exchange Ratio of 0.90. An assumed Exchange Ratio of 0.85 would
result in the following pro forma income (loss) on a per share equivalent
basis:
<TABLE>
<CAPTION>
DEKALB MERGER AND
DEKALB MERGER TEXACO ACQUISITION
-------------------------------------- --------------------
FOR FOR
THE FOR THE
NINE THE NINE
FOR THE YEAR MONTHS YEAR MONTHS
ENDED DECEMBER 31, ENDED ENDED ENDED
------------------------- SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1991 1992 1993 1994 1993 1994
----- ----- ----- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) per share
from continuing
operations........... $(.44) $(.33) $ .60 $ .44 $ .67 $ .37
</TABLE>
(2) An assumed Exchange Ratio of 0.85 would reduce pro forma equivalent
dividends in each period by $0.01 per share.
(3) Book value on a pro forma equivalency basis would be reduced from $11.71 to
$11.14 per share, assuming an Exchange Ratio of 0.85.
18
<PAGE> 24
THE COMPANIES
APACHE AND MERGER SUB
Apache, a Delaware corporation formed in 1954, is an independent energy
company that explores for, develops, produces, gathers, processes and markets
natural gas and crude oil. In the United States, Apache's exploration and
production interests are spread over 18 states, focusing on the Gulf of Mexico,
the Anadarko Basin of Oklahoma, the Permian Basin of West Texas and New Mexico,
the Gulf Coast and the Rocky Mountain region. Internationally, Apache has
production interests in Australia, and is currently focusing its international
exploration efforts offshore Western Australia, offshore China, offshore Ivory
Coast, and in Indonesia and Egypt. Apache Common Stock has been listed on the
NYSE since 1969. Apache is among the largest independent oil and gas producers
in the United States.
Apache holds interests in many of its U.S. and international properties
through operating subsidiaries, such as MW Petroleum Corporation, Apache Energy
Resources Corporation, Apache Energy Limited and Apache International, Inc.
Apache treats all operations as one segment of business.
Apache's strategy is to expand its oil and gas production, reserves and
cash flow through a combination of acquisitions, moderate-risk drilling and
development of its inventory of properties. Apache also emphasizes reducing
operating costs per unit produced and selling marginal and nonstrategic
properties in order to increase its profit margins.
For Apache, property acquisition is only one phase in a continuing cycle of
business growth. Apache's aim is to follow each material acquisition with a
cycle of reserve enhancement, property consolidation and cash flow acceleration,
facilitating asset growth and debt reduction. This approach requires a
well-planned and carefully executed property development program and a
commitment to a selective program of ongoing property dispositions. It motivates
Apache to target acquisitions that have ascertainable additional reserve
potential and undeveloped and partially developed properties. Apache prefers to
operate its properties so that it can effectively influence their development
and, as a result, Apache currently operates properties accounting for over 75
percent of its production.
Apache increased its reserves and production eight-fold during the decade
ended 1993. In combination with its acquisitions, Apache engages in active
operations to develop and exploit its inventory of workover, recompletion and
other development projects to increase reserves and production. During 1993,
Apache acquired $324.6 million of additional oil and gas properties and replaced
more than 100 percent of its United States production through its drilling,
workover and recompletion program.
Apache's international investments supplement its long-term growth
strategy. Although international exploration is recognized as higher-risk than
most of Apache's United States activities, it offers potential for substantial
rewards and significant reserve additions.
Because production of oil and gas results in depletion of reserves, future
oil and gas production is highly dependent upon Apache's level of success in
adding reserves. Apache adds reserves by acquisition, active exploration and
development, and identification, through engineering studies, of additional
behind-pipe zones or secondary recovery reserves.
XPX Acquisitions, Inc., a wholly owned subsidiary of Apache incorporated in
Delaware on November 29, 1994, has conducted no business other than entering
into the Merger Agreement.
DEKALB
DEKALB is engaged in the exploration for, and the development and
production of, crude oil and natural gas, primarily in Canada. DEKALB's wholly
owned Canadian subsidiary, DEKALB Energy Canada Ltd., concentrates its
exploration and development activity in the provinces of Alberta and British
Columbia. Since the disposition of substantially all of DEKALB's U.S. assets in
1992 and 1993, DEKALB's only remaining U.S. activity is related to one
non-operated interest in an oil well in California and acreage adjacent thereto.
DEKALB's operations are largely dependent upon its ability to discover or
acquire reserves of oil and natural gas, to produce oil and natural gas in
commercial quantities, and to obtain additional unproved oil and
19
<PAGE> 25
gas lands by lease, option, concession, or otherwise. The prices obtained for
the sale of oil and natural gas depend upon numerous factors, most of which are
beyond the control of DEKALB, including domestic and foreign production rates of
oil and natural gas, market demand, and effects of government regulations and
incentives.
RECENT APACHE DEVELOPMENTS
CRYSTAL ACQUISITION
On December 30, 1994 (effective as of October 1, 1994), Apache purchased,
for approximately $96.4 million, substantially all of the U.S. oil and gas
properties of Crystal Oil Company ("Crystal"), which added approximately 92 Bcf
of gas and 5 MMbbls of oil (approximately 20 MMboe in the aggregate) to Apache's
net proved reserves. The producing properties acquired from Crystal are located
primarily along the Arkansas-Louisiana border and in southern Louisiana, and
daily production at the time of acquisition was approximately 20 MMcf of gas and
2,700 bbls of oil. The acquisition also included approximately 40,000 net
undeveloped mineral acres in southern Louisiana. Apache acquired an average 80
percent working interest in the properties overall, including a 97 percent
working interest in two fields that account for approximately 60 percent of the
value. Apache funded the Crystal acquisition by borrowing under its principal
revolving bank credit facility.
TEXACO ACQUISITION
On December 22, 1994, Apache executed a purchase and sale agreement with
Texaco providing for the purchase by Apache from Texaco of approximately $600
million of oil and gas properties, subject to adjustment. It is expected that
the properties will include proved reserves of approximately 220 Bcf of gas and
81 MMbbls of oil. On an energy equivalent basis, the reserves to be acquired by
Apache total approximately 118 MMboe and are approximately 69 percent crude oil.
Average current daily production is approximately 21 Mbbls of oil and 90 MMcf of
gas.
The Texaco properties are highly concentrated, with approximately
two-thirds of the reserves located in 54 fields, and are in producing regions
where Apache has existing operations -- the Permian Basin, the Gulf Coast of
Texas and Louisiana, western Oklahoma, eastern Texas, the Rocky Mountains and
the Gulf of Mexico. Apache will operate approximately two-thirds of the
production and acquire an average of approximately a 70 percent working interest
in the operated properties. The total acquisition will include approximately
500,000 net mineral acres, as well as a substantial quantity of seismic data.
The Texaco transaction is expected to close in the first quarter of 1995
following receipt of required regulatory approvals and satisfaction of customary
closing conditions. It is currently anticipated that Apache will fund the Texaco
transaction with borrowings under its existing revolving bank credit facility
and with the net proceeds from recently issued Debentures (as defined below).
FINANCING ACTIVITIES
On January 4, 1995, Apache closed the placement of 6% Convertible
Subordinated Debentures due January 15, 2002 (the "Debentures"). The Debentures
were issued in transactions exempt from registration under the Securities Act.
The Debentures are redeemable by Apache no earlier than January 15, 1998, and
are subordinated in right of payment to all senior indebtedness of Apache. The
Debentures are convertible at the option of the holders into Apache Common Stock
at a conversion price of $30.68 per share, subject to adjustment. The aggregate
principal amount of the Debentures placed, including the overallotment option,
which was exercised in full, was $172.5 million. The net proceeds from the
Debentures of $168.6 million will be used to fund in part the Texaco acquisition
described above but were initially used for general corporate purposes,
including the repayment of borrowings under Apache's existing revolving bank
credit facility.
Apache is currently engaged in discussions with the lenders under its
existing revolving bank credit facility to substantially increase the total
funds available thereunder in order to fund, among other things, the Texaco
acquisition. No commitments have been received from such lenders, and no
assurances can be given
20
<PAGE> 26
that adequate commitments will be received or that funds will be available under
such facility to fund the Texaco acquisition.
THE SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE OF SPECIAL MEETING
The Special Meeting will be held on , , 1995, at
the offices of DEKALB on the 10th Floor, 700-9th Avenue S.W., Calgary, Alberta,
Canada T2P 3V4, commencing at 9:00 a.m. local time, for the purpose of (i)
considering and voting upon a proposal to approve and adopt the Merger
Agreement, as required under the DGCL, and (ii) transacting such other business
as may properly come before the Special Meeting.
RECORD DATE AND SHARES ENTITLED TO VOTE
Holders of record of both DEKALB Class A Stock and DEKALB Class B Stock at
the close of business on the Record Date are entitled to notice of the Special
Meeting, but only holders of record of DEKALB Class A Stock at the close of
business on the Record Date are entitled to vote at the Special Meeting. Under
the terms of DEKALB's Charter and the DGCL, the holders of record of DEKALB
Class B Stock are not entitled to vote at the Special Meeting.
On the Record Date, there were approximately holders of record of
DEKALB Class A Stock and shares of DEKALB Class A Stock
outstanding. Each share of DEKALB Class A Stock entitles the holder thereof to
one vote on each matter to be acted upon at the Special Meeting. See "Principal
Stockholders of Apache and DEKALB -- DEKALB" for information regarding persons
known to DEKALB to be the beneficial owners of more than five percent of the
outstanding DEKALB Class A Stock.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. If a
holder of DEKALB Class A Stock executes and returns a proxy and does not specify
otherwise, the shares represented by such proxy will be voted "for" approval and
adoption of the Merger Agreement in accordance with the recommendation of the
Board of Directors of DEKALB. A holder of DEKALB Class A Stock who has executed
and returned a proxy may revoke it at any time before it is voted at the Special
Meeting by (i) executing and returning a proxy bearing a later date, (ii) filing
written notice of such revocation with the Secretary of DEKALB stating that the
proxy is revoked, or (iii) attending the Special Meeting and voting in person.
QUORUM AND VOTE REQUIRED
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of DEKALB Class A Stock entitled to vote
thereat will constitute a quorum for the transaction of business, and approval
and adoption of the Merger Agreement requires the affirmative vote of a majority
of the outstanding shares of DEKALB Class A Stock entitled to vote thereon. On
the Record Date, there were shares of DEKALB Class A Stock
outstanding and entitled to vote at the Special Meeting. In determining whether
the Merger Agreement has received the requisite number of affirmative votes,
abstentions and broker non-votes will have the same effect as votes against the
Merger Agreement. As of the Record Date, holders of 1,202,403 shares of DEKALB
Class A Stock (or approximately 52 percent of the shares outstanding as of
December 15, 1994) have executed Stockholder Agreements agreeing to vote in
favor of the Merger and adoption of the Merger Agreement. Consequently, approval
of the Merger Agreement at the Special Meeting is expected. See "Stockholder
Agreements."
21
<PAGE> 27
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers, employees and
agents of DEKALB may solicit proxies from the holders of DEKALB Class A Stock by
personal interview, telephone, telegram or otherwise. Arrangements will also be
made with brokerage firms and other custodians, nominees and fiduciaries who
hold of record DEKALB Class A Stock for the forwarding of solicitation materials
to the beneficial owners thereof. DEKALB will reimburse such brokers,
custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses
incurred by them in connection therewith. Apache and DEKALB will each pay
one-half of the cost of printing and mailing this Proxy Statement/Prospectus and
soliciting stockholder approvals if the Merger is not consummated. Neither
Apache nor DEKALB has engaged the services of any third party to distribute
proxy solicitation materials to brokers, banks or other nominees or to assist in
the solicitation of proxies from DEKALB stockholders.
OTHER MATTERS
At the date of this Proxy Statement/Prospectus, the Board of Directors of
DEKALB does not know of any business to be presented at the Special Meeting
other than as set forth in the notice accompanying this Proxy
Statement/Prospectus. If any other matters should properly come before the
Special Meeting, it is intended that the shares of DEKALB Class A Stock
represented by proxies at the Special Meeting will be voted with respect to such
matters in accordance with the judgment of the persons voting such proxies.
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the Effective Time, Merger Sub will
merge with and into DEKALB with DEKALB becoming the Surviving Corporation and a
wholly owned subsidiary of Apache pursuant to Section 251 of the DGCL. Under
Section 259 of the DGCL, the Surviving Corporation will possess the assets and
liabilities of Merger Sub and DEKALB by operation of law at the Effective Time.
In the Merger, each outstanding share of DEKALB Stock (except for 220,000 shares
of DEKALB Class B Stock owned by a subsidiary of DEKALB, which will remain
outstanding and which will not be converted into the right to receive Apache
Common Stock) will be converted into the right to receive between 0.85 and 0.90
shares of Apache Common Stock, with the Exchange Ratio determined by adding to
0.85 an amount equal to 0.0125 multiplied by the difference between $30 and the
Market Price of Apache Common Stock (which will be the average of the per share
closing prices of Apache Common Stock as reported on the NYSE Composite Tape
during the ten consecutive trading days ending on (and including) the third
trading day prior to the Effective Time). If the Market Price is $26 or lower,
the Exchange Ratio will be 0.90, and if the Market Price is $30 or higher, the
Exchange Ratio will be 0.85. Any resulting fractional shares of Apache Common
Stock will be settled in cash.
Depending on the Market Price and the number of shares of DEKALB Stock
outstanding as of the Record Date, between and shares of
Apache Common Stock will be issuable pursuant to the Merger Agreement (assuming
no exercise of DEKALB Options prior to the Effective Time and no cancellation of
DEKALB Options in exchange for Apache Common Stock), representing between
approximately percent and percent of the total Apache Common Stock
expected to be outstanding after such issuance.
BACKGROUND
DEKALB reported significant writedowns of its U.S. oil and gas assets in
May 1991, and of its U.S. and Canadian oil and gas assets in March 1992,
resulting from value adjustments based on declines in oil and gas prices.
DEKALB announced in December 1991 that its 1992 capital expenditures would
be about $30 million during 1992, down approximately 35 percent from the 1991
spending level, and that 1992 capital expenditures
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would focus principally on Canadian exploration opportunities. In connection
therewith, significant reductions were effected in DEKALB's U.S. work force.
On July 8, 1992, DEKALB entered into an agreement to sell all of its U.S.
oil and gas properties, except those located in California, to Louis Dreyfus Gas
Holdings Inc. ("Dreyfus"). The Dreyfus transaction was consummated on October
16, 1992. DEKALB essentially completed the divestiture of its U.S. oil and gas
properties by selling all but one of its California properties (a non-operating
interest) to Samedan Oil Corporation in 1993. The decision to dispose of its
U.S. properties and to concentrate its activities in Canada followed
unsuccessful attempts by DEKALB over several years to bring its high U.S.
finding and development costs, and low reserve replacements, to competitive
levels.
On January 1, 1993, DEKALB's principal executive offices and all corporate
functions were relocated from Denver, Colorado to Calgary, Alberta.
Following these measures, DEKALB's operating results improved in both 1993
and 1994. In 1994 DEKALB listed the DEKALB Class B Stock on the TSE so that
there would be trading markets for the DEKALB Class B Stock in both the United
States and Canada. Despite DEKALB's improved operating results, the continuation
of low world and domestic oil and North American gas prices and the general lack
of enthusiasm for energy equities in the securities markets have resulted in
sales prices for DEKALB Stock remaining well below levels reflective of the
stockholder value which management sought to achieve through this corporate
restructuring.
Between the consummation of the transaction with Dreyfus in October 1992
and the execution of the Merger Agreement on December 21, 1994, more than 20
separate companies, from time to time, expressed to DEKALB or to DEKALB's
financial advisor, Merrill Lynch, varying degrees of interest in acquiring
DEKALB's operations. At DEKALB's request, Merrill Lynch assisted DEKALB in
reviewing, evaluating and screening such unsolicited inquiries. Some of these
expressions of interest resulted in meetings between officers of certain of the
companies and officers of DEKALB. In the course of and as a result of the review
of such inquiries, from time to time DEKALB authorized Merrill Lynch to supply,
subject to confidentiality agreements, proprietary information to certain of the
companies that expressed a strong degree of interest and that were viewed by
DEKALB as capable of potentially consummating an acceptable transaction. During
this period DEKALB entered into confidentiality agreements with a total of eight
companies.
Periodically during late 1992 and the first half of 1993, DEKALB management
advised the Executive Committee of DEKALB's Board of Directors and/or the full
Board of certain expressions of interest.
In order to provide DEKALB's Board with relevant information to enable it
to evaluate these expressions of interest, in mid-1993 management requested
Merrill Lynch to provide certain information on the valuation of energy
companies and to identify energy companies that might have an interest in
acquiring DEKALB. Beginning on July 28, 1993, representatives of Merrill Lynch
attended most of the meetings of the Board, as discussed below. At the meeting
of DEKALB's Board held on July 28, 1993, representatives of Merrill Lynch
reviewed with the Board oil and gas price forecasts, market valuations of
certain energy companies in relation to their reserves and financial results,
and recent Canadian and U.S. oil and gas acquisitions. They further discussed
various companies that had provided unsolicited indications of interest in
entering into a transaction with DEKALB, as well as other companies identified
by Merrill Lynch that might have a potential interest in acquiring DEKALB.
Merrill Lynch continued to screen and communicate with companies interested
in acquiring DEKALB, and in the fall of 1993 DEKALB entered into confidentiality
agreements with three such companies. During the first half of 1994, these three
companies were provided the opportunity to visit with and obtain confidential
information about DEKALB from Ryder Scott Company Petroleum Engineers ("Ryder
Scott"), its independent petroleum engineers, and Coopers & Lybrand, its
independent public accountants.
At a Board meeting held on February 25, 1994, representatives of Merrill
Lynch provided (i) an overview of the energy industry, including, among other
things, the then current oil and gas prices as well as Merrill Lynch's forecasts
for oil and gas prices; a discussion of valuation methodologies pertinent to the
energy industry; and a summary of the then current economic climate for energy
company acquisitions, and (ii) a
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preliminary reference value analysis (prepared without the benefit of a
comprehensive due diligence review), including a comparison of stock trading
multiples of other Canadian energy companies with DEKALB's stock trading
multiples. Merrill Lynch also provided a status report concerning communications
with companies that had expressed interest in potential transactions with
DEKALB.
At a Board meeting held on May 18, 1994, representatives of Merrill Lynch
reviewed with the Board the terms of nonbinding proposals from each of the three
companies that had received confidential information, as well as Merrill Lynch's
assessment of the economic environment in the energy industry. The Board
determined that none of the three proposals was likely to lead to a transaction
that would be acceptable to the Board. DEKALB advised the three companies that
it was not interested in pursuing their proposals and requested that they
destroy or return the confidential information in their possession. The Board
also concluded that it was unlikely that an acceptable transaction could be
negotiated at that time. Nevertheless, subsequent to the May 18, 1994 meeting,
DEKALB continued to receive unsolicited expressions of interest.
In mid-September 1994, one of DEKALB's most promising young executives
unexpectedly passed away. Because people in the industry were aware of his
importance to DEKALB, there was an intensification of expressions of interest
concerning DEKALB's willingness to enter into a transaction, which resulted in
the execution of confidentiality agreements with five additional companies,
including Apache, and renewed contacts with companies that had previously
expressed an interest.
The first indication of Apache's interest in DEKALB occurred in late
September 1994, when a representative of Apache's financial advisor informed a
director of DEKALB that Apache was interested in discussing the possibility of a
business combination. DEKALB referred the inquiry to Merrill Lynch and asked
Merrill Lynch to provide certain proprietary information to Apache subject to a
confidentiality agreement dated October 18, 1994. At meetings of the Executive
Committee of the Board held on October 19 and 28, 1994 the interest in DEKALB
expressed by a number of companies, including Apache, was discussed.
Pursuant to the confidentiality agreements, DEKALB arranged for Apache and
four other companies to receive access to information regarding DEKALB's
business from representatives of Ryder Scott, Coopers & Lybrand and Merrill
Lynch. At Apache's request, on October 29, 1994, officers of Apache and DEKALB
met to discuss a possible business combination and the process necessary to
determine the desirability of such a combination. In early November 1994, at
DEKALB's request, Merrill Lynch advised each of the five companies, including
Apache, that DEKALB's Board was scheduled to meet on November 9, 1994 and that
if such company wished the Board to consider a proposal, it should be submitted
in writing in advance of the meeting.
On November 8, 1994, the five companies, including Apache, delivered
nonbinding proposals (one of which was not in writing) for an acquisition of
DEKALB subject in each case, among other things, to the completion of
appropriate due diligence by the parties. The DEKALB Board of Directors held its
regularly scheduled meeting on November 9, 1994. Merrill Lynch representatives
participated in part of that meeting. The Merrill Lynch representatives
discussed the then current business and stock market environment and the then
current merger and acquisition environment for energy companies. Representatives
of Merrill Lynch reviewed with the Board Merrill Lynch's preliminary reference
value analysis (prepared without the benefit of a comprehensive due diligence
review), including a comparison of stock trading multiples of other Canadian
energy companies with DEKALB's stock trading multiples. Merrill Lynch then
provided a detailed report about the status of recent discussions with those
energy companies that had submitted more detailed proposals for a transaction
with DEKALB as well as the status of discussions with other companies that had
recently expressed interest in a transaction with DEKALB. The Board determined
that the Apache proposal was the most likely to provide DEKALB stockholders with
fair value and lead to an acceptable transaction, and thus was preferable to the
other proposals. However, the Board instructed management and Merrill Lynch to
seek clarification of certain of the proposals.
On November 16, 1994, after DEKALB received such clarifications, DEKALB and
Apache agreed to a comprehensive exchange of additional data subject to their
confidentiality agreement. DEKALB also agreed, as required by the terms of
Apache's proposal, to grant to Apache an exclusivity period expiring December
12, 1994, during which DEKALB would not solicit, discuss, negotiate or provide
information with regard to, any
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third party proposals for a business combination except to the extent necessary
to comply with fiduciary obligations under applicable law.
On November 22, 1994, DEKALB and Merrill Lynch entered into an engagement
letter. See "-- Opinion of Merrill Lynch as DEKALB's Financial Advisor."
During the period beginning on November 21, 1994, and continuing through
December 20, 1994, DEKALB and Apache each conducted on-site due diligence of the
other.
Beginning December 6, 1994, representatives of Apache and DEKALB met to
discuss various business and legal issues relating to the possible combination,
and prepared and revised successive preliminary drafts of a merger agreement
that set forth the basic structure of the proposed business combination. Forms
of stockholder agreements and agreements to be entered into by "affiliates" of
DEKALB were also prepared.
On December 8, 1994, Apache's Board of Directors met to receive and to
consider presentations by Apache management and its advisors concerning a
business combination between Apache and DEKALB. After detailed discussion and
review, the Apache Board authorized the officers of Apache to negotiate a merger
with DEKALB. On December 12, 1994, representatives of Apache met with
representatives of DEKALB and proposed certain merger terms.
From December 13, 1994 through December 20, 1994, representatives of DEKALB
and its advisors continued to meet and negotiate with representatives of Apache
and its advisors. The parties also: continued their due diligence efforts;
negotiated most of the terms of the proposed merger agreement, the remaining
legal and structural issues and other transaction documents; discussed the
details of the proposed business combination; and completed the schedules to the
proposed merger agreement.
On December 19, 1994, DEKALB's Board of Directors held a meeting by
telephone conference. The Chairman reviewed with the Board developments in
DEKALB's business and in the oil and gas industry since the disposition of
DEKALB's U.S. properties, including the interests that had been expressed by
other companies in acquiring DEKALB, including the exchange of information with
other companies. He also reviewed the process which led to management's proposal
that the Board consider approval of the proposed merger agreement with Apache.
He described in detail the Apache negotiations. The Chairman, with the
assistance of legal counsel, described the more important provisions of the
proposed merger agreement and the proposed stockholder agreements and described
for the Board the process by which it was contemplated that the vote of the
holders of DEKALB Class A Stock approving the Merger would be solicited and
obtained and the Merger would be consummated. He urged the directors to review
the drafts of the proposed merger agreement which had been provided to them. The
Board, following discussion, determined not to pursue a transaction with any
other company at that time because: (i) no other company had expressed an
interest in DEKALB which was acceptable to the Board for a variety of reasons,
including price, structure, timing and various uncertainties; and (ii) Apache
was unwilling to continue the negotiations if DEKALB pursued possible
transactions with other companies. The Chairman reviewed the matters to be
considered at the Board meeting scheduled for December 20, 1994, including a
presentation by Apache management, formal and more detailed presentations to the
Board by DEKALB management, Merrill Lynch and legal counsel, and consideration
of the proposed transaction by the Board.
On December 20, 1994, representatives of Apache met with certain holders of
DEKALB Class A Stock and with DEKALB's Board of Directors to discuss the
business and prospects of Apache and the terms of the Merger. Certain of those
stockholders, and other stockholders who had been invited to but did not attend
the meeting, were advised of the requirement by Apache that, following approval
of the Merger Agreement by DEKALB's Board of Directors, such stockholders
deliver to Apache signed Stockholder Agreements obligating the holders of a
majority of the outstanding DEKALB Class A Stock to vote in favor of the Merger
Agreement. See "Stockholder Agreements." DEKALB's Board was advised that holders
of a majority of the outstanding shares of DEKALB Class A Stock were prepared to
sign the required Stockholder Agreements and desired that DEKALB enter into the
proposed merger agreement with Apache.
On December 20, 1994, DEKALB's Board of Directors met and again reviewed
proposals that DEKALB had previously received for the purpose of evaluating the
proposed business combination with Apache.
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DEKALB's Board of Directors reviewed the material terms of the business
combination that representatives of Apache and DEKALB had negotiated to that
point, including the material terms of the draft merger agreement and form of
stockholder agreement. The Board received a written opinion dated December 20,
1994 from Merrill Lynch that, as of that date, based upon the procedures and
subject to the assumptions described therein, the Exchange Ratio was fair from a
financial point of view to the holders of DEKALB Stock. Receipt of the written
opinion was preceded by an oral report from Merrill Lynch representatives who
described the basis for its opinion and the procedures performed in reaching
such opinion. See "-- Opinion of Merrill Lynch as DEKALB's Financial Advisor."
The Board also received detailed reports from members of DEKALB's management
concerning the results of the due diligence they performed as to Apache and from
Merrill Lynch and DEKALB's management with respect to certain financial and
reserve information about DEKALB and Apache. DEKALB's legal counsel reported on
the results of legal due diligence of Apache and made a presentation to the
Board concerning the Board's fiduciary duties to DEKALB's stockholders in
connection with a business combination. After careful consideration of all
matters, the Board directed DEKALB's management to negotiate further certain of
the draft merger agreement terms with Apache and determined to meet again the
next day.
On December 21, 1994, DEKALB's Board of Directors met again. The Board
received a report concerning the results of the prior night's negotiations with
Apache. After reviewing the results of such further negotiations, DEKALB's due
diligence investigation of Apache, the material terms of the Merger Agreement
and of the Stockholder Agreements and further considering Merrill Lynch's
written opinion dated December 20, 1994 that, as of such date, the Exchange
Ratio was fair from a financial point of view to the holders of DEKALB Stock,
the Board approved the Merger and authorized the execution and delivery of the
Merger Agreement, which required as a condition to Apache's execution thereof
the execution and delivery of the Stockholder Agreements. Shortly thereafter,
the Stockholder Agreements were executed and delivered and the Merger Agreement
was executed and delivered.
CERTAIN INFORMATION PROVIDED
In connection with the discussions between Apache and DEKALB described
above, Apache provided to DEKALB confidential information and internal analyses,
including certain preliminary financial forecasts with respect to Apache's
operating results, cash flows and financing activities, capitalization and
capital expenditures for 1994 and 1995, and the assumptions on which such
preliminary financial forecasts were based. Such preliminary financial forecasts
were developed by Apache for internal use only, were not prepared with the
intent that they would be publicly distributed, were based on numerous
assumptions (many of which are beyond the control of Apache) and are not
necessarily indicative of future results.
In connection with the discussions between Apache and DEKALB described
above, DEKALB provided to Apache confidential information and internal analyses,
including certain internal operating budgets relating to DEKALB's 1994 and 1995
fiscal years, and the assumptions on which such budgets were based. Such
internal operating budgets were prepared by DEKALB for internal use only, were
not prepared with the intent that they would be publicly distributed, were based
on numerous assumptions (many of which are beyond the control of DEKALB) and are
not necessarily indicative of future results.
APACHE'S REASONS FOR THE MERGER
With increased access to natural gas markets following the completion of
several transportation systems during the last several years, western Canada's
oil and gas industry has experienced a significant increase in drilling and
exploration activity. Reduced delays in the connection of new gas wells along
with increased production allowable rates have contributed to a substantially
improved operating environment with greater access to pipeline capacity and
markets.
Operating in all major gas producing basins in North America outside of
Canada, Apache has been looking since 1990 to reestablish a base of operations
in western Canada because of growth potential and an improved business
environment. Canada's Western Sedimentary Basin is estimated to hold more gas
reserves than any other basin in North America, yet it is still underexplored
relative to the U.S. and undeveloped
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acreage is still relatively accessible. Apache believes that the recent
completion of several pending and proposed gas pipeline expansion projects will
unlock Western Canada's exploration and development potential by
de-bottlenecking transportation constraints and tapping growing gas markets.
The proposed Merger represents a significant step in Apache's objective of
reestablishing an operating presence in Canada. Apache's management believes
that DEKALB represents an attractive operating hub in Canada that has the
critical mass and established organizational structure to enable Apache to
initiate activity in the basin without the delays and expenses typically
associated with start-up operations. In addition, Apache is attracted to DEKALB
because its properties are relatively shallow, primarily self-operated and have
the potential for exploitation and exploration. DEKALB's properties also have a
higher reserve to production ratio, and Apache foresees an increase in its
reserve life index. Finally, DEKALB has an experienced and capable staff with a
record of growing its oil and gas reserves.
For the foregoing reasons, Apache's Board of Directors believes that the
Exchange Ratio and the other terms of the Merger Agreement are fair to, and in
the best interests of, Apache and the stockholders of Apache. In reaching its
conclusion, Apache's Board considered the judgment and advice of Apache's
management, the prior financial performance and future operating prospects of
DEKALB, the reasonableness of achieving prospective future incremental revenues
from the combined operation, the financial flexibility offered by the
combination, the terms of the Merger Agreement, and the risks associated with
achieving expected results. At Apache's regular Board meeting held on December
9, 1994, all directors in attendance expressed support for the Merger and voted
to approve the Merger. The final form of the Merger Agreement as executed was
ratified and approved by unanimous written consent of the directors of Apache.
DEKALB'S REASONS FOR THE MERGER; RECOMMENDATION OF DEKALB'S BOARD OF DIRECTORS
The Merger, including the Merger Agreement and the transactions
contemplated thereby, was submitted to DEKALB's Board of Directors and
unanimously approved at a special meeting held on December 21, 1994 attended by
all members of the Board. The DEKALB Board of Directors believes that the Merger
is fair to, and in the best interests of, DEKALB and its stockholders and
unanimously recommends to the holders of DEKALB Class A Stock that they vote FOR
adoption and approval of the Merger Agreement. As described above under
"-- Background," sales prices for DEKALB Stock prior to public announcement of
the Merger Agreement have remained well below levels reflective of stockholder
value. By contrast, management believes that the recommended Merger with Apache
has been structured to produce DEKALB stockholder value which is fair to
DEKALB's stockholders and which management sought to achieve. Accordingly,
DEKALB's Board of Directors and management have concluded that it was
appropriate to enter into the Merger Agreement.
In addition, the Board of Directors considered, among other things, the
following factors in approving and recommending the Merger: (i) the written
opinion of Merrill Lynch dated December 20, 1994 that, as of such date, the
Exchange Ratio was fair from a financial point of view to the holders of DEKALB
Stock (see "-- Opinion of Merrill Lynch as DEKALB's Financial Advisor"); (ii)
information with respect to the historical financial condition, results of
operations, business and prospects of DEKALB and of Apache, including reserve
information, together with current industry, economic and market conditions;
(iii) information with respect to the pro forma financial condition and results
of operations of Apache, assuming consummation of the Merger; (iv) recent and
historical trading prices of DEKALB Class B Stock, and ratios at which common
stock of oil and gas exploration and production companies, including Apache, had
been trading; (v) the fact that the Apache Common Stock to be received by the
holders of DEKALB Stock in the Merger was trading at prices substantially in
excess of the trading prices of DEKALB Class B Stock prior to the December 21,
1994 DEKALB Board meeting; (vi) the history of unsolicited indications of
interest from more than 20 companies (including the eight companies that signed
confidentiality agreements, which were among those identified by Merrill Lynch
as being the most likely to have an interest in acquiring DEKALB) and the
opinion of DEKALB's Board of Directors that none of the other interests
expressed was at the level of value provided by the Merger Agreement on December
21, 1994; (vii) reports from various members of DEKALB's management concerning
the results of the due diligence they performed as to Apache; (viii) the fact
that Apache Common Stock has reasonable trading liquidity; (ix) the structure of
the
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Merger, which would provide equal consideration to holders of DEKALB Class A
Stock and DEKALB Class B Stock and would permit holders of DEKALB Stock who are
United States persons to exchange such DEKALB Stock for shares of Apache Common
Stock without, in general, recognizing gain or loss for U.S. federal income tax
purposes; (x) the fact that the holders of a majority of the outstanding shares
of DEKALB Class A Stock desired that DEKALB accept Apache's proposal; (xi) the
presentation of Apache management regarding Apache and Apache's reasons to
effect the Merger, including its stated interest in reestablishing its activity
in Canada and its views as to potential Canadian reserves, which indicated a
strong desire to consummate the Merger; (xii) DEKALB management's view that the
information provided to Apache in its due diligence investigation of DEKALB
would not reasonably be expected to result in appreciably enhanced expressions
of interest if provided to other companies; (xiii) the fact that there are no
dissenters' rights for holders of DEKALB Class B Stock; (xiv) the terms, and the
course of negotiations resulting in the financial and other terms, of the Merger
Agreement, including Apache's insistence on terms which could inhibit
consideration of a higher-valued proposal; (xv) DEKALB's ability to accept a
superior offer (subject to certain restrictions) without any financial penalty;
(xvi) alternatives available to DEKALB, including management succession issues;
and (xviii) management's recommendation and the knowledge and experience of the
members of DEKALB's Board of Directors.
Although basing its conclusion upon the different considerations discussed
above, the DEKALB Board of Directors did not assign any relative weight to the
various factors it considered in reaching its decision. The Board of Directors,
however, placed emphasis on the fact that the Apache offer was the highest
proposal received, the firmness of the Apache proposal and the high degree of
interest of Apache in accomplishing the transaction, and its belief, as
supported by the Merrill Lynch opinion, that, as of the date of Merrill Lynch's
opinion, the Exchange Ratio was fair from a financial point of view to holders
of DEKALB Stock. In light of such factors, the Board determined that the Merger
is in the best interests of DEKALB and the holders of DEKALB Stock.
It is expected that if the Merger is not approved by the holders of DEKALB
Class A Stock, or if the other conditions to the consummation of the Merger are
not satisfied or waived, DEKALB's management, under the general direction of the
Board of Directors of DEKALB, will continue to manage DEKALB as an ongoing
business and may seek other purchasers for DEKALB. No assurance can be given
that another offer for DEKALB will be made or, if made, whether the
consideration would be more or less than that offered by Apache.
OPINION OF MERRILL LYNCH AS DEKALB'S FINANCIAL ADVISOR
At the special meeting of DEKALB's Board of Directors held on December 20,
1994 to consider entering into the Merger Agreement, Merrill Lynch delivered its
written opinion, dated December 20, 1994, that, as of such date, the Exchange
Ratio was fair from a financial point of view to holders of DEKALB Stock. A copy
of the opinion of Merrill Lynch which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Appendix II
to this Proxy Statement/Prospectus and is incorporated herein by reference. The
summary of the opinion of Merrill Lynch set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion attached as Appendix II hereto. STOCKHOLDERS OF DEKALB ARE URGED
TO READ CAREFULLY THE OPINION IN ITS ENTIRETY.
Merrill Lynch's opinion is directed only to the fairness from a financial
point of view of the Exchange Ratio to the holders of DEKALB Stock and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote at the Special Meeting. The Exchange Ratio was determined through
negotiations between DEKALB and Apache and was unanimously approved by DEKALB's
Board of Directors. Merrill Lynch provided advice to DEKALB during the course of
such negotiations, but did not make a recommendation with respect to the amount
of the Exchange Ratio.
In arriving at its opinion, Merrill Lynch, among other things: (i) reviewed
DEKALB's Annual Reports, Forms 10-K and related financial information for the
three fiscal years ended December 31, 1993 and DEKALB's Forms 10-Q and the
related unaudited financial information for the quarterly periods ended March
31, 1994, June 30, 1994 and September 30, 1994; (ii) reviewed Apache's Annual
Reports, Forms 10-K
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and related financial information for the three fiscal years ended December 31,
1993 and Apache's Forms 10-Q and the related unaudited financial information for
the quarterly periods ended March 31, 1994, June 30, 1994 and September 30,
1994; (iii) reviewed certain information relating to the business, earnings,
cash flow and assets of DEKALB and Apache furnished to Merrill Lynch by DEKALB
and Apache, respectively; (iv) reviewed financial forecasts for DEKALB furnished
to Merrill Lynch by DEKALB; (v) reviewed certain reserve and reserve production
estimates for 1993 and 1994 for DEKALB and Apache prepared by DEKALB and Apache,
respectively, and the reserve audit letters for 1993 for DEKALB and Apache,
respectively, prepared by Ryder Scott, and discussed such reserve and reserve
production estimates with DEKALB, Apache, and Ryder Scott, respectively; (vi)
considered the pro forma effect of the pending acquisitions by Apache of U.S.
assets of Crystal and certain oil and gas assets of Texaco; (vii) conducted
discussions with members of senior management of DEKALB and Apache concerning
their respective businesses and prospects; (viii) reviewed the historical market
prices and trading activity for the shares of DEKALB Class B Stock and Apache
Common Stock and compared them with that of certain publicly traded companies
which Merrill Lynch deemed to be reasonably similar to DEKALB and Apache,
respectively; (ix) compared the results of operations of DEKALB and Apache with
that of certain companies which Merrill Lynch deemed to be reasonably similar to
DEKALB and Apache, respectively; (x) compared the proposed financial terms of
the Merger with the financial terms of other mergers and acquisitions which
Merrill Lynch deemed to be relevant; (xi) reviewed a draft dated December 18,
1994 of the Merger Agreement; and (xii) reviewed such other financial studies
and analyses and performed such other investigations and took into account such
other matters as Merrill Lynch deemed necessary, including Merrill Lynch's
assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
DEKALB and Apache, and Merrill Lynch did not independently verify such
information or undertake an independent appraisal of the assets of DEKALB or
Apache. With respect to the reserve-related information furnished by DEKALB and
Apache, Merrill Lynch assumed that they were reasonably prepared and reflected
the best currently available estimates and judgment of the managements of DEKALB
and Apache as to the reserves of DEKALB or Apache, as the case may be. With
respect to the financial forecasts furnished by DEKALB, Merrill Lynch assumed
that they were reasonably prepared and reflected the best currently available
estimates and judgment of DEKALB's management as to the expected future
financial performance of DEKALB. Merrill Lynch also assumed (i) that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Code and will not result in any liability to DEKALB under the Canadian Tax Act,
and (ii) that the Merger will be accounted for as a "pooling of interests" in
accordance with generally accepted accounting principles.
Merrill Lynch's opinion was based upon market, economic, financial and
other conditions as they existed and could be evaluated as of the date of such
opinion.
In connection with the preparation of its opinion, Merrill Lynch was not
authorized by DEKALB or its Board of Directors to solicit, nor did Merrill Lynch
solicit, third-party indications of interest for the acquisition of all or any
part of DEKALB. Merrill Lynch did, however, have discussions with a number of
parties who submitted unsolicited indications of interest in acquiring DEKALB.
The following is a brief summary of the analyses performed by Merrill Lynch
in connection with its opinion dated December 20, 1994, which it discussed with
the Board of Directors of DEKALB at its meeting held on December 20, 1994.
Discounted Cash Flow Analysis of DEKALB. Using a discounted cash flow
analysis, Merrill Lynch estimated the present value of the after-tax future cash
flows that DEKALB could be expected to generate from January 1, 1995 and beyond
based upon (a) reserve reports prepared by DEKALB and audited annually by Ryder
Scott (containing both proved and probable reserve estimates and the production
profile relating to such reserves) and (b) Merrill Lynch's oil and gas price
forecasts under two distinct pricing scenarios, Case I and Case II.
The oil price forecasts were based on West Texas Intermediate ("WTI")
equivalent crude oil on the spot market and were then adjusted for the
transportation, location and quality of DEKALB's crude oil. In Case I,
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unadjusted WTI oil prices per barrel for the years 1995 to 1998 were assumed to
be $17.00, $18.50, $21.00 and $24.00, respectively, and then assumed to escalate
at 6 percent per annum thereafter. In Case II, unadjusted WTI oil prices per
barrel for the years 1995 to 1998 were assumed to be $18.50, $20.50, $23.00 and
$26.00, respectively, and then assumed to escalate at 8 percent per annum
thereafter. In both pricing scenarios, the unadjusted oil price was capped at
$50.00 per barrel in the later years.
The natural gas price forecasts were based on forecasts for spot market
sales at Henry Hub, Louisiana and on a standard heating value of 1,000 British
Thermal Units ("BTU") per cubic foot of gas. Adjustments were made to the
natural gas price forecasts to reflect natural gas contracts in place,
transportation charges and a heating value of 1,070 BTU per cubic foot of
DEKALB's gas. In Case I, gas prices per million BTU ("MMBTU") for the years 1995
to 1998 were assumed to be $1.80, $1.95, $2.10 and $2.25, respectively, and then
assumed to escalate at 6 percent per annum thereafter. In Case II, gas prices
per MMBTU for the years 1995 to 1998 were assumed to be $1.90, $2.10, $2.25 and
$2.40, respectively, and then assumed to escalate at 8 percent per annum
thereafter. In both pricing scenarios, the unadjusted natural gas price was
capped at $6.00 per MMBTU in the later years. Operating expenses and maintenance
capital expenditures, necessary to lift and produce the proved and probable
reserves estimated in the engineering reports, were assumed to increase at a
rate of 3 percent per annum. The after-tax cash flows were discounted at rates
of 11 percent and 13 percent for proved reserves and rates of 15 percent and 20
percent for risk-adjusted probable reserves.
By discounting all the after-tax cash flows generated by DEKALB's proved
and probable reserves as of January 1, 1995, adding assessed value for
undeveloped acreage and other assets and deducting estimated net long-term debt
and working capital, Merrill Lynch arrived at a net asset reference value range
for DEKALB of $17.38 to $21.10 per share in Case I, and $21.05 to $25.29 per
share in Case II, in each case on a fully diluted basis.
Discounted Cash Flow Analysis of Apache. Using a discounted cash flow
analysis, Merrill Lynch estimated the present value of the after-tax future cash
flows that Apache could be expected to generate from January 1, 1995 and beyond
based upon (a) reserve reports prepared by Apache and audited annually by Ryder
Scott (containing proved reserve estimates for Apache, proved reserve estimates
for assets acquired from Crystal and Texaco and the production profiles relating
to such reserves) and (b) Merrill Lynch's oil and gas price forecasts under two
distinct pricing scenarios, Case I and Case II.
The oil price forecasts were based on WTI equivalent crude oil on the spot
market and were then adjusted for the transportation, location and quality of
Apache's crude oil. In Case I, unadjusted WTI oil prices per barrel for the
years 1995 to 1998 were assumed to be $17.00, $18.50, $21.00 and $24.00,
respectively, and then assumed to escalate at 6 percent per annum thereafter. In
Case II, unadjusted WTI oil prices per barrel for the years 1995 to 1998 were
assumed to be $18.50, $20.50, $23.00 and $26.00, respectively, and then assumed
to escalate at 8 percent per annum thereafter. In both pricing scenarios, the
unadjusted oil price was capped at $50.00 per barrel in the later years.
The natural gas price forecasts were based on forecasts for spot market
sales at Henry Hub, Louisiana and on a standard heating value of 1,000 BTU per
cubic foot of gas. Adjustments were made to these natural gas price forecasts to
reflect natural gas contracts in place and transportation charges for Apache's
gas. No heating value adjustment was made to Apache's projected gas prices. In
Case I, gas prices per MMBTU for the years 1995 to 1998 were assumed to be
$1.80, $1.95, $2.10 and $2.25, respectively, and then assumed to escalate at 6
percent per annum thereafter. In Case II, gas prices per MMBTU for the years
1995 to 1998 were assumed to be $1.90, $2.10, $2.25 and $2.40, respectively, and
then assumed to escalate at 8 percent per annum thereafter. In both pricing
scenarios, the unadjusted natural gas price was capped at $6.00 per MMBTU in the
later years. Operating expenses and maintenance capital expenditures, necessary
to lift and produce the proved and probable reserves estimated in the
engineering reports, were assumed to increase at a rate of 3 percent per annum.
The after-tax cash flows for proved reserves were discounted at rates of 9
percent and 12.5 percent.
By discounting all the after-tax cash flows generated by Apache's proved
reserves as of January 1, 1995, assessing the value of the probable reserve base
at 15 percent of the proved reserves, adding the value of cost savings generated
by the Texaco property acquisition and assessing the value of the unproven
international
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ventures and other assets as estimated by Apache, Merrill Lynch arrived at a
total asset reference value range. After deducting estimated net long-term debt
and working capital, Merrill Lynch arrived at a net asset reference value range
for Apache of $16.84 to $22.97 per share in Case I, and $21.79 to $29.28 per
share in Case II, in each case on a fully diluted basis.
Analysis of Selected Publicly Traded Comparable Companies for
DEKALB. Merrill Lynch compared selected historical stock, operating and
financial ratios for DEKALB to the corresponding data and ratios of the
following publicly traded companies: Cabre Exploration Ltd., Canadian Natural
Resources Limited, Conwest Exploration Company Limited, Inverness Petroleum
Ltd., Mark Resources Inc., Morgan Hydrocarbons Inc., Morrison Petroleums Ltd.,
Northstar Energy Corporation, Numac Energy Inc., Ocelot Energy Inc., Paramount
Resources Ltd., Rigel Energy Corporation and Ulster Petroleums Ltd. An analysis
of the ratio of adjusted market capitalization (defined as market value plus
debt and preferred stock less available cash) at December 15, 1994 to the last
twelve months pre-tax, pre-leverage cash flow (defined as EBITDE or Earnings
Before Interest, Taxes, Depreciation, Depletion, Exploration Expense and
Amortization) yielded a multiple range of 5.3 times to 13.8 times, a mean value
of 7.9 times and a median value of 7.4 times, compared to 6.3 times for DEKALB.
The application of DEKALB's adjusted market capitalization to EBITDE multiple as
a low end limit and the comparable company median ratio of 7.4 times as the
upper end limit to DEKALB's last twelve months EBITDE, less net long-term debt
and working capital, yielded a net asset reference value range of $15.77 to
$19.43 per share on a fully diluted basis.
Analysis of Selected Publicly Traded Comparable Companies for
Apache. Merrill Lynch compared selected historical stock, operating and
financial ratios for Apache to the corresponding data and ratios of the
following publicly traded companies: Anadarko Petroleum Corporation, Burlington
Resources, Inc., Enron Oil & Gas Company, The Louisiana Land & Exploration
Company, Noble Affiliates, Inc., Seagull Energy Corporation and Vastar
Resources, Inc. An analysis of the ratio of adjusted market capitalization
(defined as market value plus debt and preferred stock less available cash) at
December 15, 1994 to the estimated pro forma 1995 EBITDE yielded a multiple
range of 6.0 times to 9.3 times, a mean value of 7.4 times and a median value of
6.8 times. The application of the comparable company ratio of 6.0 times as the
lower limit and 6.5 times as the upper limit to Apache's 1995 estimated EBITDE,
less net long-term debt and working capital deficiencies, yielded a net asset
reference value range of $25.41 to $29.28 per share on a primary basis.
No company utilized in the above comparable companies analyses is identical
to DEKALB or Apache. Accordingly, an analysis of the results of the foregoing is
not purely mathematical. Rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
Analysis of Selected Comparable Acquisition Transactions for
DEKALB. Merrill Lynch also reviewed publicly available information on certain
acquisitions which involved companies with primarily Canadian operations in the
oil and gas exploration and production industry and consideration in excess of
$100 million and which took place between December 1992 and June 1994. Canadian
oil and gas acquisitions in excess of $100 million considered by Merrill Lynch
include (Buyer/Seller): Encal Energy Ltd./Luscar Oil and Gas Ltd., Pennzoil
Company/Co-Enerco Resources Ltd., Seagull Energy Corporation/Novalta Resources
Inc., Home Oil Company Limited/Scurry-Rainbow Oil Ltd., Canadian Natural
Resources Limited/Amoco Corporation, Numac Oil and Gas Ltd./Westcoast Petroleum
Ltd., Talisman Energy Inc./Encor Inc., Elan Energy Inc./OMV (Canada) Ltd., Hong
Kong Private Investors/Westcoast Petroleum Ltd., and Norcen Energy Resources
Limited/North Canadian Oils Limited.
Merrill Lynch examined multiples based on the total consideration for each
of the transactions to, among other things, such acquired companies' respective
proved reserves. In particular, Merrill Lynch calculated offer value expressed
in terms of dollars per barrel of oil equivalent of proved reserves ("$/boe").
The calculations yielded a range of offer values per barrel of oil equivalent of
$3.50/boe to $4.50/boe. Merrill Lynch then calculated the aggregate and per
share imputed equity values for DEKALB by applying DEKALB's proved reserves to
the multiples derived from its analysis of the comparable acquisition
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transactions. These imputed equity values ranged from $173 million, or $17.57
per share on a fully diluted basis, to $237 million, or $24.14 per share on a
fully diluted basis.
Analysis of Selected Comparable Acquisition Transactions for
Apache. Merrill Lynch also reviewed publicly available information on certain
acquisitions which involved companies with primarily U.S. operations in the oil
and gas exploration and production industry and consideration in excess of $100
million and which took place between February 1994 and November 1994. U.S. oil
and gas acquisitions in excess of $100 million considered by Merrill Lynch
include (Buyer/Seller): Apache/Texaco, Apache/Crystal, Parker & Parsley
Petroleum Company/TideWest Oil Company, Parker & Parsley Petroleum Company/PG&E
Resources Company, Cairn Energy USA, Inc./Phemus Corporation/Smith Offshore
Exploration Company II, Parker & Parsley Petroleum Company/Bridge Oil Limited,
MCN Corporation/Undisclosed Sellers, Meridian Oil Inc./Maxus Energy Corporation,
Occidental Petroleum Corporation/Agip Petroleum Co., Union Pacific Resources
Company/AMAX Inc., and Cabot Oil & Gas Corporation/Washington Energy Resources
Company.
Merrill Lynch examined multiples based on the total consideration for each
of the transactions to, among other things, such acquired companies' respective
proved reserves. In particular, Merrill Lynch calculated offer value expressed
in terms of dollars per barrel of oil equivalent of proved reserves. The
calculations yielded a range of offer values per barrel of oil equivalent of
$6.60/boe to $7.80/boe. Merrill Lynch then calculated the aggregate and per
share imputed equity values for Apache by applying Apache's proved reserves to
the multiples derived from its analysis of the comparable acquisition
transactions. These imputed equity values ranged from $1,150 million, or $18.73
per share on a primary basis, to $1,593 million, or $25.95 per share on a
primary basis, for Apache's United States assets, and imputed equity values
ranging from $1,315 million, or $21.42 per share on a primary basis, to $1,803
million, or $29.37 per share on a primary basis, for Apache's United States and
international assets (as estimated by Apache).
No company utilized in the comparable acquisitions transactions analyses
was identical to DEKALB or Apache. Accordingly, an analysis of the results of
the foregoing is not purely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable acquired companies and other factors, such as
total consideration paid in relation to a company's reserves, total oil and gas
reserves, reserve life index and location of the reserves acquired, that could
affect the acquisition value of such companies, DEKALB and Apache.
Purchase Price Analysis and Stock Trading History. Merrill Lynch performed
an analysis of the Merger based on an assumed Exchange Ratio of 0.90 shares of
Apache Common Stock for each share of DEKALB Stock (which was determined by
applying the average of the per share closing prices for Apache Common Stock
during the ten trading days preceding December 15, 1994 to the Exchange Ratio
formula). Merrill Lynch's analysis indicated that, on the basis of an assumed
Exchange Ratio of 0.90, the pro forma ownership percentage of DEKALB
stockholders of the pro forma combined company would be approximately 13 percent
following the merger. In addition, Merrill Lynch calculated the multiple of
DEKALB's net income, cash flow and reserves the same assumed Exchange Ratio
would represent. An Exchange Ratio of 0.90 would represent a value equal to 32.9
times DEKALB's 1994 net income per share, and a value equal to 30.7 times and
20.7 times DEKALB's projected 1995 and 1996 net income per share (as estimated
by DEKALB), respectively. An Exchange Ratio of 0.90 would also represent a value
equal to 8.3 times DEKALB's 1994 cash flow per share, and a value equal to 7.1
times and 5.5 times DEKALB's projected 1995 and 1996 cash flow per share (as
estimated by DEKALB), respectively. Finally, such an Exchange Ratio would
represent a value equal to $4.44 per boe of DEKALB's proved reserves as of
January 1, 1995 (as estimated by DEKALB), and $3.90 per boe of proved and
probable reserves as of January 1, 1995 (as estimated by DEKALB). Merrill Lynch
also examined the history of trading prices and volumes for DEKALB Class B Stock
and the Apache Common Stock and the historical ratios of the prices of DEKALB
Class B Stock to the prices of Apache Common Stock.
Pro Forma Merger Analysis. Merrill Lynch analyzed certain pro forma effects
which could result from the Merger. In connection with such analyses, Merrill
Lynch reviewed the projections provided by members of management of DEKALB with
respect to the future financial performance of DEKALB for the years 1994,
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1995 and 1996, and, after discussing such projections with members of management
of DEKALB, made certain adjustments. In addition, Merrill Lynch utilized its own
oil and gas price forecasts and made certain adjustments to projected capital
expenditures. Merrill Lynch then developed its own analysis of the pro forma
effects of the Merger (treated as a pooling of interests for accounting
purposes), based on the lowest and highest possible Exchange Ratios, 0.85 and
0.90, respectively, after considering publicly available information that it
deemed relevant. This analysis indicated that the cash flow per share of the
combined company would, in the case of an assumed Exchange Ratio of 0.85, be
dilutive in 1994 and 1995, but would be accretive in 1996, and would, in the
case of an assumed Exchange Ratio of 0.90, be dilutive in 1994 and 1995, but
would be accretive in 1996, as compared to the comparable stand-alone
projections for Apache pro forma. For the purposes of such analysis, Merrill
Lynch defined discretionary cash flow per share as (i) net income to common
stock plus depletion, depreciation, amortization and exploration expenses, plus
deferred taxes and other non-cash charges, but not including changes in working
capital, divided by (ii) the pro forma shares outstanding.
Merrill Lynch also analyzed the effects of the Merger on the balance sheet
of the combined company. The combined company's debt-to-total capitalization
ratio as estimated at December 31, 1994 for the combined company would be
approximately 59 percent as compared to 35 percent for DEKALB alone and 61
percent for Apache on a pro forma stand-alone basis.
The summary set forth above does not purport to be a complete description
of the analyses conducted by Merrill Lynch or Merrill Lynch's presentation to
the Board of Directors of DEKALB. Merrill Lynch believes that its analyses must
be considered as a whole and that selecting portions of its analysis and the
factors considered by it, without considering all factors and analyses, could
create an incomplete view of the process underlying its opinions. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. In performing its
analyses, Merrill Lynch made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of DEKALB or Apache. Any estimates contained in the
analyses performed by Merrill Lynch are not necessarily indicative of actual
values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to the
value of the businesses do not purport to be appraisals or to reflect the prices
at which businesses may actually be sold. Because such estimates are inherently
subject to uncertainty, neither DEKALB, Apache, Merrill Lynch nor any other
person assumes responsibility for their accuracy.
Merrill Lynch is an internationally recognized investment banking firm
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions and for other purposes. DEKALB selected Merrill Lynch
to act as its financial advisor in connection with the Merger because it is an
internationally recognized investment banking firm and has substantial
experience in transactions similar to the Merger.
In connection with Merrill Lynch's services as financial advisor to DEKALB,
DEKALB has agreed to pay Merrill Lynch as compensation for its services a fee,
in the amount of 0.875 percent of the aggregate consideration to be paid for the
shares of DEKALB Common Stock acquired by Apache as a result of the Merger
(which is defined to include the amount of all indebtedness (less the amount of
all cash and cash equivalents) of DEKALB which is assumed, acquired, retired or
defeased by Apache in connection with the Merger), which fee is estimated to be
approximately $2.5 million. DEKALB has also agreed to reimburse Merrill Lynch
for certain reasonable out-of-pocket expenses incurred in connection with the
Merger (including reasonable fees and expenses of its legal counsel) and to
indemnify Merrill Lynch and certain related persons against certain liabilities
and expenses in connection with the Merger, including certain liabilities under
the federal securities laws.
Merrill Lynch has, in the past, provided financial advisory and financing
services to DEKALB and Apache and has received fees for the rendering of such
services. In the ordinary course of Merrill Lynch's business, it may actively
trade the securities of DEKALB and Apache for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of DEKALB's Board of Directors with
respect to the Merger, DEKALB stockholders should be aware that certain members
of DEKALB's Board and management have certain interests concerning the Merger
separate from their interests as holders of DEKALB Stock, including those
referred to below.
As of the Effective Time, Apache will assume each then outstanding DEKALB
Option that remains unexercised. Each holder of a DEKALB Option may elect, prior
to the Effective Time, to surrender such DEKALB Option, in whole or in part, in
exchange for shares of Apache Common Stock. See "Certain Terms of the Merger
Agreement -- Treatment of DEKALB Options." The holders of DEKALB Options include
the following persons who served as directors or executive officers of DEKALB
for some or all of the period of time commencing January 1, 1994: Messrs. Bruce
P. Bickner, Bruce A. Craig, Larry G. Evans, Richard G. Nash, Charles C. Roberts,
Thomas H. Roberts, Jr. and John H. Witmer, Jr.; as well as Mr. Michael E.
Finnegan, who was an executive officer of DEKALB until his death in September
1994. As of the date of this Proxy Statement/Prospectus, Messrs. Bickner, Craig,
Evans, Nash, C. Roberts, T. Roberts, and Witmer and the estate of Mr. Finnegan
hold DEKALB Options with respect to 100,000, 38,500, 40,653, 38,821, 18,100,
23,300, 30,000 and 38,716 shares of DEKALB Stock, respectively, with an average
exercise price of $10.49, $14.43, $14.16, $13.70, $8.53, $8.53, $11.06 and
$13.67, respectively.
The Board of Directors of DEKALB has determined that up to $500,000 may be
used to pay discretionary bonuses to those officers and employees of DEKALB and
its subsidiaries determined by the Board of Directors to merit such bonuses
based upon their efforts during the process that could result in the proposed
Merger. Such discretionary bonuses, if any, would be awarded shortly before the
Effective Date.
The Merger Agreement provides that Apache will provide DEKALB's directors
and officers with liability insurance for six years from the Effective Time,
subject to certain limitations, and will indemnify DEKALB's past and present
officers and directors to the same extent they are currently entitled to be
indemnified by DEKALB pursuant to DEKALB's Charter or DEKALB's Bylaws, or any
indemnification agreement, for acts or omissions occurring at or prior to the
Effective Time, including those in connection with the Merger, and will advance
reasonable litigation expenses incurred by such officers and directors in
connection with defending any action arising out of such acts or omissions. See
"Certain Terms of the Merger Agreement -- Insurance and Indemnification."
See "Certain Terms of the Merger Agreement -- Certain Benefit Plans and
Severance" for information about post-Merger arrangements concerning DEKALB
employee benefit plans.
CERTAIN INCOME TAX CONSEQUENCES
United States Federal Income Tax
The following is a general summary of the material U.S. federal income tax
consequences of the Merger to the holders of DEKALB Stock and DEKALB Options and
is based upon current provisions of the Code, existing, temporary and final
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change (possibly on a retroactive basis). No attempt
has been made to comment on all U.S. federal income tax consequences of the
Merger that may be relevant to particular holders, including holders that are
subject to special tax rules such as dealers in securities, mutual funds,
insurance companies, tax-exempt entities and holders who do not hold their
shares as capital assets.
THE TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION
ONLY. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX
ADVICE TO ANY PARTICULAR HOLDER OF DEKALB STOCK OR DEKALB OPTIONS. HOLDERS OF
DEKALB STOCK AND DEKALB OPTIONS ARE ADVISED AND EXPECTED TO CONSULT WITH THEIR
OWN LEGAL AND TAX ADVISERS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AND ANY OTHER
CONSEQUENCES TO THEM OF THE MERGER UNDER STATE, LOCAL AND FOREIGN TAX LAWS.
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Exchange of DEKALB Stock Pursuant to the Merger. It is anticipated that, in
connection with conditions to the consummation of the Merger, Mayor, Day,
Caldwell & Keeton, L.L.P., counsel to Apache, and Sidley & Austin, counsel to
DEKALB, will each render an opinion at the Effective Time of the Merger to
Apache and DEKALB, respectively, substantially to the effect that the U.S.
federal income tax consequences of the Merger will be as follows:
(i) the Merger will constitute a "reorganization" within the meaning
of Section 368(a) of the Code and DEKALB, Apache and Merger Sub will each
be a party to that reorganization within the meaning of Section 368(b) of
the Code;
(ii) no gain or loss will be recognized by DEKALB, Apache or Merger
Sub as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders of DEKALB
who are United States persons (within the meaning of the Code) upon the
conversion of their DEKALB Stock into shares of Apache Common Stock
pursuant to the Merger except with respect to cash, if any, received in
lieu of fractional shares of Apache Common Stock or upon exercise of
dissenters' rights of appraisal;
(iv) the aggregate basis of the shares of Apache Common Stock received
in exchange for shares of DEKALB Stock pursuant to the Merger (including
fractional shares of Apache Common Stock for which cash is received) will
be the same as the aggregate federal income tax basis for such shares of
DEKALB Stock at the time of the Merger, decreased by the amount of any tax
basis allocable to shares with respect to which dissenters' rights of
appraisal were exercised for which cash is received; and
(v) the holding period for shares of Apache Common Stock received in
exchange for shares of DEKALB Stock pursuant to the Merger will include the
holding period of such shares of DEKALB Stock, provided such shares of
DEKALB Stock were held as capital assets by the holder at the Effective
Time.
A holder of DEKALB Stock who receives cash in lieu of a fractional share of
Apache Common Stock will recognize gain or loss equal to the difference, if any,
between such holder's basis in the fractional share (as described in (iv) above)
and the amount of cash received. Such gain or loss will be a capital gain or
loss if the DEKALB Stock is held by such holders as a capital asset at the
Effective Time.
Stockholders of DEKALB should be aware that such opinions of counsel are
not binding on the United States Internal Revenue Service ("IRS"), and no
assurance is or will be given that the IRS would not adopt a contrary position
or that the IRS position would not be sustained by a court. No rulings from the
IRS have been or will be requested in connection with the Merger.
The opinions of counsel described above are subject to certain assumptions
and based on certain representations of Apache, Merger Sub, DEKALB and certain
stockholders of DEKALB. One of the requirements for a tax-free reorganization is
that stockholders of DEKALB retain a significant continuing equity interest in
Apache after the Merger. The opinions of counsel described herein assume that
this requirement will be met. However, if a significant portion of the Apache
Common Stock received by DEKALB stockholders in the Merger is sold shortly after
the Merger, the Merger could be treated as a taxable transaction in which all
stockholders of DEKALB (including stockholders who did not sell their Apache
Common Stock) would recognize gain or loss equal to the difference between the
fair market value of the Apache Common Stock received and the basis of the
DEKALB Stock surrendered in the Merger. To the best knowledge of the management
of DEKALB, there is no plan or intention on the part of DEKALB stockholders to
sell an amount of Apache Common Stock that would cause the Merger to be taxable.
A holder of DEKALB Class A Stock who seeks appraisal rights as described
below under "-- Appraisal Rights of Dissenting DEKALB Class A Stockholders"
should, in general, treat the difference between the tax basis of the DEKALB
Class A Stock held by such holder with respect to which such rights are
exercised and the amount received through the exercise of such rights as capital
gain or loss although, depending on the holder's particular circumstances, the
amount received through the exercise of such rights might be treated for U.S.
federal income tax purposes as dividend income.
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A holder of DEKALB Stock that, for U.S. federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership or a
foreign estate or trust (a "Non-U.S. Stockholder") generally will not be subject
to U.S. federal income tax (by withholding or otherwise) on the receipt of
Apache Common Stock, cash in lieu of a fractional share of Apache Common Stock
or on the receipt of cash pursuant to the exercise of dissenter's rights of
appraisal, as described above. However, a Non-U.S. Stockholder that holds shares
of DEKALB Stock will generally be subject to U.S. federal income tax on the
receipt of cash in lieu of fractional shares or on the receipt of cash as the
result of the exercise of dissenter's rights of appraisal if (i) the resulting
income or gain is effectively connected with the conduct of a trade or business
of the Non-U.S. Stockholder within the United States, (ii) the Non-U.S.
Stockholder is a non-resident alien individual who holds the DEKALB Stock as a
capital asset, and such individual is present in the United States for 183 days
or more in the taxable year of the Merger and either has a "tax home" in the
United States or the sale is attributable to an office or other fixed place of
business maintained in the United States or (iii) the Non-U.S. Stockholder is
subject to tax pursuant to the provisions of U.S. federal tax law applicable to
certain United States expatriates. Different rules may apply to any amounts
treated as dividend income under the rules referred to above. In addition, under
certain circumstances, a Non-U.S. Stockholder may be subject to U.S. federal
income and withholding tax under the Foreign Investment in Real Property Tax Act
("FIRPTA") if such Non-U.S. Stockholder has held, directly or indirectly (i)
more than five percent of the DEKALB Class B Stock at any time during the
five-year period ending on the Effective Date or (ii) DEKALB Class A Stock that,
on the date it was acquired, had a fair market value (when combined with the
fair market value at that time of DEKALB Stock previously acquired and continued
to be owned) of more than five percent of the value at that time of all
outstanding DEKALB Class B Stock. Non-U.S. Stockholders are advised and expected
to consult with their own tax advisers regarding the U.S. federal income tax
consequences of the Merger in light of their own personal circumstances.
Apache believes it is currently, at the Effective Time will be, and
thereafter will continue to be, a "United States real property holding
corporation" under FIRPTA. As a result, if a Non-U.S. Stockholder subsequently
sells, exchanges or otherwise disposes of shares of Apache Common Stock received
in the Merger and such Non-U.S. Stockholder held, directly or indirectly at any
time during the five year period ending on the date of disposition (or such
shorter period that such shares were held), more than five percent of the
outstanding Apache Common Stock, such Non-U.S. Stockholder will generally be
subject to U.S. federal income tax under FIRPTA on any gain realized by such
Non-U.S. Stockholder on such sale, exchange or other disposition (unless an
applicable exception under FIRPTA applies).
Dividends on Apache Common Stock paid to a Non-U.S. Stockholder will
generally be subject to a U.S. withholding tax.
Assumption or Cancellation of DEKALB Options Pursuant to the
Merger. Holders of DEKALB Options which are assumed by Apache as described below
under "Certain Terms of the Merger Agreement -- Treatment of DEKALB Options"
generally will not recognize income or gain for federal income tax purposes upon
such assumption, assuming the Merger is a tax-free reorganization as described
above.
A holder of an assumed DEKALB Option will recognize ordinary compensation
income, and Apache will be allowed a deduction for federal income tax purposes,
on the date such option is exercised in an amount equal to the excess of the
fair market value on such date of the Apache Common Stock acquired by exercise
of such option over the exercise price of such shares of Apache Common Stock.
The tax basis of the Apache Common Stock acquired by exercise of an assumed
DEKALB Option will be its fair market value on the date of exercise of such
option and the holding period for purposes of determining whether a subsequent
sale of the Apache Common Stock would result in the recognition of short-term or
long-term capital gain or loss will commence on the date of transfer of the
Apache Common Stock to the holder of the option.
Under current law, the tax rate imposed on long-term capital gains cannot
exceed 28%. The Code imposes limitations on the amount of capital loss which can
be deducted in a taxable year.
If the holder of an assumed DEKALB Option delivers shares of Apache Common
Stock in payment of the exercise price of the Apache Common Stock, such holder
will not recognize any taxable income by reason of such delivery. The holder's
basis and holding period for the number of shares of Apache Common Stock
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received equal to the number of shares delivered will be the same as the shares
delivered. The holder's basis for shares of Apache Common Stock received in
excess of the number of shares delivered will equal the fair market value of
such shares of Apache Common Stock used to determine the amount of taxable
compensation arising from the exercise of such option. The holding period for
such excess shares of Apache Common Stock will commence on the date the shares
of Apache Common Stock are transferred to the holder.
Holders of DEKALB Options who elect to cancel DEKALB Options in exchange
for Apache Common Stock as described below under "Certain Terms of the Merger
Agreement -- Treatment of DEKALB Options" will generally recognize ordinary
compensation income as a result of the receipt of the Apache Common Stock in
exchange for such DEKALB Options. The amount treated as compensation income will
equal the fair market value of the Apache Common Stock at the time of receipt.
Such a holder of a DEKALB Option will have a tax basis in the Apache Common
Stock received in exchange for the DEKALB Option equal to the fair market value
of the Apache Common Stock at the time of receipt.
Amounts described above as being treated as compensation income upon the
exercise of an assumed DEKALB Option or upon the cancellation of a DEKALB Option
will be subject to tax at rates applicable to ordinary income and will be
subject to Medicare hospital insurance tax and, subject to certain limitations,
FICA tax. The number of shares of Apache Common Stock otherwise issuable to a
holder of a DEKALB Option which is cancelled will generally, and the number of
shares of Apache Common Stock otherwise issuable to a holder of an assumed
DEKALB Option which is exercised may, be reduced by a number of shares of Apache
Common Stock having a total fair market value equal to the foregoing taxes and
any other amounts required by law to be withheld.
A holder of a DEKALB Option who is a non-resident alien individual and who
elects to cancel such option in exchange for Apache Common Stock or who has such
DEKALB Option assumed and then exercises the assumed DEKALB Option generally
will not be subject to U.S. federal income tax to the extent the option is
attributable to services performed outside the United States. Such a holder will
generally be subject to the rules under FIRPTA discussed above with respect to
the subsequent sale, exchange or other disposition of such shares. See
"-- Exchange of DEKALB Stock Pursuant to the Merger."
Canadian Federal Income Tax
In the opinion of Bennett Jones Verchere, Canadian counsel to Apache, and
Howard, Mackie, Canadian counsel to DEKALB, the following is a general summary
of the material Canadian federal income tax consequences of the Merger
applicable to Apache, Merger Sub and DEKALB and to holders of DEKALB Stock and
DEKALB Options who are residents of Canada for the purposes of the Canadian Tax
Act. The summary is limited to those holders who hold their DEKALB Stock and
DEKALB Options as capital property and, in the case of DEKALB Options, assumes
the DEKALB Options were issued to the holders in their capacity as employees,
directors or officers of DEKALB or an affiliate of DEKALB. The summary is based
on the current provisions of the Canadian Tax Act, the regulations thereunder
and counsel's understanding of the current administrative and assessing
practices of Revenue Canada, Customs, Excise and Taxation ("Revenue Canada"),
all of which are subject to change. The summary is not exhaustive of all
Canadian federal income tax considerations nor does it take into account any
provincial, territorial or foreign tax considerations, which considerations may
significantly differ from those discussed herein.
THE TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION
ONLY. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX
ADVICE TO ANY PARTICULAR HOLDER OF DEKALB STOCK OR DEKALB OPTIONS WHO IS A
RESIDENT OF CANADA. HOLDERS OF DEKALB STOCK AND DEKALB OPTIONS WHO ARE RESIDENTS
OF CANADA ARE ADVISED AND EXPECTED TO CONSULT WITH THEIR OWN LEGAL AND TAX
ADVISERS REGARDING THE CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN
LIGHT OF THEIR PERSONAL CIRCUMSTANCES, AND ANY OTHER CONSEQUENCES TO THEM OF THE
MERGER UNDER PROVINCIAL, TERRITORIAL, LOCAL OR FOREIGN TAX LAWS.
Exchange of DEKALB Stock Pursuant to the Merger. Pursuant to the terms of
the Merger, it is intended that each holder of DEKALB Stock will receive Apache
Common Stock in exchange for their DEKALB Stock. A holder of DEKALB Stock who is
a resident of Canada for the purposes of the Canadian Tax Act will
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be considered to have disposed of the DEKALB Stock and must include the amount
of the taxable capital gain or allowable capital loss, if any, arising upon such
disposition in computing the holder's income for the purposes of the Canadian
Tax Act. The amount of such taxable capital gain or allowable capital loss will
be equal to three-quarters of the amount, if any, by which the proceeds of
disposition of the DEKALB Stock exceeds (or is less than) the adjusted cost base
to the holder of the DEKALB Stock immediately before the exchange and any
reasonable expenses incurred for the purpose of making the disposition. The
proceeds of disposition of the DEKALB Stock will be equal to the aggregate of
the fair market value of the Apache Common Stock received on the exchange and
the amount of any cash received in lieu of a fractional share of Apache Common
Stock. Revenue Canada generally regards the fair market value of a publicly
traded share on a particular day to be equal to the closing price of the share
on that day. In the case of any holder of DEKALB Class A Stock who dissents to
the Merger, the proceeds of disposition will be equal to the amount of cash
received upon the exercise of such dissenter's rights of appraisal.
An allowable capital loss realized by a holder of DEKALB Stock may be
deducted in computing the holder's income for the taxation year of the
disposition to the extent of the holder's taxable capital gains in such year.
Any excess allowable capital loss may be carried back three taxation years or
forward indefinitely to be used generally in the same manner.
The acquisition cost for the purposes of the Canadian Tax Act of the Apache
Common Stock received on the Merger for future Canadian income tax purposes will
be equal to the fair market value of such shares at the Effective Time. Such
cost will be averaged with the cost of any other Apache Common Shares owned by
the holder in determining the adjusted cost base of the Apache Common Stock to
the holder.
Cancellation of DEKALB Options Pursuant to the Merger. Holders of DEKALB
Options who choose to exchange their existing DEKALB Options for corresponding
options of Apache as described under "Certain Terms of the Merger
Agreement -- Treatment of DEKALB Options" will generally not recognize any
taxable income or loss under the Canadian Tax Act, provided the holder receives
no consideration on the exchange other than the new options from Apache and the
value of such new options is not greater than the value of the DEKALB Options at
the time of the exchange.
Holders of DEKALB Options who elect to cancel their DEKALB Options in
exchange for Apache Common Stock as described under "Certain Terms of the Merger
Agreement -- Treatment of DEKALB Options" will be subject to tax under the
Canadian Tax Act on the fair market value of the Apache Common Stock received on
the exchange. The holder may be entitled to a deduction of 25% of the amount of
the income inclusion provided that at the time the DEKALB Option was granted,
the exercise price was not less than the fair market value of the DEKALB Stock.
The acquisition cost for the purposes of the Canadian Tax Act of the Apache
Common Stock received on the cancellation of the DEKALB Options for future
Canadian income tax purposes will be equal to the fair market value of such
shares at the Effective Time. Such cost will be averaged with the cost of any
other Apache Common Stock owned by the holder when determining the adjusted cost
base of the Apache Common Stock to the holder.
Holders of DEKALB Options who exercise their options prior to the Effective
Time and who receive DEKALB Stock as a result of such exercise, will be subject
to tax under the Canadian Tax Act on the difference between the exercise price
of the DEKALB Option and the fair market value of the DEKALB Stock received on
the exercise. The holder may be entitled to a deduction of 25% of the amount of
the income inclusion provided that at the time the DEKALB Option was granted,
the exercise price was not less than the fair market value of the DEKALB Stock.
Impact of Merger on Apache, Merger Sub and DEKALB. Bennett Jones Verchere
and Howard, Mackie are of the opinion that no gain or loss will be recognized by
Apache, Merger Sub or DEKALB in connection with the Merger under the Canadian
Tax Act. Such opinions are subject to certain assumptions and based on certain
representations of Apache, Merger Sub and DEKALB and rely on opinions from
Mayor, Day, Caldwell & Keeton, L.L.P. and Sidley & Austin, respectively, on the
effect of the Merger under Delaware corporate law. The Merger will result in a
change of control of DEKALB Energy Canada Ltd. for the purposes of the Canadian
Tax Act. This change of control will trigger a deemed taxation year end for
DEKALB Energy Canada Ltd. and, among other things, will give rise to the
application of the "successor" provisions of the
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Canadian Tax Act with respect to the Canadian resource tax pools of DEKALB
Energy Canada Ltd., but will not otherwise result in any immediate liability for
Canadian federal income tax for DEKALB Energy Canada Ltd.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for using the "pooling of interests"
method of accounting pursuant to Opinion No. 16 of the Accounting Principles
Board. The pooling of interests method of accounting assumes that the combining
companies have been merged from inception, and the historical consolidated
financial statements for periods prior to consummation of the Merger are
combined as though the companies had been combined from inception. See the
Unaudited Pro Forma Consolidated Condensed Financial Statements and notes
thereto included elsewhere in this Proxy Statement/Prospectus.
Apache and DEKALB have been preliminarily advised by their independent
public accountants, Arthur Andersen LLP and Coopers & Lybrand, respectively,
that following the Merger the combination of DEKALB and Merger Sub should be
accounted for as a "pooling of interests" in conformity with generally accepted
accounting principles as described in Accounting Principles Board Opinion No.
16. Apache's obligation to consummate the Merger is conditioned upon Apache's
having no reasonable basis for believing that pooling of interests accounting
will not be applicable. In order for pooling of interests accounting to apply,
it is contemplated that each person who may be deemed an affiliate of DEKALB or
Apache will satisfy Apache, by entering into an agreement with Apache or
otherwise, that such person will not sell or otherwise transfer (i) any shares
of DEKALB Stock or Apache Common Stock, as the case may be, within 30 days prior
to the Effective Time or (ii) any Apache Common Stock thereafter prior to the
publication of financial results that include at least 30 days of post-Merger
combined operations of Apache and DEKALB. Such "Affiliate Agreements" have been
executed by all persons identified by DEKALB as persons who may be deemed to be
affiliates of DEKALB as of the date of this Proxy Statement/Prospectus. Apache
has undertaken to file with the Commission a current report on Form 8-K as soon
as practicable to include the results of combined operations of Apache and
DEKALB for the first full calendar month following the Effective Time.
GOVERNMENTAL AND REGULATORY APPROVALS
Transactions such as the Merger are reviewed by the Justice Department and
the FTC to determine whether they comply with applicable antitrust laws. Under
the provisions of the HSR Act, the Merger may not be consummated until such time
as the specified waiting period requirements of the HSR Act have been satisfied.
Apache and DEKALB each filed a notification and report, together with requests
for early termination of the waiting period, with the Justice Department and the
FTC under the HSR Act on January , 1995. Unless earlier terminated or a
request for additional information is made, the applicable waiting period will
expire on February , 1995.
At any time before or after the Effective Time, the Justice Department, the
FTC or a private person or entity could seek under the antitrust laws, among
other things, to enjoin the Merger or to cause Apache to divest itself, in whole
or in part, of DEKALB or of other businesses conducted by Apache. Apache and
DEKALB have agreed to use all reasonable efforts to consummate the Merger.
However, there can be no assurance that a challenge to the Merger will not be
made or that, if such a challenge is made, Apache and DEKALB will prevail.
Under the Investment Canada Act, the Merger will result in the indirect
acquisition by Apache of DEKALB's subsidiaries, some of which carry on
businesses in Canada. Accordingly, an Application for Review of the Merger must
be submitted to Investment Canada, an agency of the Government of Canada.
Investment Canada will submit the Application to the Minister responsible for
Investment Canada for the Minister's determination of whether the investment by
Apache resulting from the Merger is likely to be of net benefit to Canada. The
Minister has 45 days (and an additional 30 days if the Minister requires them or
longer if Apache agrees) after submission of the Application to review the
investment resulting from the Merger and to determine whether it is likely to be
of net benefit to Canada. Approval pursuant to the Investment Canada
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Act of the business investment in Canada by Apache resulting from the Merger is
a condition to consummation of the Merger.
Apache and DEKALB are aware of no other governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
applicable securities laws.
RESTRICTIONS ON RESALES BY AFFILIATES
The issuance of the shares of Apache Common Stock to be received by DEKALB
stockholders in connection with the Merger, and by holders of DEKALB Options as
described below under "-- Treatment of DEKALB Options," have been registered
under the Securities Act. Except for limitations imposed on persons who may be
deemed to be affiliates of DEKALB as described above under "-- Anticipated
Accounting Treatment," and except as set forth in this paragraph, such shares of
Apache Common Stock may be traded without restriction under the Securities Act.
The shares of Apache Common Stock to be issued in the Merger and received by
persons who are deemed to be "affiliates" (as that term is defined in Rule 144
under the Securities Act) of DEKALB prior to the Merger may be resold by them
only in transactions permitted by the resale provisions of Rule 145 under the
Securities Act (or, in the case of any such person who becomes an affiliate of
Apache, Rule 144 under the Securities Act) or as otherwise permitted under the
Securities Act. The principal limitation imposed by Rule 145 is that an
affiliate of DEKALB may not (together with other persons whose sales are
aggregated under Rule 145) sell during any three-month period a number of shares
of Apache Common Stock exceeding the greater of (i) one percent of the total
number of outstanding shares of Apache Common Stock or (ii) the average weekly
trading volume of Apache Common Stock for a specified four-week period. In
addition, under guidelines published by the Commission, the sale or other
disposition of Apache Common Stock or DEKALB Stock by an affiliate of either
Apache or DEKALB, as the case may be, within 30 days prior to the Effective Time
or the sale or other disposition of Apache Common Stock thereafter prior to the
publication of financial results that include at least 30 days of post-Merger
combined operations of Apache and DEKALB (the "Pooling Period") could preclude
pooling of interests accounting treatment of the Merger. Pursuant to the Merger
Agreement, DEKALB has used its reasonable best efforts to cause each of its
affiliates to execute a written Affiliate Agreement to the effect that such
person will not sell, transfer or otherwise dispose of any shares of DEKALB
Stock during the Pooling Period and will not sell, transfer or otherwise dispose
of Apache Common Stock at any time in violation of the Securities Act or the
rules and regulations promulgated thereunder, including Rule 145. An Affiliate
Agreement has been executed by each such affiliate identified by DEKALB as of
the date of this Proxy Statement/Prospectus.
RESTRICTIONS ON RESALES BY CANADIAN RESIDENTS
Apache will submit applications to the securities regulatory authorities in
the appropriate provinces and territories of Canada in connection with the
resale of Apache Common Stock to be received by DEKALB stockholders resident in
Canada in the Merger. Upon receipt of the orders resulting from the
applications, the Apache Common Stock may be resold without restriction (other
than as a result of "control block" restrictions which may arise by virtue of
the ownership thereof) under applicable securities laws of the provinces and
territories of Canada provided that such trade is executed through the
facilities of a stock exchange outside of Canada or in the over-the-counter
market in the United States if the Apache Common Stock is quoted on the
over-the-counter market at the time of such trade and such trade is made in
accordance with the rules of the stock exchange or market upon which the trade
is made and in accordance with all laws applicable to such stock exchange or
market. DEKALB STOCKHOLDERS RESIDENT IN CANADA ARE URGED TO CONSULT THEIR LEGAL
ADVISORS TO DETERMINE THE EXTENT OF ALL APPLICABLE RESALE PROVISIONS.
APPRAISAL RIGHTS OF DISSENTING DEKALB CLASS A STOCKHOLDERS
Any person who is a holder of record of shares of DEKALB Class A Stock and
who objects to the terms of the Merger may seek appraisal of such holder's
DEKALB Class A Stock under and in compliance with the requirements of Section
262 of the DGCL (the DEKALB Class A Stock as to which such appraisal rights have
been asserted being referred to herein as the "Dissenting Shares"). Section 262
provides a procedure by which persons who are holders of DEKALB Class A Stock at
the Effective Time of the Merger may seek an
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appraisal of part of or all their DEKALB Class A Stock in lieu of accepting
shares of Apache Common Stock in exchange therefor as described under "The
Merger -- General Description of the Merger." In any such appraisal proceeding,
the Delaware Court of Chancery (the "Chancery Court") would determine the "fair
value" of the DEKALB Class A Stock. Holders of DEKALB Class A Stock should
recognize that such an appraisal could result in a determination of a value
higher or lower than, or equivalent to, the Exchange Ratio of between 0.85 and
0.90 shares of Apache Common Stock per share of DEKALB Class A Stock. The
following is a summary of the principal provisions of Section 262 and does not
purport to be a complete description. A copy of Section 262 is attached hereto
as Appendix III and is incorporated herein by reference.
FAILURE TO TAKE ANY NECESSARY STEPS FULLY AND PRECISELY TO SATISFY THE
REQUIREMENTS OF SECTION 262 OF THE DGCL WILL RESULT IN A TERMINATION OR WAIVER
OF THE APPRAISAL RIGHTS OF THE DEKALB CLASS A STOCKHOLDER UNDER SUCH SECTION.
A holder of DEKALB Class A Stock electing to exercise appraisal rights
under Section 262 must (a) deliver to DEKALB, before the taking of the vote on
the Merger Agreement, a written demand for appraisal that is made by or on
behalf of the person who is the holder of record of the DEKALB Class A Stock for
which appraisal is demanded and (b) not vote in favor of adoption of the Merger
Agreement. A proxy or vote against approval and adoption of the Merger Agreement
does not constitute such a demand. In addition, mere failure, after the
completion of the Merger, to execute and return a letter of transmittal to the
Exchange Agent does not constitute a demand. A holder of DEKALB Class A Stock
electing to take such action must do so before the taking of the vote on the
Merger Agreement by a separate written demand that reasonably informs DEKALB of
the identity of the holder of DEKALB Class A Stock of record and of such
holder's intention thereby to demand the appraisal of such holder's DEKALB Class
A Stock. Written demands for appraisal should be directed to DEKALB Energy
Company, 10th Floor, 700-9th Avenue S.W., Calgary, Alberta, Canada T2P 3V4,
Attention: John H. Witmer, Jr., Secretary.
Only the holder of record of DEKALB Class A Stock is entitled to assert
appraisal rights for the DEKALB Class A Stock registered in that holder's name.
The holder of DEKALB Class A Stock asserting appraisal rights must hold DEKALB
Class A Stock of record on the date of making the demand and continuously
through the Effective Time. The demand should be executed by or for the holder
of record, fully and correctly, as the holder's name appears on the holder's
stock certificates. If the stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and if the stock is owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all owners. An authorized agent, including one of two or more
joint owners, may execute the demand for appraisal for a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is acting as agent
for the record owner or owners.
A record holder who holds DEKALB Class A Stock as nominee for beneficial
owners may exercise the holder's right of appraisal with respect to the DEKALB
Class A Stock held for all or less than all of such beneficial owners. In such
case, the written demand should set forth the number of shares of DEKALB Class A
Stock covered by it. Where no number of shares of DEKALB Class A Stock is
expressly mentioned, the demand will be presumed to cover all DEKALB Class A
Stock held in the name of the record holder.
Within ten days after the Effective Time, DEKALB, as the Surviving
Corporation, is required to send notice as to the effectiveness of the Merger to
each person who, prior to the Effective Time of the Merger, satisfied the
foregoing conditions.
Within 120 days after the Effective Time, DEKALB or any holder of
Dissenting Shares may file a petition in the Chancery Court demanding a
determination of the fair value of all of the Dissenting Shares. Holders of
Dissenting Shares should not assume that (i) DEKALB will file a petition with
respect to the appraisal value of their Dissenting Shares, (ii) DEKALB will
initiate any negotiations with respect to the "fair value" of such Dissenting
Shares or (iii) DEKALB will notify them of any act in connection with the
Merger. Accordingly, holders of DEKALB Class A Stock should regard it as their
obligation to initiate all necessary action with respect to the perfection of
their appraisal rights within the time periods prescribed in Section 262.
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Within 120 days after the Effective Time, any holder of Dissenting Shares
is entitled, upon written request, to receive from DEKALB a statement setting
forth the aggregate number of Dissenting Shares and the aggregate number of
holders of such Dissenting Shares. DEKALB is required to mail such statement
within ten days after it receives a written request therefor.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Chancery Court will determine the holders of DEKALB Class A Stock
entitled to appraisal rights and will appraise the Dissenting Shares owned by
such holders, determining their "fair value" exclusive of any element of value
arising from the accomplishment or expectation of the Merger and will determine
a fair rate of interest, if any, to be paid upon the "fair value." In
determining "fair value" of the Dissenting Shares, the Chancery Court shall take
into account all relevant factors. Any such judicial determination of the "fair
value" of the Dissenting Shares could be based upon considerations other than or
in addition to the consideration paid in the Merger and the market value of the
DEKALB Class A Stock, including asset values and earning capacity. In Weinberger
v. UOP, Inc., the Delaware Supreme Court stated, among other things, that "proof
of value by any techniques or methods generally considered acceptable in the
financial community and otherwise admissible in court" should be considered in
an appraisal proceeding. The value so determined for the Dissenting Shares could
be more or less than, or the same as, the Exchange Ratio of between 0.85 and
0.90 shares of Apache Common Stock. The Chancery Court may allocate the costs of
the appraisal proceedings as it deems equitable in the circumstances. The
Chancery Court may also order that all or a portion of the expenses incurred by
any holder of Dissenting Shares in connection with an appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the Dissenting Shares.
Any holder of DEKALB Class A Stock who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote the DEKALB Class A Stock subject to such demand for any purpose or be
entitled to the payment of dividends or other distributions on such DEKALB Class
A Stock (other than those payable or deemed to be payable to holders of DEKALB
Class A Stock of record as of a date prior to the Effective Time) or on any
shares of Apache Common Stock otherwise issuable, but for such appraisal demand,
in substitution therefor.
A holder of DEKALB Class A Stock will fail to perfect, or effectively lose,
such holder's right to appraisal if no petition for appraisal is filed within
120 days after the Effective Time, or if the holder of DEKALB Class A Stock
delivers to DEKALB a written withdrawal of such holder's demand for an appraisal
and an acceptance of the Merger, except that any such attempt to withdraw made
more than 60 days after the Effective Time requires the written approval of
DEKALB. Holders of DEKALB Class A Stock should also note that surrender to the
designated exchange agent of certificates for their DEKALB Class A Stock may
constitute a waiver of appraisal rights under the DGCL.
If an appraisal proceeding is timely instituted, such proceeding may not be
dismissed as to any holder of DEKALB Class A Stock who has perfected his right
of appraisal without the approval of the Chancery Court.
Under Delaware law, holders of neither Apache Common Stock nor DEKALB Class
B Stock will be entitled to any appraisal or dissenter's rights in connection
with the Merger.
CERTAIN TERMS OF THE MERGER AGREEMENT
The following description does not purport to be complete and is qualified
in its entirety by reference to the full text of the Merger Agreement, attached
to this Proxy Statement/Prospectus as Appendix I and incorporated herein by
reference. Certain capitalized terms used in this description and not elsewhere
defined are defined in the Merger Agreement and used with the meanings provided
therein. See pages AI-iv through AI-v of Appendix I.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that, as promptly as practicable after the
satisfaction or waiver of the conditions to closing the Merger, the parties
shall cause the Merger to be consummated by filing a Certificate
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of Merger with the Secretary of State of the State of Delaware, in such form as
required by, and executed in accordance with the relevant provisions of,
Delaware law. It is anticipated that, if the Merger Agreement is approved and
adopted at the Special Meeting and all other conditions to the Merger have been
satisfied or waived, the Effective Time will occur on the date of the Special
Meeting or as soon thereafter as practicable.
MANNER OF CONVERTING SHARES
At the Effective Time, each outstanding share of DEKALB Stock (other than
220,000 shares of DEKALB Class B Stock held by DEKALB Energy Canada Ltd., a
wholly owned subsidiary of DEKALB, which will remain outstanding and not be
converted into shares of Apache Common Stock) will be converted into the right
to receive a number of shares of Apache Common Stock determined by reference to
the Exchange Ratio, which Exchange Ratio will be between 0.85 and 0.90 shares of
Apache Common Stock per share of DEKALB Stock. Such Exchange Ratio will be
determined by adding to 0.85 an amount (computed to the nearest ten-thousandth)
equal to 0.0125 multiplied by the excess, if any, of $30 over the Market Price
of Apache Common Stock. If the Market Price of the Apache Common Stock is $26 or
lower, the Exchange Ratio will be 0.90, and if the Market Price of the Apache
Common Stock is $30 or higher, the Exchange Ratio will be 0.85. Any resulting
fractional shares of Apache Common Stock will be settled in cash.
As used in the Merger Agreement, the "Market Price" of the Apache Common
Stock means the average of the per share closing prices of Apache Common Stock
as reported on the NYSE Composite Tape during the ten consecutive trading days
ending on (and including) the third trading day prior to the Effective Time of
the Merger. Notwithstanding the foregoing, if between the date of the Merger
Agreement and the Effective Time the outstanding shares of Apache Common Stock
shall have been changed into a different number of shares or a different class
by reason of any reclassification or stock split or dividend, the Exchange Ratio
shall be correspondingly adjusted to reflect such reclassification or stock
split or dividend.
As soon as practicable following the Effective Time, Apache will mail to
each person who was a record holder of DEKALB Stock immediately prior to the
Effective Time a letter of transmittal and other information advising such
holder of the consummation of the Merger and for use in exchanging DEKALB Stock
certificates for Apache Common Stock certificates and cash in lieu of fractional
shares of Apache Common Stock. Letters of transmittal will also be available
following the Effective Time at the offices of Apache in Houston, Texas. After
the Effective Time, there will be no further registration of transfers on the
stock transfer books of DEKALB of shares of DEKALB Stock that were outstanding
prior to the Effective Time. Share certificates should not be surrendered for
exchange by stockholders of DEKALB prior to the receipt of a letter of
transmittal.
No fractional shares of Apache Common Stock will be issued in the Merger.
Each stockholder of DEKALB entitled to a fractional share of Apache Common Stock
will receive an amount in cash equal either to (i) an amount determined by
multiplying the Market Price by the fraction of a share of Apache Common Stock
to which such holder would otherwise be entitled, or, at the option of Apache,
(ii) such fractional holder's proportionate interest in the net proceeds from a
sale by the Exchange Agent of the aggregate of the fractional shares of Apache
Common Stock which would otherwise have been issued. No interest will be paid on
such cash amounts, and all shares of DEKALB Stock held by a record holder shall
be aggregated for purposes of computing the amount of any such payment.
Until so surrendered and exchanged, after the Effective Time each
certificate previously evidencing DEKALB Stock shall represent solely the right
to receive Apache Common Stock and cash in lieu of fractional shares of Apache
Common Stock. Unless and until such a DEKALB Stock certificate shall be so
surrendered and exchanged, no dividends or other distributions payable to the
holders of record of Apache Common Stock as of any time on or after the
Effective Time shall be paid to the holder of such certificate previously
evidencing DEKALB Stock; provided, however, that, upon surrender and exchange of
a DEKALB Stock certificate, there shall be paid to the record holder of the
Apache Common Stock certificate issued and exchanged therefor (i) the amount,
without interest thereon, of dividends and other distributions, if any, with a
record date on or after the Effective Time theretofore paid with respect to the
number of whole shares of Apache Common Stock issued upon such exchange and
surrender, and (ii) at the appropriate payment date,
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the amount of dividends or other distributions, if any, with a record date on or
after the Effective Time but prior to surrender and a payment date occurring
after surrender, payable with respect to such whole shares of Apache Common
Stock.
TREATMENT OF DEKALB OPTIONS
Assumption. The Merger Agreement provides that Apache and DEKALB will take
such action as may be necessary to permit Apache to assume, at the Effective
Time, each DEKALB Option that remains unexercised in whole or in part and to
substitute shares of Apache Common Stock for shares of DEKALB Stock purchasable
under such assumed DEKALB Option, subject to certain terms and conditions. The
assumed DEKALB Option will not give the optionee additional benefits which such
optionee did not have under the DEKALB Option, and shall be assumed on the same
terms and conditions (including provisions regarding vesting and termination) as
the DEKALB Option being assumed, subject to the matters described in the
following paragraph.
The number of shares of Apache Common Stock purchasable under any DEKALB
Option assumed by Apache will be equal to the number of whole shares of Apache
Common Stock that the holder of the DEKALB Option would have received upon
consummation of the Merger had such DEKALB Option been exercised (without regard
to any vesting schedule) in full immediately prior to the Effective Time. The
exercise price per share of Apache Common Stock will be equal to the per share
exercise price of the DEKALB Option divided by the Exchange Ratio. All unvested
DEKALB Options assumed by Apache will vest according to the vesting schedule in
effect for such DEKALB Options on the date of the Merger Agreement.
Cancellation. As an alternative to having their DEKALB Options assumed by
Apache, holders of DEKALB Options may elect, in their sole discretion at any
time after receipt of this Proxy Statement/Prospectus and prior to the Effective
Time, to surrender any DEKALB Options (whether vested or unvested) that remains
unexercised in whole or in part. In exchange for the cancellation of such DEKALB
Options, Apache shall issue a number of shares of Apache Common Stock for each
share of DEKALB Stock covered by a cancelled DEKALB Option determined as
follows: (i) the Market Price shall be multiplied by the Exchange Ratio, then
(ii) the applicable exercise price per share under the DEKALB Option being
exchanged shall be subtracted from the product obtained in clause (i) above, and
then (iii) the difference obtained in clause (ii) above shall be divided by the
Market Price. No fractional shares of Apache Common Stock will be issued in
exchange for the cancellation of DEKALB Options, but rather each holder of a
DEKALB Option entitled to a fractional share of Apache Common Stock will receive
an amount in cash equal to the value of such fractional share of Apache Common
Stock based upon the Market Price. DEKALB Options that are exchanged for Apache
Common Stock in this manner shall be cancelled effective as of the Effective
Time.
Resale of Apache Common Stock by Canadian Residents. Apache will submit
applications to the securities regulatory authorities in the appropriate
provinces and territories of Canada in connection with the resale of Apache
Common Stock issuable to holders of DEKALB Options resident in Canada upon the
exercise of any DEKALB Option or issued in exchange for the cancellation of any
DEKALB Options. Upon receipt of the orders resulting from the applications, the
Apache Common Stock may be resold without restriction (other than as a result of
any "control block" restrictions which may arise by virtue of the ownership
thereof) under applicable securities laws of the provinces and territories of
Canada provided that such trade is executed through the facilities of a stock
exchange outside of Canada or in the over-the-counter market in the United
States if the Apache Common Stock is quoted on the over-the-counter market at
the time of such trade and such trade is made in accordance with the rules of
the stock exchange or market upon which the trade is made and in accordance with
all laws applicable to such stock exchange or market. THE HOLDERS OF DEKALB
OPTIONS RESIDENT IN CANADA ARE URGED TO CONSULT THEIR LEGAL ADVISORS TO
DETERMINE THE EXTENT OF ALL APPLICABLE RESALE PROVISIONS.
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CONDITIONS TO THE MERGER
The respective obligations of Apache and DEKALB to consummate the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions, any or all of which may be waived in writing by the
parties to the Merger Agreement, in whole or in part, if legally allowable: (i)
the Merger Agreement and the Merger shall have been approved and adopted by the
requisite vote of the holders of DEKALB Class A Stock; (ii) the Apache Common
Stock issuable in the Merger and pursuant to the DEKALB Options shall have been
authorized for listing on the NYSE, upon official notice of issuance; (iii) the
Registration Statement shall have been declared effective by the Commission
under the Securities Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission, and Apache
shall have received all state "Blue Sky" permits and other authorizations
necessary to consummate the transactions contemplated by the Merger Agreement;
(iv) no Governmental Entity or court of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and which has the effect of
making the Merger or the transactions contemplated by the Merger Agreement
illegal; and (v) all authorizations, consents, orders, declarations or approvals
of, or filings with, or terminations or expirations of waiting periods imposed
by, any Governmental Entity shall have been obtained, shall have occurred or
shall have been filed, except as would not (assuming consummation of the Merger)
have a Material Adverse Effect on DEKALB.
The obligation of DEKALB to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived in writing by DEKALB, in whole or in part: (i)
Apache shall have performed all agreements required by the Merger Agreement to
be performed by Apache on or prior to the Effective Time, and each of the
representations and warranties of Apache and Merger Sub contained in the Merger
Agreement shall be true and correct in all material respects as of the Effective
Time as though made on and as of the Effective Time (except for the second
sentence of Section 2.2 of the Merger Agreement); (ii) all required
authorizations, consents or approvals from any third party (other than a
Governmental Entity), the failure to obtain which would (assuming the Merger had
taken place) have a Material Adverse Effect on Apache, shall have been obtained;
(iii) Sidley & Austin shall have delivered to DEKALB its written opinion as of
the Effective Time as to certain U.S. federal income tax consequences of the
Merger, as described above under "The Merger -- Certain Income Tax
Consequences"; (iv) DEKALB shall have received an opinion of its Canadian legal
counsel, Howard, Mackie, in form and substance satisfactory to DEKALB, dated the
Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are consistent
with the state of facts existing as of the Effective Time, and relying on an
opinion of Sidley & Austin on the effect of the Merger under Delaware corporate
law, no gain or loss will be recognized by Apache, Merger Sub or DEKALB under
the Canadian Tax Act as a result of the Merger; (v) Apache shall have furnished
to DEKALB a certificate, dated the Effective Time, signed by the appropriate
officers of Apache, certifying to the effect that to the best of the knowledge
and belief of each of them, the conditions set forth in the Merger Agreement,
insofar as they relate to Apache or Merger Sub, have been satisfied; (vi) DEKALB
shall have received an opinion from Mayor, Day, Caldwell & Keeton, L.L.P., dated
the Effective Time, substantially to the effect that the incorporation, good
standing and capitalization of Apache are as stated in the Merger Agreement,
that Apache has corporate power and authority to execute, deliver and perform
the Merger Agreement, that the shares of Apache Common Stock to be issued
pursuant to the Merger Agreement will be, when so issued, duly authorized,
validly issued and outstanding, fully paid and nonassessable, and as to certain
other matters; (vii) DEKALB shall have received, in form reasonably satisfactory
to DEKALB, letters from Arthur Andersen LLP and Coopers & Lybrand, Apache's and
DEKALB's independent public accountants, respectively, covering such matters
with respect to the Registration Statement and the Proxy Statement as reasonably
requested by DEKALB; and (viii) Apache shall have furnished to DEKALB at the
closing such other customary documents, certificates or instruments as DEKALB
may reasonably request.
The obligation of Apache to effect the Merger is also subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived in writing by Apache, in whole or in part: (i)
DEKALB shall have performed in all material respects all agreements required by
the Merger Agreement
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to be performed by DEKALB on or prior to the Effective Time, and each of the
representations and warranties of DEKALB contained in the Merger Agreement shall
be true and correct in all material respects as of the Effective Time as though
made on and as of the Effective Time (except for the second sentence of Section
3.2 and clause (iii) of Section 3.5 of the Merger Agreement); (ii) all required
authorizations, consents or approvals from any third party (other than a
Governmental Entity), the failure to obtain which would (assuming the Merger had
taken place) have a Material Adverse Effect on DEKALB, shall have been obtained;
(iii) based on the advice of Arthur Andersen LLP and such other advice as Apache
may deem relevant, Apache shall have no reasonable basis for believing that
following the Merger the combination of DEKALB and Merger Sub may not be
accounted for as a "pooling of interests" in accordance with generally accepted
accounting principles; (iv) Mayor, Day, Caldwell & Keeton, L.L.P. shall have
delivered to Apache its written opinion as of Effective Time as to certain U.S.
federal income tax consequences of the Merger, as described above under "The
Merger -- Certain Income Tax Consequences;" (v) Apache shall have received an
opinion of Apache's Canadian counsel, Bennett Jones Verchere, in form and
substance satisfactory to Apache, dated the Effective Time, substantially to the
effect that on the basis of facts, representations and assumptions set forth in
such opinion which are consistent with the state of facts existing as of the
Effective Time and relying on an opinion of Mayor, Day, Caldwell & Keeton,
L.L.P. on the effect of the Merger under Delaware corporate law, no gain or loss
will be recognized by Apache, Merger Sub or DEKALB under the Canadian Tax Act as
a result of the Merger; (vi) DEKALB shall have furnished to Apache a
certificate, dated the Effective Time, signed by the appropriate officers of
DEKALB, certifying to the effect that to the best of the knowledge and belief of
each of them, the conditions set forth in the Merger Agreement, insofar as they
relate to DEKALB, have been satisfied; (vii) Apache shall have received an
opinion from Sidley & Austin, dated the Effective Time, substantially to the
effect that the incorporation, good standing and capitalization of DEKALB are as
stated in the Merger Agreement, that DEKALB has corporate power and authority to
execute, deliver and perform the Merger Agreement, and as to certain other
matters; (viii) Apache shall have received, in form reasonably satisfactory to
Apache, letters from Arthur Andersen LLP and Coopers & Lybrand covering such
matters with respect to the Registration Statement and the Proxy Statement as
reasonably requested by Apache; (ix) DEKALB shall have furnished to Apache at
the closing such other customary documents, certificates or instruments as
Apache may reasonably request; and (x) holders of not more than ten percent of
the outstanding shares of DEKALB Class A Stock shall have properly demanded
appraisal rights for their shares.
There can be no assurance that all of the conditions to the Merger will be
satisfied.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
DEKALB, Merger Sub and Apache relating to, among other things, (i) each of their
respective organizations and similar corporate matters, (ii) each of their
respective capitalizations, (iii) authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters, and
the absence of conflicts, violations and defaults under their respective
certificates of incorporation and bylaws and certain other agreements and
documents, (iv) the documents and reports filed by them with the Commission and
the accuracy of the information contained therein, (v) the absence of material
adverse changes, (vi) litigation, (vii) brokers, (viii) employee benefit
matters, (ix) director, officer and employee agreements, (x) certain business
practices, (xi) no excess parachute payments or compensation, (xii) insider
interests, (xiii) compliance with laws, (xiv) intellectual property, (xv) labor
matters, (xvi) insurance, (xvii) property records and title, (xviii) contracts,
(xix) condition of assets, (xx) environmental matters, (xxi) taxes and matters
relating to a tax-free reorganization, (xxii) hedging activities, (xxiii)
accounts receivable, (xxiv) internal financial reports, (xxv) undisclosed
liabilities, (xxvi) takeover defense mechanisms, (xxvii) fairness opinion,
(xxviii) no ownership by Apache of DEKALB Stock, and (xxix) the accuracy of
certain other information provided. No person other than DEKALB, Apache and
Merger Sub has any rights or remedies under the Merger Agreement with respect to
such representations and warranties. The representations and warranties of
DEKALB, Apache and Merger Sub all expire at the Effective Time.
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CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO THE MERGER
Each of DEKALB and Apache has agreed that, prior to the Effective Time, it
will and will cause its subsidiaries to carry on its business in all material
respects in, and not enter into any material transaction other than in, the
ordinary course of business and, to the extent consistent therewith, use all
reasonable efforts to preserve intact its current business organization, keep
available the services of its current respective officers and employees, and
preserve its relationships with its customers, suppliers, and others having
business dealings with it, with a view to retaining its goodwill and ongoing
business unimpaired at the Effective Time.
Without limiting the generality of the covenants described above, and
except as expressly contemplated by the Merger Agreement or consented to in
writing by Apache, DEKALB has agreed not to, and not to permit its subsidiaries,
to: (i) (A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its capital
stock, or otherwise make any payments to stockholders of DEKALB in their
capacity as such, other than dividends payable to DEKALB declared by any of
DEKALB's wholly owned subsidiaries, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(C) purchase, redeem or otherwise acquire any shares of capital stock of DEKALB
or any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities; (ii) issue,
deliver, sell, pledge, dispose of or otherwise encumber any shares of its
capital stock, any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options to acquire, any
such shares, voting securities or convertible securities or equity equivalent
(other than, in the case of DEKALB, the issuance of DEKALB Stock during the
period from the date of the Merger Agreement through the Effective Time upon the
exercise of DEKALB Options outstanding on the date of the Merger Agreement);
(iii) amend its certificate of incorporation or amend its bylaws; (iv) acquire
or agree to acquire by merging or consolidating with, or by purchasing all or
substantially all of the assets of or equity in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof; (v) sell, lease or otherwise dispose of or
agree to sell, lease or otherwise dispose of, any of its assets except for (A)
sales of actual production in the ordinary course of business, (B) certain
scheduled dispositions, and (C) sales of assets (other than oil and gas
properties or related plant, equipment, pipeline or gathering system assets or
real property) made in the ordinary course of business consistent with past
practice and not involving any asset with a value greater than $50,000 or assets
with an aggregate value greater than $100,000; (vi) except in the ordinary
course of business consistent with past practice and limited to borrowings under
the existing principal revolving credit agreement of DEKALB Energy Canada Ltd.
and other transactions not exceeding an aggregate amount equal to $100,000, (A)
incur any indebtedness for borrowed money or guarantee any such indebtedness or
issue or sell any debt securities or guarantee any debt securities of others or
(B) make any loans, advances or capital contributions to, or investments in, any
other person, other than DEKALB or any wholly owned subsidiary of DEKALB; (vii)
alter through merger, liquidation, reorganization, restructuring or in any other
fashion the corporate structure or ownership of any subsidiary of DEKALB; (viii)
enter into, adopt or amend any severance plan, agreement or arrangement, any
employee benefit plan or any employment or consulting agreement or hire any
additional employees or consultants except as scheduled; (ix) make or incur any
capital expenditures or any expenditures in connection with the Merger Agreement
and the transaction contemplated thereby with regard to fees and expenses of
investment bankers, legal counsel, accountants, experts and other consultants
that are not set forth in DEKALB's 1994 capital budget or the preliminary 1995
capital budget; (x) make any election relating to taxes or settle or compromise
any tax liability; (xi) change any material accounting principle used by it,
except for any change required by generally accepted accounting principles or by
the rules of the Commission; (xii) waive the benefits of, or agree to modify in
any manner, any confidentiality, standstill or similar agreement (except for any
agreement with Apache) to which DEKALB or any of its subsidiaries is a party; or
(xiii) authorize any of, or commit or agree to take any of, the foregoing
actions; provided, however, that DEKALB is not prohibited or prevented from (A)
if the Effective Time is not on or before April 15, 1995, incurring
indebtedness, on terms reasonably acceptable to Apache, as required to redeem in
whole or in part DEKALB's 10% Notes due in 1998, which become redeemable April
15, 1995, (B) issuing DEKALB Class A Stock or DEKALB Class B Stock upon the
exercise of DEKALB Options outstanding on or prior to
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the Effective Time or (C) amending the Retirement Allowance Agreement of DEKALB
Energy Canada Ltd. substantially in accordance with a proposed amendment
previously furnished to Apache.
Without limiting the generality of the covenants described above, and
except as expressly contemplated by the Merger Agreement or consented to in
writing by DEKALB, Apache has agreed not to, and not to permit its subsidiaries
to: (i) declare, set aside or pay any dividends on, or make any other actual,
constructive or deemed distributions in respect of, any of its capital stock, or
otherwise make any payments to stockholders of Apache in their capacity as such,
other than (A) ordinary quarterly cash dividends by Apache consistent with past
practice in an amount not in excess of $.07 per share of Apache Common Stock,
(B) dividends declared prior to the date of the Merger Agreement, and (C)
dividends payable to Apache declared by any of its subsidiaries; (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; or (iii) purchase, redeem or otherwise acquire
any shares of capital stock of Apache or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities.
NO SOLICITATION
At the time of execution of the Merger Agreement, DEKALB agreed to
immediately cease and cause to be terminated all existing discussions and
negotiations, if any, with any parties conducted theretofore with respect to any
Takeover Proposal. "Takeover Proposal" means any tender offer or exchange offer
for 20 percent or more of the outstanding shares of DEKALB Class A Stock or
DEKALB Class B Stock or any proposal or offer for a merger, consolidation,
amalgamation or other business combination involving DEKALB or its subsidiaries
or any equity securities (or securities convertible into equity securities) of
DEKALB, or any proposal or offer to acquire in any manner a 20 percent or
greater equity or beneficial interest in, or a material amount of the assets or
value of, DEKALB or its subsidiaries, other than pursuant to the transactions
contemplated by the Merger Agreement.
In addition, unless and until the Merger Agreement shall have been
terminated, DEKALB has agreed not to, and not to permit any of its subsidiaries
or any of its or its subsidiaries' officers, directors, employees, agents,
financial advisors, counsel or other representatives (collectively, the "DEKALB
Representatives"), to, directly or indirectly, (i) (A) solicit, (B) initiate or
(C) (excluding any action referred to in clauses (ii) and (iii) of this
sentence) encourage or take any action to facilitate the making of, any offer or
proposal that constitutes or that is reasonably likely to lead to any Takeover
Proposal, (ii) participate in any discussions (other than among DEKALB
Representatives or as necessary to clarify the terms and conditions of any
unsolicited offer, including any financing or other contingencies and other
relevant facts with respect thereto) or negotiations regarding any Takeover
Proposal or (iii) furnish to any person (other than DEKALB Representatives,
Apache or its representatives) any nonpublic information or nonpublic data
outside the ordinary course of conducting DEKALB's ordinary business; provided,
however, that to the extent required by their fiduciary duties under applicable
law and after consultation with and based upon the advice of outside legal
counsel, DEKALB's Board of Directors and officers may, in response to a person
who initiates communication with DEKALB without there having occurred any action
prohibited by clause (i) of this sentence, take such actions as would otherwise
be prohibited by clauses (ii) and (iii). DEKALB has also agreed to notify Apache
orally and in writing of any such inquiries, offers or proposals (including the
terms and conditions of any offer or proposal and the identity of the person
making any inquiry, offer or proposal) and of any related termination events
(see clauses (vi) and (vii) under "-- Termination or Amendment of the Merger
Agreement" below) as promptly as possible and in any event within 24 hours after
receipt thereof or the occurrence of such events, as appropriate, and to give
Apache five days' advance notice of any agreement to be entered into with or any
information or data to be furnished to any person in connection with any such
inquiry, offer or proposal.
CERTAIN POST-MERGER MATTERS
Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and DEKALB as the Surviving Corporation will succeed to all of the
assets, rights and obligations of Merger Sub.
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Pursuant to the Merger Agreement, DEKALB's Charter and DEKALB's Bylaws, as
in effect immediately prior to the Effective Time, will be the certificate of
incorporation and bylaws of the Surviving Corporation until thereafter amended
as provided therein or pursuant to the DGCL. The officers and directors of
Merger Sub at the Effective Time shall be the initial officers and directors of
the Surviving Corporation.
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any approval by the holders of DEKALB Class A
Stock:
(i) by mutual consent of Apache and DEKALB;
(ii) by Apache if (A) DEKALB shall have failed to comply in any
material respect with any of its covenants or agreements contained in the
Merger Agreement required to be complied with by DEKALB prior to the date
of such termination, which failure to comply has not been cured within ten
business days following receipt by DEKALB of notice of such failure to
comply, or (B) the holders of DEKALB Class A Stock shall have failed to
approve the Merger Agreement at the Special Meeting;
(iii) by DEKALB if (A) Apache shall have failed to comply in any
material respect with any of its covenants or agreements contained in the
Merger Agreement required to be complied with by Apache prior to the date
of such termination, which failure to comply has not been cured within ten
business days following receipt by Apache of notice of such failure to
comply, or (B) the holders of DEKALB Class A Stock shall have failed to
approve the Merger Agreement at the Special Meeting;
(iv) by either Apache or DEKALB if (A) the Merger has not been
effected on or prior to the close of business on June 30, 1995; provided,
however, that the right to terminate the Merger Agreement pursuant to this
clause shall not be available to any party whose failure to fulfill any
obligation of the Merger Agreement has been the cause of, or resulted in,
the failure of the Merger to have occurred on or prior to the aforesaid
date; or (B) any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the transactions contemplated by the
Merger Agreement and such order, decree, ruling or other action shall have
become final and nonappealable;
(v) (A) by DEKALB if there has been a breach by Apache (which breach
has not been cured within ten business days following receipt by Apache of
notice of the breach) of one or more representations or warranties
(determined without regard to any qualification therein as to materiality)
such that the adverse consequences of such breach or breaches would in the
aggregate have a Material Adverse Effect on Apache; or (B) by Apache if
there has been a breach by DEKALB (which breach has not been cured within
ten business days following receipt by DEKALB of notice of the breach) of
one or more representations or warranties (determined without regard to any
qualification therein as to materiality and in the case of DEKALB's
representation as to property records and title, determined with reference
to the net consequences of all variances whether favorable or adverse) such
that the adverse consequences of such breach or breaches would in the
aggregate have a Material Adverse Effect on DEKALB;
(vi) by Apache, (A) if DEKALB shall have taken or permitted any of the
actions referred to in the nonsolicitation provisions of the Merger
Agreement, (B) if the Board of Directors of DEKALB shall have recommended,
or shall have resolved to recommend, to the stockholders of DEKALB any
Takeover Proposal, or (C) a tender offer or exchange offer for 20 percent
or more of the outstanding shares of DEKALB Class A Stock is commenced, and
the Board of Directors of DEKALB does not recommend, within five days after
the commencement of such offer, that stockholders not tender their shares
into such tender or exchange offer;
(vii) by DEKALB if DEKALB's Board of Directors, to the extent required
by their fiduciary duties under applicable law and after consultation with
and based upon the advice of outside legal counsel, resolve to recommend to
the stockholders of DEKALB, or agree to, a Takeover Proposal that provides
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stockholders of DEKALB a value per share of DEKALB Stock in excess of a
value equal to the product of (A) the Exchange Ratio (calculated as if the
Effective Date were the date on which the Board of Directors of DEKALB is
considering terminating the Merger Agreement) multiplied by (B) the average
of the per share closing prices of Apache Common Stock as reported on the
NYSE Composite Tape during the ten consecutive trading days immediately
preceding the day on which the Board of Directors of DEKALB is considering
terminating the Merger Agreement; or
(viii) by either Apache or DEKALB if the Market Price of Apache Common
Stock (calculated as if the Effective Date were the date of the Special
Meeting) is less than $22.00 per share.
In the event of termination of the Merger Agreement by either Apache or
DEKALB, the Merger Agreement will become void and there will be no liability
thereunder on the part of DEKALB, Apache or Merger Sub or their respective
officers or directors (except for confidentiality, standstill, expense sharing
and press release provisions, which will to the extent provided therein survive
the termination); provided, however, that termination will not relieve any party
to the Merger Agreement from any liability for any breach of the Merger
Agreement.
The Merger Agreement may be amended by the parties thereto, by or pursuant
to action taken by their respective Boards of Directors, at any time before or
after approval of the Merger Agreement at the Special Meeting, but after any
such approval at the Special Meeting no amendment can be made which changes the
Exchange Ratio or which in any way materially adversely affects the rights of
the stockholders of DEKALB, without the further approval of the holders of the
DEKALB Class A Stock. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties thereto.
At any time prior to the Effective Time, any party thereto may (i) extend
the time for the performance of any of the obligations or other acts of any
other party thereto, (ii) waive any inaccuracies in the representations and
warranties of any other party contained therein or in any document delivered
pursuant thereto and (iii) waive compliance with any of the agreements of any
other party or any of the conditions to the obligations of such waiving party
contained therein which may legally be waived. Any agreement on the part of a
party to the Merger Agreement to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party and
shall not constitute an amendment requiring the approval of the holders of the
DEKALB Class A Stock.
EXPENSES
Except as described in this paragraph, DEKALB and Apache have agreed that,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs and expenses. DEKALB and Apache
have agreed that if the Merger Agreement is terminated for any reason, then (i)
Apache will pay (or reimburse DEKALB for) the fees and expenses of Ryder Scott
incurred by DEKALB for the audit of DEKALB reserves to be conducted as provided
in the Merger Agreement, and (ii) DEKALB and Apache will share equally all
out-of-pocket expenses incurred relating to (A) printing and mailing the
Registration Statement and the Proxy Statement, (B) the Commission's and any
state's "Blue Sky" filing fees in the United States or similar filing fees in
Canada incurred in connection with filing the Registration Statement, and (C)
the solicitation of stockholder approvals; provided, however, that if the Merger
Agreement is terminated by reason of a party's breach of the Merger Agreement,
such party will not be entitled to reimbursement from the other party. Within
ten days of termination of the Merger Agreement, DEKALB and Apache will deliver
in writing to the other a schedule of expenses, and as soon thereafter as
practicable, but not later than 20 days after termination of the Merger
Agreement, either DEKALB or Apache as the case may be will reimburse the other.
In addition, Apache will pay all commissions, transfer taxes and other out-of-
pocket transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with any sale of shares in connection
with the payment of cash with respect to fractional shares of Apache Common
Stock.
50
<PAGE> 56
BENEFIT PLANS AND SEVERANCE
For at least 24 months following the Effective Time, Apache will maintain
employee benefits and programs for officers and employees of DEKALB and its
subsidiaries that are no less favorable than those being provided to such
officers and employees on the date of the Merger Agreement. For purposes of
eligibility to participate in and vesting in various Apache benefit plans,
employees of DEKALB and its subsidiaries will be credited with their years of
service with DEKALB and its subsidiaries. From the date of the Merger Agreement
up to the Effective Time, DEKALB will be permitted to offer and pay bonuses, in
addition to any bonuses or payments pursuant to any existing bonus or incentive
plans of DEKALB, payable to employees who remain in the employ of DEKALB or its
subsidiaries until the date three months after the Effective Time; provided,
however, that such bonuses will contain terms no more favorable than those
scheduled in connection with the Merger Agreement. For a period of at least 24
months following the Effective Time, Apache will maintain DEKALB's severance
policy for terminated employees as in effect on the date of the Merger
Agreement, or will replace such policy with a policy providing equal or more
favorable compensation.
INSURANCE AND INDEMNIFICATION
Apache will provide, or cause the Surviving Corporation to provide, for a
period of not less than six years from the Effective Time, DEKALB's current
directors and officers an insurance and indemnification policy that provides
coverage for events occurring through the Effective Time (the "D&O Insurance")
that is no less favorable than the coverage provided to such directors under
DEKALB's existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available comparable coverage; provided, however, that
Apache and the Surviving Corporation will not be required to pay an annual
premium for the D&O Insurance in excess of five times the last annual premium
paid by DEKALB prior to the date of the Merger Agreement, but in such case will
purchase as much coverage as possible for such amount. From and after the
Effective Time, Apache (i) has agreed to indemnify and hold harmless all past
and present officers and directors of DEKALB and of its subsidiaries to the same
extent that such persons are currently entitled to be indemnified by DEKALB
pursuant to the applicable provisions of DEKALB's Charter or DEKALB's Bylaws or
of any DEKALB indemnification agreement for the benefit of any such officers or
directors for acts or omissions occurring at or prior to the Effective Time,
including those in connection with the Merger, and (ii) will advance reasonable
litigation expenses incurred by such officers and directors in connection with
defending any action arising out of such acts or omissions, and Apache has
agreed not to amend or modify any of such provisions after the Effective Time.
STOCKHOLDER AGREEMENTS
As a condition to Apache's and Merger Sub's execution of the Merger
Agreement, holders of 1,202,403 shares of DEKALB Class A Stock (or approximately
52 percent of the 2,304,007 shares of DEKALB Class A Stock outstanding on
December 15, 1994) each executed a Stockholder Agreement agreeing to vote all
shares of DEKALB Class A Stock owned by such persons at any meeting of
stockholders of DEKALB (or consent in lieu thereof) (i) in favor of the Merger
and adoption of the Merger Agreement, (ii) against any act that would result in
a breach under the Merger Agreement, and (iii) except as otherwise agreed to in
writing in advance by Apache, against any business combination, sale of assets
or reorganization or recapitalization, any change in DEKALB's Board of
Directors, any amendment of DEKALB's Charter or DEKALB's Bylaws or corporate
structure or business, or any other matter that may interfere with or adversely
affect the contemplated economic benefits to Apache of the Merger or Merger
Agreement. The stockholders signing Stockholder Agreements also have agreed (A)
not to solicit, initiate or encourage any Takeover Proposals, (B) not to grant a
proxy to another person, sell or otherwise transfer or encumber their shares, or
convert their shares of DEKALB Class A Stock into shares of DEKALB Class B
Stock, and (C) to waive all appraisal rights with respect to the Merger. The
Stockholder Agreements will terminate automatically at the Effective Time or
upon any termination of the Merger Agreement by its terms. As a consequence of
the Stockholder Agreements, approval of the Merger Agreement at the Special
Meeting is expected.
The form of Stockholder Agreement has been filed as an Exhibit to the
Registration Statement of which this Proxy Statement/Prospectus is a part and is
incorporated herein by reference.
51
<PAGE> 57
MARKET PRICES OF COMMON STOCK AND DIVIDEND INFORMATION
Apache Common Stock is traded on the NYSE and the Chicago Stock Exchange
under the symbol "APA." The DEKALB Class B Stock is traded in the
over-the-counter market and quoted on the NASDAQ/NMS under the symbol "ENRGB,"
and on the TSE under the symbol "DKB.B." The DEKALB Class A Stock is not traded
publicly. The following table sets forth, for the periods indicated, the range
of high and low closing prices per share of Apache Common Stock as reported on
the NYSE Composite Tape and of DEKALB Class B Stock on NASDAQ/NMS, and the
dividend per share of Apache Common Stock. Dividends were not paid on the DEKALB
Stock during such periods.
<TABLE>
<CAPTION>
APACHE COMMON STOCK DEKALB CLASS B STOCK
------------------------- -------------------------
DIVI- DIVI-
HIGH LOW DEND HIGH LOW DEND
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1992
First Quarter.......................... $15 7/8 $12 $0.07 $14 1/2 $11 3/4 --
Second Quarter......................... 18 1/8 13 7/8 0.07 15 3/4 12 --
Third Quarter.......................... 22 1/8 15 1/2 0.07 14 1/4 12 --
Fourth Quarter......................... 21 3/8 17 1/8 0.07 13 1/4 10 1/4 --
1993
First Quarter.......................... $26 1/4 $17 5/8 $0.07 $15 $10 3/4 --
Second Quarter......................... 30 1/4 24 3/8 0.07 18 3/4 14 1/4 --
Third Quarter.......................... 33 1/2 26 3/8 0.07 17 1/4 15 3/4 --
Fourth Quarter......................... 31 1/4 20 3/8 0.07 17 3/8 13 --
1994
First Quarter.......................... $26 7/8 $22 1/2 $0.07 $18 1/2 $13 1/4 --
Second Quarter......................... 29 22 1/4 0.07 15 1/2 13 1/4 --
Third Quarter.......................... 29 1/4 23 0.07 16 1/2 15 --
Fourth Quarter......................... 28 7/8 23 5/8 0.07 21 1/2 14 3/4 --
1995
First Quarter*......................... $25 1/2 $22 1/2 $0.07+ $21 1/2 $18 3/4 --
</TABLE>
- ---------------
* Through January 13, 1995.
+ Declared; payable January 31, 1995.
On December 20, 1994, the last trading day prior to the announcement by
Apache and DEKALB that they had executed the Merger Agreement, the closing per
share sales prices of Apache Common Stock as reported on the NYSE Composite
Tape, and DEKALB Class B Stock as reported on NASDAQ/NMS, were $26.00 and
$15.75, respectively. See the cover page of this Proxy Statement/Prospectus for
recent closing prices of Apache Common Stock and DEKALB Class B Stock.
Following the Merger, Apache Common Stock will continue to be traded on the
NYSE and the Chicago Stock Exchange. Following the Merger, DEKALB Class B Stock
will cease to be traded on the NASDAQ/NMS and on the TSE, and there will be no
further market for the DEKALB Class B Stock.
Apache has paid cash dividends on Apache Common Stock for 112 consecutive
quarters and intends to continue the payment of dividends at current levels,
although future dividend payments will depend upon Apache's level of earnings,
financial requirements and other relevant factors.
52
<PAGE> 58
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
The following unaudited consolidated condensed financial statements and
related notes are presented to show (i) the pro forma effects of the Merger of
Apache and DEKALB, (ii) the pro forma effects of the expected acquisition of oil
and gas properties from Texaco during the first quarter of 1995 and (iii) the
cumulative pro forma effects of both of these transactions.
The Merger will be reported using the pooling of interests method of
accounting, and the Texaco acquisition will be reported using the purchase
method of accounting.
The condensed statements of operations are presented to show income from
continuing operations as if the Merger of DEKALB and Apache occurred effective
January 1, 1991 and as if the Texaco transaction occurred effective January 1,
1993. The pro forma condensed balance sheet is based on the assumption that both
transactions occurred effective September 30, 1994.
Pro forma data are based on assumptions and include adjustments as
explained in the notes to the unaudited pro forma consolidated condensed
financial statements. The pro forma data are not necessarily indicative of the
financial results that would have occurred had the transactions been effective
on and as of the dates referenced above, and should not be viewed as indicative
of operations in future periods. The unaudited pro forma consolidated condensed
financial statements should be read in conjunction with the notes thereto,
Apache's and DEKALB's Annual Reports on Form 10-K for the fiscal year ended
December 31, 1993, and their quarterly reports on Form 10-Q for the quarters
ended March 31, 1994, June 30, 1994 and September 30, 1994, and Apache's Form
10-K/A for the fiscal year ended December 31, 1993, all of which are
incorporated by reference, and Texaco's Unaudited Statement of Revenues and
Direct Operating Expenses included elsewhere in this Proxy
Statement/ Prospectus.
53
<PAGE> 59
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MERGER
PRO
APACHE DEKALB FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas production revenues............. $316,062 $ 92,949 $409,011
Gathering, processing and marketing
revenues................................. 25,970 -- 25,970
Equity in income of affiliates.............. 8,642 2,035 10,677
Other revenues.............................. 6,256 1,743 7,999
-------- -------- ------ --------
Total revenues...................... 356,930 96,727 453,657
OPERATING EXPENSES
Depreciation, depletion and amortization.... 132,230 41,080 173,310
Impairments................................. 3,600 94,241 97,841
Operating costs............................. 91,514 29,802 121,316
Gathering, processing and marketing costs... 18,909 -- 18,909
Administrative, selling and other........... 41,207 8,441 49,648
Financing costs, net........................ 25,309 10,902 36,211
-------- -------- ------ --------
312,769 184,466 497,235
-------- -------- ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES......................... 44,161 (87,739) (43,578)
Provision (benefit) for income taxes........ 9,546 (25,153) (15,607)
-------- -------- ------ --------
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS.................................. $ 34,615 $(62,586) $(27,971)
======== ======== ====== ========
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
PER COMMON SHARE............................ $ .76 $ (6.51) $ (.51)
======== ======== ====== ========
WEIGHTED AVERAGE COMMON SHARES................ 45,777 9,618 (962)(a) 54,433
======== ======== ====== ========
</TABLE>
The accompanying notes to unaudited pro forma financial statements
are an integral part of these statements.
54
<PAGE> 60
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MERGER
PRO
APACHE DEKALB FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas production revenues............. $394,552 $ 59,283 $453,835
Gathering, processing and marketing
revenues................................. 28,594 -- 28,594
Equity in income of affiliates.............. 2,695 756 3,451
Gain on sale of investment in affiliate..... 28,345 1,914 30,259
Other revenues.............................. 114 1,150 1,264
-------- -------- ------ --------
Total revenues...................... 454,300 63,103 517,403
OPERATING EXPENSES
Depreciation, depletion and amortization.... 157,508 22,522 180,030
Impairments................................. 12,000 53,320 65,320
Loss on disposal of U.S. assets............. -- 34,942 34,942
Operating costs............................. 125,337 18,833 144,170
Gathering, processing and marketing costs... 21,452 -- 21,452
Administrative, selling and other........... 35,010 5,589 40,599
Financing costs, net........................ 32,515 6,938 39,453
-------- -------- ------ --------
383,822 142,144 525,966
-------- -------- ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES......................... 70,478 (79,041) (8,563)
Provision (benefit) for income taxes........ 22,702 (9,788) 12,914
-------- -------- ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS...... $ 47,776 $(69,253) $(21,477)
-------- -------- ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS PER
COMMON SHARE................................ $ 1.02 $ (7.19) $ (.39)
======== ======== ====== ========
WEIGHTED AVERAGE COMMON SHARES................ 46,904 9,630 (963)(a) 55,571
======== ======== ====== ========
</TABLE>
The accompanying notes to unaudited pro forma financial statements
are an integral part of these statements.
55
<PAGE> 61
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APACHE
MERGER AND
PRO DEKALB TEXACO
APACHE DEKALB FORMA PRO TEXACO PRO FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and gas production
revenues................. $437,342 $44,506 $481,848 $212,800 $ $694,648
Gathering, processing and
marketing revenues....... 25,862 -- 25,862 25,862
Equity in income of
affiliates............... 624 -- 624 624
Other revenues.............. 2,810 1,488 4,298 4,298
-------- ------- -------- -------- -------- --------- --------
Total revenues...... 466,638 45,994 512,632 212,800 725,432
OPERATING EXPENSES
Depreciation, depletion and
amortization............. 176,335 15,142 191,477 68,109(b) 259,586
Impairments................. 23,200 -- 23,200 23,200
Gain on disposal of U.S.
assets................... -- (513) (513) (513)
Operating costs............. 128,113 12,467 140,580 104,100 244,680
Gathering, processing and
marketing costs.......... 21,010 -- 21,010 21,010
Administrative, selling
and other................ 33,193 3,436 36,629 4,000(c) 40,629
Financing costs, net........ 26,882 3,795 30,677 27,462(d) 58,139
-------- ------- -------- -------- -------- --------- --------
408,733 34,327 443,060 104,100 99,571 646,731
-------- ------- -------- -------- -------- --------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES....................... 57,905 11,667 69,572 108,700 (99,571) 78,701
Provision for income
taxes.................... 20,571 5,995 26,566 3,376(e) 29,942
-------- ------- -------- -------- -------- --------- --------
INCOME FROM CONTINUING
OPERATIONS.................. $ 37,334 $ 5,672 $ 43,006 $108,700 $(102,947) $ 48,759
======== ======= ======== ======== ======== ========= ========
INCOME FROM CONTINUING
OPERATIONS PER COMMON
SHARE....................... $ 0.70 $ .59 $ .69 $ .78
======== ======= ======== ========
WEIGHTED AVERAGE COMMON
SHARES...................... 53,534 9,675 (968)(a) 62,241 62,241
======== ======= ======== ======== ========
</TABLE>
The accompanying notes to unaudited pro forma financial statements
are an integral part of these statements.
56
<PAGE> 62
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APACHE
MERGER AND TEXACO
PRO DEKALB PRO
APACHE DEKALB FORMA PRO TEXACO FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Oil and gas production
revenues................. $365,106 $34,356 $399,462 $130,100 $ $529,562
Gathering, processing and
marketing revenues....... 29,176 -- 29,176 29,176
Equity in income of
affiliates............... 385 -- 385 385
Other revenues.............. 2,636 1,153 3,789 3,789
-------- ------- -------- -------- -------- -------- --------
Total revenues...... 397,303 35,509 432,812 130,100 562,912
OPERATING EXPENSES
Depreciation, depletion and
amortization............. 170,402 10,503 180,905 47,501(b) 228,406
Impairments................. 7,300 -- 7,300 7,300
Operating costs............. 101,807 8,150 109,957 67,200 177,157
Gathering, processing and
marketing costs.......... 25,376 -- 25,376 25,376
Administrative, selling and
other.................... 26,113 2,308 28,421 3,000(c) 31,421
Financing costs, net........ 21,432 3,027 24,459 21,767(d) 46,226
-------- ------- -------- -------- -------- -------- --------
352,430 23,988 376,418 67,200 72,268 515,886
-------- ------- -------- -------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES....................... 44,873 11,521 56,394 62,900 (72,268) 47,026
Provision (benefit) for
income taxes............. 14,696 5,465 20,161 (3,466)(e) 16,695
-------- ------- -------- -------- -------- -------- --------
NET INCOME FROM CONTINUING
OPERATIONS.................. $ 30,177 $ 6,056 $ 36,233 $ 62,900 $(68,802) $ 30,331
======== ======= ======== ======== ======== ======== ========
NET INCOME FROM CONTINUING
OPERATIONS PER COMMON
SHARE....................... $ .49 $ .63 $ .52 $ .43
======== ======= ======== ========
WEIGHTED AVERAGE COMMON
SHARES...................... 61,269 9,610 (961)(a) 69,918 69,918
======== ======= ======== ======== ========
</TABLE>
The accompanying notes to unaudited pro forma financial statements
are an integral part of these statements.
57
<PAGE> 63
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
MERGER
PRO APACHE AND TEXACO
APACHE DEKALB FORMA DEKALB PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 13,060 $ 15,898 $ $ 28,958 $ $ 28,958
Receivables................ 96,818 9,407 106,225 106,225
Inventories................ 8,743 -- 8,743 8,743
Advances to oil and gas
ventures and other...... 10,538 647 11,185 11,185
----------- --------- -------- ----------- --------- -----------
Total current
assets........... 129,159 25,952 155,111 155,111
Net property and equipment... 1,552,845 197,641 1,750,486 600,000(f) 2,354,486
4,000(g)
Other assets................. 33,445 806 34,251 8,500(f) 42,751
----------- --------- -------- ----------- --------- -----------
TOTAL ASSETS................. $ 1,715,449 $ 224,399 $ $ 1,939,848 $ 612,500 $ 2,552,348
=========== ========= ======== =========== ========= ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities.......... $ 164,412 $ 33,739 $ $ 198,151 $ 4,000(g) $ 210,651
8,500(f)
Long-term debt............... 552,744 51,325 604,069 600,000(f) 1,204,069
Deferred income taxes........ 149,255 27,668 176,923 176,923
Other noncurrent
liabilities................ 41,502 10,132 51,634 51,634
----------- --------- -------- ----------- --------- -----------
TOTAL LIABILITIES............ 907,913 122,864 1,030,777 612,500 1,643,277
SHAREHOLDERS' EQUITY:
Common stock............... 78,182 8,549 2,011(h) 88,742 88,742
Paid-in capital............ 543,315 51,657 (95,416)(h) 499,556 499,556
Retained earnings.......... 199,491 148,610 -- 348,101 348,101
Currency translation
adjustments............. -- (13,876) -- (13,876) (13,876)
Treasury stock at cost..... (13,452) (93,405) 93,405(h) (13,452) (13,452)
----------- --------- -------- ----------- --------- -----------
Total shareholders'
equity........... 807,536 101,535 -- 909,071 909,071
----------- --------- -------- ----------- --------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY....... $ 1,715,449 $ 224,399 $ $ 1,939,848 $ 612,500 $ 2,552,348
=========== ========= ======== =========== ========= ===========
</TABLE>
The accompanying notes to unaudited pro forma financial statements
are an integral part of these statements.
58
<PAGE> 64
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma consolidated condensed statements of operations
relative to the Merger are based on the audited statements of DEKALB and Apache
for the years ended December 31, 1991, 1992 and 1993 and on unaudited
information for the nine months ended September 30, 1994. The pro forma
information relating to the Merger reflects the combination of Apache's and
DEKALB's historical results of operations. The effects of differences in
depreciation, depletion and amortization methods and other accounting policies
were reviewed and considered to have an immaterial impact on the combined
financial results and, consequently, no conforming adjustments are reflected on
the accompanying statements. The pro forma data relative to the Texaco
acquisition are based on Texaco's Unaudited Statement of Revenues and Direct
Operating Expenses for the year ended December 31, 1993 and the nine months
ended September 30, 1994 and on the adjustments and assumptions described below.
Certain historical DEKALB data have been reclassified to conform to
Apache's historical presentations.
The pro forma balance sheets are based on Apache's and DEKALB's unaudited
balance sheets at September 30, 1994 and upon the adjustments and assumptions
described below.
The pro forma balance sheet data assume an Exchange Ratio of 0.90 of an
Apache share for each DEKALB share outstanding as of September 30, 1994, that
all DEKALB Options will remain outstanding and will be assumed by Apache and
that a total of 8,447,603 Apache shares would be issued in connection with the
Merger.
PRO FORMA ADJUSTMENTS
THE UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS REFLECT THE FOLLOWING
ADJUSTMENTS:
(a) Adjust DEKALB's historic weighted average shares outstanding to
reflect an assumed Exchange Ratio of 0.90, which would result from an
Apache per share market price of $26 or less.
(b) Record incremental depreciation, depletion and amortization
expense, using the future gross revenue method, resulting from the purchase
of properties from Texaco.
(c) Record increases in general and administrative expense assumed
with acquisition of Texaco properties.
(d) Record interest expense and amortization of deferred financing
costs associated with debt incurred ($600 million before adjustments) to
purchase the Texaco properties, net of capitalized interest, assuming, on a
preliminary basis, that $125 million of the purchase price is initially
classified as unevaluated property costs. Interest expense was computed
assuming a 6 percent rate on $169 million, reflecting the net proceeds
received from a recent issue of 6% Convertible Subordinated Debentures due
2002, and using historic average bank debt interest rates of 5.1 percent
for the twelve months ended December 31, 1993 and 5.5 percent for the nine
months ended September 30, 1994.
(e) Record pro forma income tax provision (benefit) relating to the
pro forma pre-tax income of the Texaco properties, assuming an effective
federal and state tax rate of 37 percent.
THE UNAUDITED BALANCE SHEETS REFLECT THE FOLLOWING ADJUSTMENTS:
(f) Record debt incurred ($600 million) to purchase Texaco properties
and the related estimated bankers' fees and other costs incurred ($8.5
million) to obtain new financing arrangements.
(g) Record assumed liabilities and transaction costs incurred in
connection with the purchase of the Texaco properties.
59
<PAGE> 65
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
(h) Adjust historical combined common stock and paid-in capital
account balances (i) to reflect the number of shares assumed to be issued
and for the differences in par value per common share of Apache and DEKALB
common stock, and (ii) to eliminate the historical carrying value of DEKALB
Treasury Shares. The impact of these entries does not result in a change to
total combined shareholders' equity.
INCOME PER SHARE
For purposes of computing pro forma income per share, Apache's and DEKALB's
combined historic weighted average shares outstanding were adjusted to give
effect to an assumed Exchange Ratio of 0.90, the maximum Exchange Ratio provided
for by the Merger Agreement. The impact on pro forma income per share
calculations of assuming an Exchange Ratio of 0.85, the minimum Exchange Ratio
provided for by the Merger Agreement, would be between $.003 and $.006, which
may affect rounding of income per share data on the accompanying statements.
Apache and DEKALB common stock equivalents were not considered in the
calculations of income per share because they were not significant or were
antidilutive.
INCOME TAXES
DEKALB's remaining operations are substantially all in Canada and are held
in a wholly-owned Canadian subsidiary. DEKALB's calculation of deferred taxes
under SFAS No. 109 includes a valuation allowance of $9.5 million at December
31, 1993 for all U.S. federal tax net operating loss carryforwards and U.S.
future deductible amounts since DEKALB expects limited future taxable income in
the United States with which to realize these benefits. If Apache and DEKALB had
historically filed U.S. tax returns on a consolidated basis, DEKALB's U.S.
losses could have been recoverable in Apache's consolidated income tax return.
However, a consolidated return may only be filed for periods subsequent to the
merger. Because of uncertainties in realizing acquired net operating losses, no
adjustment of the DEKALB valuation allowance is deemed appropriate.
MERGER EXPENSES
The unaudited pro forma consolidated condensed financial statements exclude
nonrecurring expenses incurred as a direct result of the Merger transaction.
These expenses, which primarily consist of financial advisory, legal, accounting
and other professional fees, are expected to total approximately $10 million and
will be included in the consolidated statements of operations of Apache and
DEKALB, as appropriate.
60
<PAGE> 66
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE
The following table sets forth certain unaudited pro forma information
concerning Apache's proved oil and gas reserves at December 31, 1993, giving
effect to the Merger of Apache and DEKALB as if the Merger occurred on January
1, 1993. There are numerous uncertainties inherent in estimating the quantities
of proved reserves and projecting future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact.
UNAUDITED PROVED OIL AND NATURAL GAS RESERVES AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
NATURAL GAS
-------------------------------------
PRO
APACHE DEKALB FORMA
-------- ------- --------
(MILLION CUBIC FEET)
<S> <C> <C> <C>
Beginning of year...................................... 643,299 276,343 919,642
Extension, discoveries and other additions............. 119,210 19,094 138,304
Purchase of minerals in place.......................... 207,458 4,405 211,863
Revisions of previous estimates........................ (6,008) 2,198 (3,810)
Production............................................. (110,622) (20,969) (131,591)
Sale of properties..................................... (5,118) (3,660) (8,778)
-------- ------- --------
End of year............................................ 848,219 277,411 1,125,630
======== ======= ========
Proved developed reserves
Beginning of year.................................... 585,424 263,305 848,729
======== ======= ========
End of year.......................................... 720,672 263,070 983,742
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
OIL, CONDENSATE AND NATURAL GAS
LIQUIDS
-------------------------------------
PRO
APACHE DEKALB FORMA
-------- ------- --------
(THOUSANDS OF BARRELS)
<S> <C> <C> <C>
Beginning of year...................................... 80,659 13,984 94,643
Extension, discoveries and other additions............. 10,885 397 11,282
Purchase of minerals in place.......................... 14,966 188 15,154
Revisions of previous estimates........................ (2,090) (300) (2,390)
Production............................................. (12,780) (989) (13,769)
Sale of properties..................................... (1,917) (46) (1,963)
-------- ------- --------
End of year............................................ 89,723 13,234 102,957
======== ======= ========
Proved developed reserves
Beginning of year.................................... 73,060 13,972 87,032
======== ======= ========
End of year.......................................... 79,401 13,221 92,622
======== ======= ========
</TABLE>
61
<PAGE> 67
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE -- (CONTINUED)
The following table sets forth unaudited pro forma information concerning
the discounted future net cash flows from proved oil and gas reserves of Apache
as of December 31, 1993, net of income tax expense, and giving effect to
Apache's Merger with DEKALB as if the Merger occurred on January 1, 1993. Income
tax expense has been computed using assumptions relating to the future tax rates
and the permanent differences and credits under the tax laws relating to oil and
gas activities at December 31, 1993, and do not take into account subsequent
changes in tax laws. The information should be viewed only as a form of
standardized disclosure concerning possible future cash flows that would result
under the assumptions used, but should not be viewed as indicative of fair
market value. Reference is made to DEKALB's and Apache's financial statements
for the fiscal year ended December 31, 1993, which are incorporated herein by
reference, for a discussion of the assumptions used in preparing the information
presented.
<TABLE>
<CAPTION>
PRO
APACHE DEKALB FORMA
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows
relating to proved reserves, net of income tax expense as of
December 31, 1993:
Cash inflows................................................. $3,217.0 $ 672.0 $3,889.0
Production and development
cost....................................................... (1,142.5) (155.2) (1,297.7)
Income tax expense........................................... (387.0) (135.3) (522.3)
-------- -------- --------
Net cash flows............................................... 1,687.5 381.5 2,069.0
10% annual discount rate..................................... (572.1) (179.1) (751.2)
-------- -------- --------
Discounted future net cash flows............................. $1,115.4 $ 202.4 $1,317.8
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
PRO
APACHE DEKALB FORMA
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Change in standardized measure of discounted future net
cash flows related to proved oil and gas reserves for the
year ended December 31, 1993:
Sales, net of production costs............................... $ (309.2) $ (31.8) $ (341.0)
Net change in prices and production costs.................... (78.2) 54.1 (24.1)
Discoveries and improved recovery, net of related costs...... 205.3 20.3 225.6
Change in future developments costs.......................... .4 -- .4
Revisions in quantities...................................... (29.4) 2.6 (26.8)
Purchases.................................................... 347.9 4.8 352.7
Accretion of discount........................................ 106.3 18.3 124.6
Change in income taxes....................................... (47.4) (19.9) (67.3)
Sales of properties.......................................... (3.5) (4.2) (7.7)
Change in production rates and other......................... 57.0 (7.5) 49.5
-------- -------- --------
$ 249.2 $ 36.7 $ 285.9
========= ========= =========
</TABLE>
62
<PAGE> 68
STATEMENT OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES
FOR THE OIL AND GAS PROPERTIES OF TEXACO EXPLORATION AND PRODUCTION INC.
TO BE SOLD TO APACHE CORPORATION
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR
FOR THE
THE NINE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1993 1994
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues........................................................... $212.8 $130.1
Direct Operating Expenses.......................................... 104.1 67.2
------ ------
Excess of revenues over direct operating expenses.................. $108.7 $ 62.9
====== ======
</TABLE>
The accompanying notes are an integral part of this financial statement
63
<PAGE> 69
NOTES TO STATEMENT OF COMBINED REVENUES AND DIRECT OPERATING
EXPENSES FOR THE OIL AND GAS PROPERTIES OF TEXACO EXPLORATION AND
PRODUCTION INC. TO BE SOLD TO APACHE CORPORATION
(1) THE PROPERTIES
On November 29, 1994, Texaco Exploration and Production, Inc. (Texaco)
agreed to sell to Apache Corporation (Apache) oil and gas properties in 343
fields located in 13 states and offshore Gulf of Mexico for approximately $600
million. The properties are located in the Permian Basin, the Gulf Coast of
Texas and Louisiana, Western Oklahoma, East Texas, the Rocky Mountains and
certain offshore locations. Closing of the sale to Apache is expected on March
1, 1995.
(2) BASIS FOR PRESENTATION
During the periods presented, the above properties were not accounted for
or operated as a separate division by Texaco. Certain costs, such as
depreciation, depletion and amortization; general and administrative expenses;
and corporate income taxes were not allocated to the individual properties.
Accordingly, full separate financial statements prepared in accordance with
generally accepted accounting principles do not exist and are not practicable to
obtain in these circumstances.
Revenues and direct operating expenses included in the accompanying
statement represent Texaco's net working interest in the properties and are
presented on the accrual basis of accounting. Direct operating expenses do not
include exploration and development expenditures related to the properties.
Depreciation, depletion and amortization; allocated general and administrative
expenses and corporate income taxes have also been excluded.
64
<PAGE> 70
PRINCIPAL STOCKHOLDERS OF APACHE AND DEKALB
APACHE
The following table sets forth the only persons known to Apache to be the
owners of more than five percent of outstanding Apache common stock, according
to reports filed with the Commission, as of , 1995:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL CLASS
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
- --------------- ------------------------------------------- ---------- -----------
<S> <C> <C> <C>
Apache Common FMR Corp................................... 7,682,752(1)(2)
Stock, par 82 Devonshire Street
value $1.25 Boston, MA 02109-3614
The Equitable Companies Incorporated....... 5,488,281(3)
787 Seventh Avenue
New York, NY 10019
First Interstate Bancorp................... 3,451,515(4)
633 West 5th Street
Los Angeles, CA 90071
</TABLE>
- ---------------
(1) According to information contained in a Schedule 13G filed with the
Commission, dated February 11, 1994.
(2) Includes 811,197 shares held by the trustee of Apache's 401(k)
Retirement/Savings Plan, as of December 31, 1994.
(3) According to information contained in a Schedule 13G filed with the
Commission, dated February 9, 1994.
(4) According to information contained in a Schedule 13G filed with the
Commission, dated February 11, 1994.
DEKALB
The following table sets forth information with respect to stockholders of
DEKALB who were known to DEKALB to own more than five percent of the DEKALB
Class A Stock outstanding as of the Record Date. The information set forth below
is based solely upon information furnished by such stockholders or contained in
filings made by such persons with the Commission.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL CLASS
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING
- --------------- ------------------------------------------- ------------ -----------
<S> <C> <C> <C>
DEKALB Thomas H. Roberts, Jr.(2)(3)............... 187,311
Class A Stock Box 486, 9 Arrowhead Lane
DeKalb, Illinois 60115
Amy I. Domini and William B. Perkins(4).... 273,204
230 Congress Street
Boston, Massachusetts 02110
Douglas C. Roberts......................... 277,976
Lynne K. Roberts(2)(5)
1449 Janet Street
Sycamore, Illinois 60178
</TABLE>
(Table continued on following page)
65
<PAGE> 71
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL CLASS
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING
- --------------- ------------------------------------------- ------------ -----------
<S> <C> <C> <C>
DEKALB Virginia Roberts Holt...................... 277,637
Class A Stock Terrance K. Holt(2)(6)
2329 Clover Lane
Northfield Illinois 60093
John T. Roberts............................ 274,673
Robin R. Roberts(2)(7)
2090 Mulsanne Drive
Zionsville, Indiana 46077
Thomas H. Roberts, III(2).................. 198,390
2621 Club Lake Trail
McKinney, Texas 75070
</TABLE>
- ---------------
(1) The Commission defines "beneficial owner of a security" as including any
person who has sole or shared voting or investment power with respect to
such security.
(2) Thomas H. Roberts, Jr. is the father of Thomas H. Roberts, III and the uncle
of Douglas C. Roberts, John T. Roberts and Virginia Roberts Holt. Douglas C.
Roberts, Virginia Roberts Holt and John T. Roberts are brothers and sister
and are the cousins of Thomas H. Roberts, III.
(3) Includes 23,300 shares of DEKALB Class A Stock subject to an option at $8.53
per share.
(4) Based on a Schedule 13D filed with the Commission. Such Schedule indicates
that Amy L. Domini and William B. Perkins beneficially own such shares as
co-trustees of trusts which hold such shares and that the grantors,
beneficiaries, and in certain cases, the co-trustees of such trusts include
Catherine H. Roberts-Suskin and Susan Shawn Roberts. Such Schedule 13D
indicates that Catherine H. Roberts-Suskin also beneficially owns 60,256 of
such shares as co-trustee of certain of such trusts and may be deemed to
beneficially own an additional 123,500 of such shares solely by virtue of
her power to remove and replace the trustees of one of those trusts, but
that she disclaims beneficial ownership of such 123,500 shares.
(5) Douglas C. Roberts has sole voting and investment power with respect to
179,152 of such shares of DEKALB Class A Stock and Lynne K. Roberts has
sole voting and investment power with respect to the remaining 98,824
shares of DEKALB Class A Stock. Douglas C. Roberts and Lynne K. Roberts are
husband and wife.
(6) Virginia Roberts Holt has sole voting and investment power with respect to
101,053 of such shares of DEKALB Class A Stock and Terrance K. Holt has
sole voting and investment power with respect to the remaining 176,584
shares of DEKALB Class A Stock. Virginia Roberts Holt and Terrance K. Holt
are husband and wife.
(7) John T. Roberts has sole voting and investment power with respect to 131,180
of such shares of DEKALB Class A Stock and Robin R. Roberts has sole voting
and investment power with respect to the remaining 143,493 shares of DEKALB
Class A Stock. John T. Roberts and Robin R. Roberts are husband and wife.
66
<PAGE> 72
DESCRIPTION OF APACHE CAPITAL STOCK
At the Record Date, Apache's authorized capital stock consists of 5,000,000
shares of preferred stock, none of which were outstanding, and 215,000,000
shares of Apache Common Stock, of which were outstanding.
The descriptions set forth below of the Apache Common Stock, preferred
stock and Rights constitute brief summaries of certain provisions of Apache's
Charter and Apache's Bylaws and the Rights Agreement between Apache and First
Trust Company, Inc., and are qualified in their entirety by reference to the
relevant provisions of such documents, all of which are filed as exhibits to the
Registration Statement of which this Proxy Statement/Prospectus is a part and
are incorporated herein by reference.
APACHE COMMON STOCK
All outstanding shares of Apache Common Stock are fully paid and
nonassessable, and all holders of Apache Common Stock have full voting rights
and are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. The Board of Directors of Apache is
classified into three groups of approximately equal size, one-third elected each
year. Stockholders do not have the right to cumulate votes in the election of
directors and have no preemptive or subscription rights. Apache Common Stock is
neither redeemable nor convertible, and there are no sinking fund provisions
relating to such stock.
Subject to preferences that may be applicable to any shares of preferred
stock outstanding at the time, holders of Apache Common Stock are entitled to
dividends when and as declared by the Board of Directors from funds legally
available therefor and are entitled, in the event of liquidation, to share
ratably in all assets remaining after payment of liabilities.
Apache's current policy is to reserve one share of Apache Common Stock for
each share issued in order to provide for possible exercises of Rights under
Apache's existing Rights Agreement.
The currently outstanding Apache Common Stock and the Rights under Apache's
existing Rights Agreement are listed on the NYSE and the Chicago Stock Exchange.
Norwest Bank Minnesota, National Association, is the transfer agent and
registrar for Apache Common Stock.
Apache typically mails its annual report to stockholders within 120 days
after the end of its fiscal year. Notices of stockholder meetings are mailed to
record holders of Apache Common Stock at their addresses shown on the books of
the transfer agent and registrar.
RIGHTS
On January 10, 1986, the Board of Directors declared a dividend of one
right to purchase one share of Apache Common Stock at $50 per share (subject to
adjustment) on each outstanding share of Apache Common Stock (the "Rights"). The
Rights are exercisable only after a person (other than Apache or its employee
benefit plans), together with all persons acting in concert with it, has
acquired 20 percent or more of the Apache Common Stock, or has commenced a
tender offer for 30 percent or more of the Apache Common Stock. If Apache or a
20 percent stockholder of Apache engages in certain transactions, the Rights
become exercisable for Apache Common Stock or common stock of a corporation
acquiring Apache (as the case may be). See "Comparative Rights of Apache and
DEKALB Stockholders -- Certain Anti-takeover Provisions." Apache may redeem the
Rights at a specified price at any time until ten business days after public
announcement that a person has acquired 20 percent or more of the outstanding
shares of Apache Common Stock. The Rights will expire on January 31, 1996,
unless earlier redeemed by Apache. Unless the Rights have been previously
redeemed, all shares of Apache Common Stock will include Rights, including the
Apache Common Stock issuable in connection with the Merger.
67
<PAGE> 73
PREFERRED STOCK
No preferred stock is outstanding. Shares of preferred stock may be issued
by the Board of Directors with such voting powers and in such classes and
series, and with such designations, preferences, and relative, participating,
optional or other special rights, qualifications, limitations or restrictions
thereof (including conversion into or exchange for other securities of Apache or
its subsidiaries), as may be stated and expressed in the resolution or
resolutions providing for the issue on such stock adopted by the Board of
Directors. Apache has no current plans to issue any preferred stock.
COMPARATIVE RIGHTS OF APACHE AND DEKALB STOCKHOLDERS
If the Merger is consummated, the stockholders of DEKALB will become
stockholders of Apache. The rights of the stockholders of both Apache and DEKALB
are governed by and subject to the provisions of the DGCL. The rights of current
DEKALB stockholders following the Merger will be governed by Apache's Charter
and Apache's Bylaws rather than the provisions of DEKALB's Charter and DEKALB's
Bylaws. The following is a brief summary of certain differences between the
rights of Apache stockholders and the rights of DEKALB stockholders, and is
qualified in its entirety by reference to the relevant provisions of the DGCL
and to Apache's Charter, Apache's Bylaws, DEKALB's Charter and DEKALB's Bylaws,
all of which are incorporated herein by reference.
NUMBER AND CLASSIFICATION OF BOARD OF DIRECTORS
Both Apache and DEKALB have boards of directors divided into three classes,
with directors serving staggered three-year terms. Apache's Charter also
provides that the number of directors shall be fixed from time to time by the
Board of Directors of Apache, but may not consist of less than three persons.
Currently, the number of Apache directors is 12, and the number of DEKALB
directors is six.
POWER TO CALL SPECIAL MEETINGS
Apache's Bylaws provide that a special meeting of stockholders may be
called by the Chairman of the Board, and shall be called by the Chairman of the
Board or the Secretary upon the request of a majority of directors. DEKALB's
Bylaws provide that a special meeting of stockholders may be called by the
Chairman of the Board, and shall be called by the Secretary at the request of a
majority of the Board of Directors.
VOTING RIGHTS
Under DEKALB's Charter, holders of DEKALB Class B Stock have no voting
rights except as otherwise required by applicable law. Holders of Apache Common
Stock and DEKALB Class A Stock are entitled to full voting rights, with one vote
for each share held of record on all matters submitted to a vote of
stockholders.
STOCKHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS
Apache's Charter contains certain provisions that require that a higher
percentage of stockholders approve certain transactions than would otherwise be
required under the DGCL, subject to certain exceptions. See below "-- Certain
Anti-takeover Provisions." DEKALB's Charter does not contain similar provisions.
DISSENTERS' RIGHTS OF APPRAISAL
The holders of Apache Common Stock will not, in the event of a merger or
consolidation in which Apache is not the survivor, be entitled to dissenters'
rights of appraisal under Section 262(b)(1) of the DGCL by virtue of being
listed on a national securities exchange. As in the case of the Merger, holders
of DEKALB Class A Stock would have dissenters' rights of appraisal under the
DGCL as to their shares of DEKALB Class A Stock. Holders of DEKALB Class B
Stock, however, do not have such dissenters' rights.
68
<PAGE> 74
ACTION BY WRITTEN CONSENT
Apache's Bylaws do not permit action to be taken by stockholders without a
meeting. DEKALB's Bylaws permit action to be taken without a meeting if a
written consent in lieu of a meeting is signed by all stockholders entitled to
vote at the meeting.
CERTAIN ANTI-TAKEOVER PROVISIONS
Rights. If Apache engages in certain business combinations or a 20 percent
stockholder engages in certain transactions with Apache, the Rights become
exercisable for the Apache Common Stock or common stock of the corporation
acquiring Apache (as the case may be) at 50 percent of the then market price.
Any Rights that are or were beneficially owned by a person who has acquired 20
percent or more of the Apache Common Stock and who engages in certain
transactions or realized the benefits of certain transactions with Apache will
become void. See "Description of Apache Capital Stock -- Rights."
Provisions of Certain Debt. Upon a change in control of Apache, certain
indentures and other agreements obligate Apache to purchase or redeem certain
series of the debt securities at their face amount. Those provisions might have
the effect of reducing the economic benefit to be derived by a third party from
acquiring control of Apache.
Apache's Charter. Apache's Charter includes provisions designed to prevent
the use of certain tactics in connection with a potential takeover of Apache.
Article Twelve of Apache's Charter generally stipulates that the affirmative
vote of 80 percent of Apache's voting shares is required to adopt any agreement
for the merger or consolidation of Apache with or into any other corporation
which is the beneficial owner of five percent or more of Apache's voting shares.
Article Twelve further provides that such an 80 percent approval is necessary to
authorize any sale or lease of assets between Apache and any beneficial holder
of five percent or more of Apache's voting shares. Article Fourteen of Apache's
Charter contains a "fair price" provision which requires that any tender offer
made by a beneficial owner of more than five percent of the outstanding voting
stock of Apache in connection with any plan of merger, consolidation or
reorganization, any sale or lease of substantially all of Apache's assets, or
any issuance of equity securities of Apache to the five percent stockholder must
provide at least as favorable terms to each holder of Apache Common Stock other
than the stockholder making the tender offer. Article Fifteen of Apache's
Charter contains an "anti-greenmail" mechanism which prohibits Apache from
acquiring any voting stock from the beneficial owner of more than five percent
of the outstanding voting stock of Apache, except for acquisitions pursuant to a
tender offer to all holders of voting stock on the same price, terms, and
conditions, acquisitions in compliance with Rule 10b-18 of the Exchange Act, and
acquisitions at a price not exceeding the market value per share. Article
Sixteen of Apache's Charter prohibits the stockholders of Apache from acting by
written consent in lieu of a meeting.
DEKALB's Charter. DEKALB's Charter includes a provision which permits
directors, when considering a third party proposal to acquire DEKALB to consider
the effect thereof on DEKALB's employees, the communities in which it operates,
its customers and other non-economic factors in determining whether to accept
any such proposal. Apache's Charter does not contain any such provision.
INDEPENDENT PUBLIC ACCOUNTANTS
It is expected that representatives of Coopers & Lybrand, DEKALB's
independent public accountants, will be present at the Special Meeting to
respond to appropriate questions of DEKALB stockholders and to make a statement
if they so desire.
69
<PAGE> 75
LEGAL MATTERS
The validity of the issuance of the Apache Common Stock offered hereby has
been passed upon for Apache by Mayor, Day, Caldwell & Keeton, L.L.P., Houston,
Texas. Certain United States tax consequences of the Merger have been passed
upon for Apache by Mayor, Day, Caldwell & Keeton, L.L.P., Houston, Texas, and
for DEKALB by Sidley & Austin, Chicago, Illinois. Certain Canadian tax
consequences of the Merger have been passed upon for Apache by Bennett Jones
Verchere, Calgary, Alberta, and for DEKALB by Howard, Mackie, Calgary, Alberta.
EXPERTS
The audited consolidated financial statements and schedules of Apache
incorporated by reference in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The audited consolidated financial statements and schedules of DEKALB
incorporated by reference in this registration statement have been audited by
Coopers & Lybrand, chartered accountants, as indicated in their report with
respect thereto, and are incorporated herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
The information incorporated by reference herein regarding the proved
reserves of Apache has been prepared by Apache and reviewed by Ryder Scott as
stated in their letter report dated , 199 . The information
incorporated by reference herein regarding the proved reserves of DEKALB has
been prepared by DEKALB and reviewed by Ryder Scott as stated in their letter
report dated , 199 .
STOCKHOLDERS' PROPOSALS
If the Merger is not consummated, any proposals of stockholders of DEKALB
intended to be presented at the Annual Meeting of Stockholders of DEKALB to be
held in 1995 must have been received by DEKALB, addressed to the Secretary, John
H. Witmer, Jr., no later than November 25, 1994, to be considered for inclusion
in the proxy statement and form of proxy relating to that meeting.
70
<PAGE> 76
APPENDIX I
AGREEMENT AND PLAN OF MERGER
AMONG
APACHE CORPORATION
XPX ACQUISITIONS, INC.
AND
DEKALB ENERGY COMPANY
<PAGE> 77
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I -- THE MERGER............................................................... AI-2
Section 1.1 The Merger............................................................ AI-2
Section 1.2 Effective Time........................................................ AI-2
Section 1.3 Effects of the Merger................................................. AI-2
Section 1.4 Certificate of Incorporation and By-laws; Directors and Officers of
Surviving Corporation............................................... AI-2
Section 1.5 Conversion of Securities.............................................. AI-2
Section 1.6 Parent to Make Certificates Available................................. AI-3
Section 1.7 Dividends; Taxes...................................................... AI-3
Section 1.8 No Fractional Securities.............................................. AI-4
Section 1.9 Return of Exchange Fund and Fractional Cash Fund or Fractional
Securities Fund..................................................... AI-5
Section 1.10 Adjustment of Exchange Ratio.......................................... AI-5
Section 1.11 Dissenting Shares..................................................... AI-5
Section 1.12 No Further Ownership Rights in Company Stock.......................... AI-5
Section 1.13 Closing of Company Transfer Books..................................... AI-5
Section 1.14 Closing............................................................... AI-5
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF PARENT................................ AI-6
Section 2.1 Organization, Standing and Power...................................... AI-6
Section 2.2 Capital Structure..................................................... AI-6
Section 2.3 Authority; Non-Contravention.......................................... AI-6
Section 2.4 SEC Documents......................................................... AI-7
Section 2.5 Absence of Material Adverse Change.................................... AI-8
Section 2.6 Litigation............................................................ AI-8
Section 2.7 Brokers............................................................... AI-8
Section 2.8 Benefit Plans; ERISA Compliance....................................... AI-8
Section 2.9 Director, Officer and Employee Agreements............................. AI-10
Section 2.10 Certain Business Practices............................................ AI-10
Section 2.11 Insider Interests..................................................... AI-10
Section 2.12 Compliance with Laws.................................................. AI-10
Section 2.13 Intellectual Property................................................. AI-10
Section 2.14 Labor Matters......................................................... AI-11
Section 2.15 Insurance............................................................. AI-11
Section 2.16 Condition of Assets................................................... AI-11
Section 2.17 Environmental Matters................................................. AI-11
Section 2.18 Tax Matters........................................................... AI-11
Section 2.19 Tax-Free Reorganization............................................... AI-12
Section 2.20 Internal Financial Report............................................. AI-13
Section 2.21 Undisclosed Liabilities............................................... AI-13
Section 2.22 No Stock Ownership in Company......................................... AI-13
Section 2.23 No Misrepresentation.................................................. AI-13
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... AI-13
Section 3.1 Organization, Standing and Power...................................... AI-13
Section 3.2 Capital Structure..................................................... AI-14
Section 3.3 Authority; Non-Contravention.......................................... AI-14
Section 3.4 SEC Documents......................................................... AI-15
Section 3.5 Absence of Certain Changes or Events.................................. AI-15
Section 3.6 Litigation............................................................ AI-16
Section 3.7 Brokers............................................................... AI-16
Section 3.8 Benefit Plans; ERISA Compliance....................................... AI-16
Section 3.9 Director, Officer and Employee Agreements............................. AI-18
Section 3.10 Certain Business Practices............................................ AI-19
Section 3.11 No Excess Parachute Payments or Compensation.......................... AI-19
</TABLE>
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<TABLE>
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<S> <C> <C>
Section 3.12 Insider Interests..................................................... AI-19
Section 3.13 Compliance with Laws.................................................. AI-19
Section 3.14 Intellectual Property................................................. AI-19
Section 3.15 Labor Matters......................................................... AI-20
Section 3.16 Insurance............................................................. AI-20
Section 3.17 Property Records and Title............................................ AI-20
Section 3.18 Contracts............................................................. AI-22
Section 3.19 Condition of Assets................................................... AI-23
Section 3.20 Environmental Matters................................................. AI-23
Section 3.21 Tax Matters........................................................... AI-23
Section 3.22 Tax-Free Reorganization............................................... AI-24
Section 3.23 Hedging............................................................... AI-25
Section 3.24 Accounts Receivable................................................... AI-25
Section 3.25 Internal Financial Report............................................. AI-25
Section 3.26 Undisclosed Liabilities............................................... AI-25
Section 3.27 Takeover Defense Mechanisms........................................... AI-25
Section 3.28 Fairness Opinion...................................................... AI-25
Section 3.29 No Misrepresentation.................................................. AI-25
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES REGARDING SUB............................ AI-26
Section 4.1 Organization and Standing............................................. AI-26
Section 4.2 Capital Structure..................................................... AI-26
Section 4.3 Authority............................................................. AI-26
ARTICLE V -- COVENANTS RELATING TO CONDUCT OF BUSINESS................................ AI-26
Section 5.1 Conduct of Business by the Company and Parent Pending the Merger...... AI-26
Section 5.2 No Solicitation....................................................... AI-28
Section 5.3 Pooling of Interests; Reorganization.................................. AI-28
Section 5.4 Conduct of Business of Sub Pending the Merger......................... AI-29
Section 5.5 Notices of Certain Events............................................. AI-29
ARTICLE VI -- ADDITIONAL AGREEMENTS................................................... AI-29
Section 6.1 Company Stockholder Approval.......................................... AI-29
Section 6.2 Registration Statement; Proxy Statement............................... AI-29
Section 6.3 Access to Information; Confidentiality; Standstill.................... AI-30
Section 6.4 Compliance with the Securities Act; Pooling........................... AI-32
Section 6.5 Stock Exchange Listing................................................ AI-32
Section 6.6 Fees and Expenses..................................................... AI-32
Section 6.7 Company Stock Options................................................. AI-32
Section 6.8 Reasonable Efforts.................................................... AI-33
Section 6.9 Public Announcements.................................................. AI-33
Section 6.10 State Takeover Laws................................................... AI-33
Section 6.11 Directors and Officers Insurance; Indemnification..................... AI-33
Section 6.12 Employee Benefits..................................................... AI-34
Section 6.13 Retention Bonuses; Severance Policy................................... AI-34
Section 6.14 Signatory Stockholder Notice.......................................... AI-34
Section 6.15 Reserve Reports....................................................... AI-34
Section 6.16 Accrual of Expenses................................................... AI-35
Section 6.17 Publication of Financials............................................. AI-35
Section 6.18 Capital Budget........................................................ AI-35
ARTICLE VII -- CONDITIONS PRECEDENT TO THE MERGER..................................... AI-35
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger............ AI-35
Section 7.2 Conditions to Obligation of the Company to Effect the Merger.......... AI-35
Section 7.3 Conditions to Obligations of Parent and Sub to Effect the Merger...... AI-38
</TABLE>
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<TABLE>
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ARTICLE VIII -- TERMINATION, AMENDMENT AND WAIVER..................................... AI-41
Section 8.1 Termination........................................................... AI-41
Section 8.2 Effect of Termination................................................. AI-42
Section 8.3 Amendment............................................................. AI-42
Section 8.4 Waiver................................................................ AI-42
ARTICLE IX -- GENERAL PROVISIONS...................................................... AI-42
Section 9.1 Non-Survival of Representations and Warranties........................ AI-42
Section 9.2 Written Notices....................................................... AI-42
Section 9.3 Interpretation........................................................ AI-43
Section 9.4 Counterparts.......................................................... AI-43
Section 9.5 Entire Agreement; No Third-Party Beneficiaries........................ AI-43
Section 9.6 Governing Law and Jurisdiction........................................ AI-43
Section 9.7 Assignment............................................................ AI-44
Section 9.8 Severability.......................................................... AI-44
Section 9.9 Enforcement of this Agreement......................................... AI-44
Section 9.10 Further Assurances.................................................... AI-44
</TABLE>
EXHIBITS AND SCHEDULES
EXHIBIT A -- AFFILIATE AGREEMENT
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DEFINITIONS
<TABLE>
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DEFINED TERM SECTION
- ------------ ------------
<S> <C>
"Affiliate Agreements"........................................................... 6.4
"Agreement"...................................................................... Recitals
"Aries Database"................................................................. 3.17
"Assumed Option"................................................................. 6.7
"Benefit Plans".................................................................. 2.8 and 3.8
"Certificate of Merger".......................................................... 1.2
"Certificates"................................................................... 1.6
"Closing"........................................................................ 1.14
"Code"........................................................................... Recitals
"Commonly Controlled Entity"..................................................... 2.8
"Company"........................................................................ Recitals
"Company Class A Stock".......................................................... Recitals
"Company Class B Stock".......................................................... Recitals
"Company Disclosure Schedule".................................................... 3.1
"Company Group".................................................................. 3.21
"Company Land Records"........................................................... 3.17
"Company Permits"................................................................ 3.13
"Company Preferred Stock"........................................................ 3.2
"Company Representatives"........................................................ 5.2
"Company SEC Documents".......................................................... 3.4
"Company Stock".................................................................. Recitals
"Company Stock Option"........................................................... 6.7
"Competition Act"................................................................ 2.3
"Confidential Information"....................................................... 6.3
"Constituent Corporations"....................................................... Recitals
"D&O Insurance".................................................................. 6.11
"DGCL"........................................................................... 1.1
"Disclosing Party"............................................................... 6.3
"Dissenting Shares".............................................................. 1.11
"Effective Date"................................................................. 1.2
"Effective Time"................................................................. 1.2
"Environmental Laws"............................................................. 2.17
"Environmental Liabilities"...................................................... 3.20
"ERISA".......................................................................... 2.8
"Excess Shares".................................................................. 1.8
"Exchange Act"................................................................... 2.3
"Exchange Agent"................................................................. 1.6
"Exchange Fund".................................................................. 1.6
"Exchange Ratio"................................................................. 1.5
"Fractional Cash Fund"........................................................... 1.8
"Fractional Securities Fund"..................................................... 1.8
"GAAP"........................................................................... 6.16
"Good and Defensible Title"...................................................... 3.17
"Governmental Entity"............................................................ 2.3
"HSR Act"........................................................................ 2.3
"Hydrocarbons"................................................................... 3.17
"Intellectual Property".......................................................... 2.13
"Investment Canada Act".......................................................... 2.3
"IRS"............................................................................ 2.8
"Lands".......................................................................... 3.17
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ ------------
<S> <C>
"Leases"......................................................................... 3.17
"Market Price"................................................................... 1.5
"Material Adverse Change"........................................................ 2.1
"Material Adverse Effect"........................................................ 2.1
"Merger"......................................................................... Recitals
"1994 Capital Budget"............................................................ 3.5
"NYSE"........................................................................... 1.5
"Parent"......................................................................... Recitals
"Parent Common Stock"............................................................ Recitals
"Parent Derivative Securities"................................................... 2.2
"Parent Disclosure Schedule"..................................................... 2.1
"Parent Group"................................................................... 2.18
"Parent Permits"................................................................. 2.12
"Parent Preferred Stock"......................................................... 2.2
"Parent SEC Documents"........................................................... 2.4
"Parent Subsidiaries"............................................................ 2.18
"PBGC"........................................................................... 2.8
"Pension Plans".................................................................. 2.8 and 3.8
"Permitted Encumbrances"......................................................... 3.17
"Pollutants"..................................................................... 2.17
"Properties"..................................................................... 3.17
"Proprietary Information"........................................................ 6.3
"Proxy Statement"................................................................ 6.2
"Proxy Statement/Prospectus"..................................................... 6.2
"Receiving Party"................................................................ 6.3
"Registration Statement"......................................................... 2.3
"Relevant Categories"............................................................ 3.17
"Representatives"................................................................ 6.3
"Ryder Scott".................................................................... 6.15
"SEC"............................................................................ 2.3
"Securities Act"................................................................. 2.2
"Signatory Stockholders"......................................................... Recitals
"Stockholder Meeting"............................................................ 6.1
"Stockholder Agreements"......................................................... Recitals
"Sub"............................................................................ Recitals
"Subsidiary"..................................................................... 2.1
"Surviving Corporation".......................................................... 1.1
"Takeover Proposal".............................................................. 5.2
"Tax," "Taxes" and "Taxable"..................................................... 2.18
"Tax Return"..................................................................... 2.18
"Units".......................................................................... 3.17
"Welfare Plans".................................................................. 3.8
"Wells".......................................................................... 3.17
"WI"............................................................................. 3.17
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 21, 1994 (this
"Agreement"), among Apache Corporation, a Delaware corporation ("Parent"), XPX
Acquisitions, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and DEKALB Energy Company, a Delaware corporation (the
"Company") (Sub and the Company being hereinafter collectively referred to as
the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved and adopted this Agreement providing for the merger of Sub and the
Company (the "Merger"), upon the terms and subject to the conditions set forth
herein, whereby each issued and outstanding share of voting Class A Stock, no
par value, of the Company (the "Company Class A Stock") and each issued and
outstanding share of Class B (nonvoting) Stock, no par value, of the Company
(the "Company Class B Stock" and, together with the Company Class A Stock, the
"Company Stock") not owned directly or indirectly by Parent or the Company, will
be converted into shares of Common Stock, par value $1.25 per share, of Parent
("Parent Common Stock");
WHEREAS, the Board of Directors of the Company has determined that the
Merger is consistent with, in furtherance of and otherwise in the best interests
of the Company and its holders of Company Class A Stock and Company Class B
Stock and has approved and adopted this Agreement and the Merger and other
transactions contemplated hereby, and recommended approval and adoption of this
Agreement by the holders of the Company Class A Stock;
WHEREAS, the Board of Directors of the Parent has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of and is fair to, and in the best interests of, the Parent and its stockholders
and has approved and adopted this Agreement and the transactions contemplated
hereby;
WHEREAS, as a condition to the willingness of Parent and Sub to enter into
this Agreement, (i) Parent has required that certain stockholders holding a
majority of the Company Class A Stock (the "Signatory Stockholders") agree, and
in order to induce Parent and Sub to enter into this Agreement the Signatory
Stockholders have agreed, to vote in favor of the Merger and to take and refrain
from taking certain actions pursuant to those certain Stockholders Agreements of
even date herewith (the "Stockholder Agreements") and (ii) Parent has required
that certain persons who may be deemed to be "affiliates" of the Company enter
into certain Affiliate Agreements (as defined below) and Parent has received or
will receive such Affiliate Agreements;
WHEREAS, the Board of Directors of Sub, the Board of Directors of Parent
and Parent, as the sole stockholder of Sub, have approved and adopted this
Agreement;
WHEREAS, for United States income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code") and shall not give
rise to any liability of the Company under the Income Tax Act (Canada);
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
<PAGE> 83
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), Sub shall be merged with and into the Company at the
Effective Time (as defined below). Following the Merger, the separate corporate
existence of Sub shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of Sub in accordance with the DGCL.
SECTION 1.2 Effective Time. The Merger shall become effective when the
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DGCL, is filed with the Secretary of State of the
State of Delaware; provided, however, that, upon mutual consent of the
Constituent Corporations the Certificate of Merger may provide for a later date
of effectiveness of the Merger not more than 30 days after the date the
Certificate of Merger is filed. When used in this Agreement, the term "Effective
Time" shall mean the later of the date and time and "Effective Date" shall mean
the later of the date at which the Certificate of Merger is accepted for record
or such later time so established by the Certificate of Merger. The filing of
the Certificate of Merger shall be made as soon as practicable after the
satisfaction or waiver of the conditions to the Merger set forth herein.
SECTION 1.3 Effects of the Merger. The Merger shall have the effects set
forth in Section 251 of the DGCL.
SECTION 1.4 Certificate of Incorporation and By-laws; Directors and
Officers of Surviving Corporation. (a) The Certificate of Incorporation and
By-laws of the Company, as in effect immediately prior to the Effective Time,
shall be the Certificate of Incorporation and By-laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) The directors of Sub at the Effective Time shall be the directors of
the Surviving Corporation and will hold office from the Effective Time until
their respective successors are duly elected or appointed and qualified. The
officers of Sub at the Effective Time shall be the initial officers of the
Surviving Corporation.
SECTION 1.5 Conversion of Securities. As of the Effective Time, by virtue
of the Merger and without any action on the part of any stockholder of the
Company:
(a) All shares of Company Stock that are held in the treasury of the
Company or by any wholly-owned Subsidiary (as defined below) of the Company
and any shares of Company Stock owned by Parent, Sub or any other
wholly-owned Subsidiary of Parent shall be canceled and no capital stock of
Parent or other consideration shall be delivered in exchange therefor;
provided, however, that the 220,000 shares of Company Class B Stock held by
DEKALB Energy Canada Ltd. shall remain outstanding and not be converted
into shares of Parent Common Stock pursuant to Section 1.5(c) below.
(b) Each issued and outstanding share of capital stock of Sub shall be
converted into and become one fully paid and nonassessable share of Class A
Stock, no par value, of the Surviving Corporation.
(c) Subject to the provisions of Sections 1.8 and 1.10 hereof, each
share of Company Stock issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled or to remain outstanding
as provided by and in accordance with Section 1.5(a)) shall be converted
into 0.85 shares of validly issued, fully paid and nonassessable shares of
Parent Common Stock; provided, however, that if the "Market Price" (as
defined below) of Parent Common Stock is less than $30.00, such 0.85
exchange ratio shall be automatically increased by an amount (computed to
the nearest ten-thousandth) equal to (i) 0.0125 multiplied by (ii) the
difference between $30.00 and the Market Price; and provided further, that
the resulting number shall in no event be greater than 0.90 (in any case,
the "Exchange Ratio"). All such shares of Company Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and
retired and each holder of a Certificate (as defined below) representing
any such shares shall cease to have any rights with respect thereto, except
the right to receive certain dividends and other distributions as
contemplated by Section 1.7 and shares of Parent Common Stock and any cash,
without
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interest, in lieu of fractional shares to be issued or paid in
consideration therefor upon the surrender of such Certificate in accordance
with Section 1.6.
(d) "Market Price" shall mean the average of the per share closing
prices of Parent Common Stock as reported on The New York Stock Exchange,
Inc. ("NYSE") Composite Transactions Reporting System during the 10
consecutive trading days ending on (and including) the third trading day
prior to the Effective Time.
SECTION 1.6 Parent to Make Certificates Available.
(a) Exchange of Certificates. Parent shall authorize a commercial bank (or
such other person or persons as shall be acceptable to Parent and the Company)
to act as Exchange Agent hereunder (the "Exchange Agent"). As soon as
practicable after the Effective Time, Parent shall deposit with the Exchange
Agent in trust for the holders of certificates which immediately prior to the
Effective Time represented shares of Company Stock (the "Certificates")
certificates representing the shares of Parent Common Stock (such shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto, being hereinafter referred to as the "Exchange Fund") issuable pursuant
to Section 1.5(c) in exchange for outstanding shares of Company Stock.
(b) Exchange Procedures. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a Certificate whose
shares were converted pursuant to Section 1.5 into shares of Parent Common Stock
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon actual
delivery of the Certificates to the Exchange Agent and shall contain
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock). Upon surrender of
a Certificate for cancellation to the Exchange Agent, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock which such holder has the right to receive
pursuant to this Article I, and the Certificate so surrendered shall forthwith
be canceled. Until surrendered as contemplated by this Section 1.6, each
Certificate shall, at and after the Effective Time, be deemed to represent only
the right to receive, upon surrender of such Certificate, the certificate
representing the appropriate number of shares of Parent Common Stock, cash in
lieu of fractional shares as contemplated by Section 1.8 and certain dividends
and other distributions as contemplated by Section 1.7. Notwithstanding the
foregoing, no party hereto (or the Exchange Agent) shall be liable to any former
holder of Company Stock for any cash, Parent Common Stock or dividends or
distributions thereon delivered to a public official pursuant to requirements of
applicable abandoned property, escheat or similar laws. Parent (or the Exchange
Agent) shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any former holder of Company Stock such
amounts as Parent (or any affiliate thereof or the Exchange Agent) is required
to deduct and withhold with respect to the making of such payment under the
Code, or any provision of state, local, Canadian, territorial, provincial or
other foreign tax law. To the extent that amounts are so withheld or deducted by
Parent (or the Exchange Agent), such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the former holder of the
Company Stock in respect of which such deduction and withholding was made.
SECTION 1.7 Dividends; Taxes. No dividends or other distributions that are
declared on or after the Effective Time on Parent Common Stock or are payable to
the holders of record thereof on or after the Effective Time will be paid to
persons entitled by reason of the Merger to receive certificates representing
Parent Common Stock until such persons surrender their Certificates, as provided
in Section 1.6, and no cash payment in lieu of fractional shares shall be paid
to any such holder pursuant to Section 1.8 until such holder of such Certificate
shall so surrender such Certificates. Subject to the effect of applicable law,
there shall be paid to the record holder of the certificates representing such
Parent Common Stock (i) at the time of such surrender or as promptly as
practicable thereafter, the amount of any dividends or other distributions
theretofore paid with respect to whole shares of such Parent Common Stock and
having a record date on or after the Effective Time and a payment date prior to
such surrender and (ii) at the appropriate payment date or as promptly as
practicable thereafter, the amount of dividends or other distributions payable
with respect to
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whole shares of Parent Common Stock and having a record date on or after the
Effective Time but prior to surrender and a payment date subsequent to
surrender. In no event shall the person entitled to receive such dividends or
other distributions be entitled to receive interest on such dividends or other
distributions. If any cash or certificate representing shares of Parent Common
Stock is to be paid to or issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of certificates for such shares of
Parent Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Parent (or the Exchange
Agent) shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any former stockholder of the Company such
amount as Parent (or any affiliate thereof or the Exchange Agent) is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local, Canadian, territorial, provincial or other
foreign tax law. To the extent that amounts are so withheld or deducted by
Parent (or the Exchange Agent), such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the former stockholder of the
Company in respect of which such deduction and withholding was made.
SECTION 1.8 No Fractional Securities. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates pursuant to this Article I, and no Parent dividend or
other distribution or stock split shall relate to any fractional security, and
such fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder of Parent. In lieu of any such fractional
securities, each holder of Company Stock who would otherwise have been entitled
to a fraction of a share of Parent Common Stock upon surrender of Certificates
for exchange pursuant to this Article I will at the option of Parent either:
(i) be paid an amount in cash determined by multiplying (a) the Market
Price by (b) the fraction of a share of Parent Common Stock to which such
holder would otherwise be entitled, in which case Parent shall make
available to the Exchange Agent, without regard to any other cash being
provided to the Exchange Agent, the amount of cash, if any, necessary to
make such payments (the "Fractional Cash Fund"); or
(ii) be paid an amount in cash in accordance with the provisions of
this Section 1.8 representing such holder's proportionate interest in the
net proceeds from the sale by the Exchange Agent in one or more
transactions (which sale transactions shall be made at such times, in such
manner and on such terms as the Exchange Agent shall determine in its
reasonable discretion) on behalf of all such holders of the aggregate of
the fractional shares of Parent Common Stock which would otherwise have
been issued (the "Excess Shares"). The sale of the Excess Shares by the
Exchange Agent shall be executed as soon as practicable (but in all events
in time to permit the proceeds to be delivered together with the
certificates representing Parent Common Stock issued in the Merger) on the
NYSE through one or more member firms of the NYSE and shall be executed in
round lots to the extent practicable. Until the net proceeds of such sale
or sales have been distributed to the holders of Company Stock, the
Exchange Agent will hold such proceeds in trust (the "Fractional Securities
Fund") for the holders of Company Stock entitled thereto. Parent shall pay
all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with this sale of the Excess Shares. The Exchange Agent shall
determine the portion, if any, of the Fractional Securities Fund to which
each holder of Company Stock shall be entitled by multiplying the amount of
the aggregate net proceeds comprising the Fractional Securities Fund by a
fraction, the numerator of which is the amount of the fractional Parent
Common Stock to which such holder of Company Stock is entitled and the
denominator of which is the aggregate amount of fractional share interests
to which all holders of Company Stock are entitled.
As soon as practicable after the determination of the amount of cash, if any, to
be paid to holders of Company Stock in lieu of any fractional shares of Parent
Common Stock, the Exchange Agent shall make available such
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amounts to such holders of Company Stock without interest. All payments pursuant
to this Section 1.8 and any other provisions of this Agreement shall be made in
U.S. dollars.
SECTION 1.9 Return of Exchange Fund and Fractional Cash Fund or Fractional
Securities Fund. Any portion of the Exchange Fund and, if applicable, the
Fractional Cash Fund or Fractional Securities Fund, as appropriate, which
remains undistributed to the former stockholders of the Company for one year
after the Effective Time shall be delivered to Parent, upon demand of Parent,
and any former stockholders of the Company who have not theretofore complied
with this Article I shall thereafter look only to Parent for payment of their
claim for Parent Common Stock, any cash in lieu of fractional shares of Parent
Common Stock and any dividends or distributions with respect to Parent Common
Stock. Notwithstanding the foregoing, Parent shall not be liable to any former
stockholders of the Company for any amount paid to a public official pursuant to
requirements of applicable abandoned property, escheat or similar laws.
SECTION 1.10 Adjustment of Exchange Ratio. In the event of any
reclassification, stock split or stock dividend with respect to Parent Common
Stock (or if a record date with respect to any of the foregoing should occur)
during the period prior to the Effective Time, appropriate and proportionate
adjustments, if any, shall be made to the Exchange Ratio, and all references to
the Exchange Ratio in this Agreement shall be deemed to be to the Exchange Ratio
as so adjusted.
SECTION 1.11 Dissenting Shares. Notwithstanding any other provisions of
this Agreement to the contrary, shares of Company Class A Stock that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with Section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the consideration provided in Section 1.5(c). Such stockholders shall be
entitled to receive payment of the appraised value of such shares of Company
Class A Stock held by them in accordance with the provisions of such Section
262, except that all Dissenting Shares held by stockholders who shall have
failed to perfect or who effectively shall have withdrawn or lost their rights
to appraisal of such shares of Company Class A Stock under such Section 262
shall thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the
consideration, without any interest thereon, upon surrender of the certificate
or certificates that formerly evidenced such shares of Company Class A Stock in
the manner provided in Section 1.5(c).
SECTION 1.12 No Further Ownership Rights in Company Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash paid pursuant to Sections
1.7 or 1.8) shall be deemed to have been issued in full satisfaction of all
rights pertaining to the shares of Company Stock.
SECTION 1.13 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Stock shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged as provided in this Article I.
SECTION 1.14 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Sidley & Austin,
One First National Plaza, Chicago, Illinois at 10:00 A.M., local time, on the
second business day after the day on which the last of the conditions set forth
in Article VII hereof shall have been fulfilled or waived or at such other time
and place as Parent and the Company shall agree.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth on the Parent Disclosure Schedule (as defined below),
Parent represents and warrants to the Company as follows:
SECTION 2.1 Organization, Standing and Power. Parent is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. Parent and each of its Subsidiaries (as defined
below) is duly qualified to do business, and is in good standing, in each
jurisdiction where the character of its properties owner or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not, individually or in the aggregate, have
a Material Adverse Effect on Parent. For purposes of this Agreement (a)
"Material Adverse Change" or "Material Adverse Effect" means, when used with
respect to Parent or the Company, as the case may be, any change or effect that
is or, so far as can reasonably be determined, may be materially adverse to the
assets, liabilities, business, condition (financial or otherwise) or cash flows
from operating activities of Parent and its Subsidiaries taken as a whole or the
Company and its Subsidiaries taken as a whole, as the case may be, (b)
"Subsidiary" means any corporation, partnership, joint venture (exclusive of any
joint operating agreement) or other legal entity of which Parent or the Company,
as the case may be (either alone or through or together with any other
Subsidiary), (i) owns, directly or indirectly, 50% or more of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity or (ii) is a general partner, and (c) "Parent Disclosure
Schedule" means the schedule of disclosures made by Parent to the Company that
has been delivered simultaneously with the execution of this Agreement.
SECTION 2.2 Capital Structure. The authorized capital stock of Parent
consists of 215,000,000 shares of Parent Common Stock and 5,000,000 shares of
Preferred Stock, no par value ("Parent Preferred Stock"). At the close of
business on December 15, 1994 (i) 61,437,046 shares of Parent Common Stock were
validly issued and outstanding, fully paid and nonassessable and free of
preemptive rights, (ii) 70,918,290 shares of Parent Common Stock were reserved
for issuance upon the exercise of outstanding stock options, conversion of 3.93%
Convertible Notes of Parent, in respect of Parent's dividend reinvestment plan,
and (as to 66,177,668 shares) upon the exercise of certain rights to acquire
Parent Common Stock that currently trade with Parent Common Stock (collectively,
the "Parent Derivative Securities"), (iii) 1,118,975 shares of Parent Common
Stock were held by Parent in its treasury and (iv) no shares of Parent Preferred
Stock were issued and outstanding. The shares of Parent Common Stock issuable in
exchange for Company Stock at the Effective Time in accordance with this
Agreement will be, when so issued, duly authorized, validly issued, fully paid
and nonassessable and free of preemptive right, and the issuance of the shares
will be registered under the Securities Act of 1933, as amended, together with
the rules and regulations promulgated thereunder (the "Securities Act").
SECTION 2.3 Authority; Non-Contravention. Parent has all requisite power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
the consummation by Parent of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Parent. Without
limiting the foregoing, no vote or approval by the stockholders of Parent of
this Agreement, of the issuance of stock in the transactions contemplated hereby
or of such transactions is required pursuant to statute, Certificate of
Incorporation, stock exchange rules, contract or otherwise. This Agreement has
been duly executed and delivered by Parent and (assuming the valid
authorization, execution and delivery of this Agreement by the Company)
constitutes a valid and binding obligation of Parent enforceable against it in
accordance with its terms. The issuance of shares of Parent Common Stock
pursuant to this Agreement, the filing of a registration statement with the
Securities and Exchange Commission ("SEC") by Parent on Form S-4 under the
Securities Act for the purpose of registering the shares of Parent Common Stock
to be issued in the Merger (together with any amendments or supplements thereto,
the "Registration Statement") and the reservation of shares of Parent Common
Stock in respect of the Parent Derivative Securities have been duly authorized
by Parent's Board of
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Directors. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its Subsidiaries under, any provision of (i) the Restated
Certificate of Incorporation or By-laws of Parent or Sub (true and complete
copies of which as of the date hereof have been delivered to the Company) or any
provision of the comparable charter or organization documents of any of its
Subsidiaries, (ii) any contract, agreement, loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent or any of its Subsidiaries
or (iii) any judgment, injunction, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clauses (ii) or
(iii), any such conflicts, violations, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the aggregate, would
not have a Material Adverse Effect on Parent, materially impair the ability of
Parent to perform its obligations hereunder or prevent the consummation of any
of the transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any U.S. federal, state, foreign or
supranational court, commission, governmental body, regulatory agency, authority
or tribunal or, in the case of Canada (or any territorial, provincial or local
government thereof) any of the same and any security commission or stock
exchange having jurisdiction over the Company or any of its Subsidiaries (a
"Governmental Entity") is required by or with respect to Parent or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
Parent or is necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement, except for (i) in connection, or in
compliance, with the provisions of the Hart-Scott Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Investment Canada Act, as amended
(the "Investment Canada Act"), and the Competition Act of Canada (the
"Competition Act"), the Securities Act and the Securities Exchange Act of 1934,
as amended (together with the rules and regulations promulgated thereunder, the
"Exchange Act"), (ii) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business,
(iii) such filings and consents as may be required under any environmental,
health or safety law or regulation pertaining to any notification, disclosure or
required approval triggered by the Merger or the transactions contemplated by
this Agreement, (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under (a) the laws of
Canada (or any territory or province thereof) or any other foreign country in
which the Company or any of its Subsidiaries conducts any business or owns any
property or assets or (b) the corporation, takeover, "Blue Sky" or securities
laws of various states of the United States and territories or provinces of
Canada and (v) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate have a Material Adverse Effect on Parent,
materially impair the ability of Parent to perform its obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby.
SECTION 2.4 SEC Documents. Parent has timely filed with the SEC all
required documents since January 1, 1991, and will timely file all required
Parent SEC Documents between the date hereof and the Effective Time (all such
documents, the "Parent SEC Documents"). As of their respective dates, the Parent
SEC Documents complied or will comply in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
none of the Parent SEC Documents contained or will contain any untrue statement
of a material fact or omitted or will omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Parent included or to be included in the Parent SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto) and fairly present
the consolidated financial position of Parent and its consolidated Subsidiaries
as at the dates thereof and the consolidated results of their operations and
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statements of cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein).
SECTION 2.5 Absence of Material Adverse Change. Except as disclosed in the
Parent SEC Documents filed with the SEC prior to the date hereof (all of which
since December 1, 1994 have been furnished to the Company), there has not been
any Material Adverse Change with respect to Parent (other than changes in laws
or regulations, changes in generally accepted accounting principles or
interpretations thereof or changes in general economic conditions that affect
the oil and natural gas industry generally, including, without limitation, the
supply of, demand for and prices for, oil and natural gas).
SECTION 2.6 Litigation. Except as disclosed in the Parent SEC Documents
filed with the SEC prior to the date hereof, there are no investigations,
claims, actions, suits, or proceedings pending or threatened, before or by any
court or government agency which (i) will, or can reasonably be expected to,
have a Material Adverse Effect on Parent, or (ii) could have a material adverse
effect on the transactions contemplated hereby or the performance of Parent's or
the Company's obligations hereunder.
SECTION 2.7 Brokers. No broker, investment banker or other person, other
than Wertheim Schroder & Co. Incorporated, the fees and expenses of which will
be paid by Parent on the terms set forth in the engagement letter a copy of
which has been furnished to the Company, is entitled to any broker's, finder's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
SECTION 2.8 Benefit Plans; ERISA Compliance. (a) Except as disclosed in the
Parent SEC Documents filed with the SEC prior to the date hereof, since December
31, 1993, there has not been any adoption or material amendment by Parent or any
of its Subsidiaries of any collective bargaining agreement or any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical, dependent care,
cafeteria, employee assistance, scholarship or other plan, program, arrangement
or understanding (whether or not legally binding) maintained in whole or in
part, contributed to, or required to be contributed to by Parent or any of its
Subsidiaries for the benefit of any present or former officer, employee or
director of Parent or any of its Subsidiaries (collectively, and including all
amendments thereto, for purposes of this Section 2.8, "Benefit Plans").
(b) Each "employee pension benefit plan" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) currently
maintained in whole or in part, contributed to or required to be contributed to,
by the Parent or any of its Subsidiaries for the benefit of any present or
former officer, employee or director of the Parent or any of its Subsidiaries
("Pension Plan") and each former pension plan that is or was intended to be
qualified under Section 401(a) of the Code has been the subject of a
determination letter from the IRS to the effect that such plan is qualified
under Section 401(a) of the Code or can still be submitted in a timely manner to
the IRS for such a letter, and no such determination letter has been revoked nor
has revocation of any such letter been threatened, nor has any such plan been
amended since the date of its most recent determination letter or application
therefor in any respect that would adversely affect its qualification or
materially increase its costs, and nothing has occurred or failed to occur which
would cause the loss of such qualification, and all amendments required to be
adopted before the Effective Time for any such Pension Plan to continue to be so
qualified have been or will be duly and timely adopted, except that this
sentence does not apply to any multiemployer plans; provided however, that to
the extent that this representation applies to terminated pension plans, this
representation refers to the qualified status of any such plan through the time
of its termination.
(c) Neither the Parent nor any of its Subsidiaries sponsors or maintains
any defined benefit plan described in Section 3(35) of ERISA, or Section 414(j)
of the Code, other than any such plan which is a "multiemployer plan" as such
term is defined in Section 4001(a)(3) of ERISA, and no such plan has been
terminated in a manner that resulted in any liability of Parent and/or any
Subsidiary to the Pension Benefit Guaranty Corporation (the "PBGC"). No entity,
whether or not incorporated, which is deemed to be under common control (as
defined in Section 414 of the Code) with the Parent and/or any of its
Subsidiaries sponsors or maintains any such defined benefit plan.
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(d) Each of the Benefit Plans sponsored by, and each of the benefit plans
formerly sponsored by, Parent or any of its Subsidiaries: (A) has been in
substantial compliance with all reporting and disclosure requirements of (i)
Part 1 or Subtitle B of Title I of ERISA, if applicable, or (ii) other
applicable law, (B) has had the appropriate required Form 5500 (or equivalent
annual report) filed, timely, with the appropriate Governmental Entity for each
year of its existence, (C) has at all times complied with the bonding
requirements of (i) Section 412 of ERISA, if applicable, or (ii) other
applicable law, (D) has no issue pending (other than the payment of benefits in
the normal course) nor any issue resolved adversely to Parent or any of its
Subsidiaries which may subject Parent or any of its Subsidiaries to the payment
of a material penalty, interest, tax or other obligation, nor is there any basis
for any imposition of any such liability, and (E) has been maintained in all
respects in compliance with the applicable requirements of ERISA, the Code and
other applicable law (including all rules and regulations issued thereunder) not
otherwise covered hereunder so as not to give rise to any material liabilities
to Parent or its Subsidiaries.
(e) All voluntary employee benefit associations maintained by the Parent or
any of its Subsidiaries and intended to be exempt from federal income tax under
Section 501(c)(9) of the Code have been submitted to and approved as exempt from
federal income tax under Section 501(c)(9) of the Code by the United States
Internal Revenue Service ("IRS"), and nothing has occurred or failed to occur
which would cause the loss of such exemption.
(f) The execution of this Agreement or the consummation of the transactions
contemplated by this Agreement will not give rise to any, or trigger any, change
of control, severance or other similar provisions in any Benefit Plan.
(g) Neither Parent nor any of its Subsidiaries provides material
post-retirement medical, health, disability or death protection coverage or
contributes to or maintains any employee welfare benefit plan which provides for
medical, health, disability or death benefit coverage following termination of
employment by any officer, director or employee except as is required by Section
4980B(f) of the Code or other applicable statute, nor has it made any
representations, agreements, covenants or commitments to provide that coverage.
(h) None of the Parent, any of its Subsidiaries, any officer of the Parent
or any of its Subsidiaries or any of the Benefit Plans or prior benefit plans
(including the Pension Plans and prior pension plans) which are subject to
ERISA, or any trusts created thereunder, or any trustee or administrator
thereof, has engaged in a "prohibited transaction" (as such term is defined in
Section 406, 407 or 408 of ERISA or Section 4975 of the Code) or any other
breach of fiduciary responsibility that could subject the Parent, any of its
Subsidiaries or any officer of the Parent or any of its Subsidiaries to the tax
or penalty on prohibited transactions imposed by such Section 4975 or to any
liability under Section 502(i) or (1) of ERISA which would have a Material
Adverse Effect on the Parent. Neither the Parent nor any of its Subsidiaries has
suffered a "complete withdrawal" or a "partial withdrawal" (as such terms are
defined in Section 4203 and Section 4205, respectively, of ERISA) since the
effective date of such Sections 4203 and 4205 for which the Parent has any
material liability outstanding.
(i) With respect to any Benefit Plan that is an employee welfare benefit
plan, (A) each such Benefit Plan that is a group health plan, as such term is
defined in Section 5000(b)(1) of the Code, complies in all material respects
with any applicable requirements of Part 6 of Title I of ERISA and Section
4980B(f) of the Code and (B) each such Benefit Plan (including any such plan
covering retirees or other former employees) may be amended or terminated with
respect to health benefits without material liability to Parent or any of its
Subsidiaries on or at any time after the consummation of the Merger.
(j) All contributions required by law or by a collective bargaining or
other agreement to be made under the Benefit Plans with respect to all periods
through the Effective Date including a pro rata share of contributions due for
the current plan year, will have been made by such date or provided for by
adequate reserves by Parent and/or each Subsidiary. No changes in contribution
rates or benefit levels have been implemented or negotiated (but not yet
implemented), with respect to any Benefit Plan since the date on which the
information provided in the attached schedule has been provided, and no such
changes are scheduled to occur.
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(k) Neither Parent nor any Subsidiary has or will have any material
liability or obligation for taxes, penalties, contributions, losses, claims,
damages, judgments, settlement costs, expenses, costs, or any other liability or
liabilities of any nature whatsoever arising out of or in any manner relating to
any Benefit Plan or former benefit plan (including but not limited to employee
benefit plans such as foreign plans which are not subject to ERISA), that has
been, or is, contributed to by any entity, whether or not incorporated, which is
deemed to be under common control (as defined in Section 414 of the Code), with
Parent or any Subsidiary.
(l) Neither Parent nor any Subsidiary has incurred a liability for payment
of premiums to the United Mine Workers of America Combined Benefit Fund pursuant
to Section 9704 of the Code, which liability has not been satisfied in full.
(m) Following the relevant periods set forth in Section 6.12 of this
Agreement, it is the intention of Parent to extend to the employees of the
Company coverage under benefit plans similar in nature to the benefit plans
afforded to employees of Parent, subject to applicable Canadian law.
SECTION 2.9 Director, Officer and Employee Agreements. Except as disclosed
in the Parent SEC Documents filed with the SEC prior to the date hereof, there
exist no material employment, consulting, severance, termination or
indemnification agreements, arrangements or understandings between Parent or any
of its Subsidiaries and any officer, director or key employee of Parent or any
of its Subsidiaries.
SECTION 2.10 Certain Business Practices. There are no situations with
respect to Parent or any of its Subsidiaries which involved or involves (i) the
use of any corporate funds or unlawful contributions, gifts or entertainment or
other unlawful expenses related to political activity, (ii) the making of any
direct or indirect unlawful payments to government officials or others from
corporate funds or the establishment or maintenance of any unlawful or
unrecorded funds, (iii) the violation of any of the provisions of the United
States Foreign Corrupt Practices Act of 1977, or any rules or regulations
promulgated thereunder, (iv) the receipt of any illegal discounts or rebates or
any other violation of the antitrust laws, or (v) any investigation by the SEC
or any Governmental Entity.
SECTION 2.11 Insider Interests. Except as disclosed in the Parent SEC
Documents filed with the SEC prior to the date hereof, no affiliate, officer or
director of Parent or any of its Subsidiaries has any agreement with Parent or
any of its Subsidiaries or any interest in any property, real or personal,
tangible or intangible, of Parent or any of its Subsidiaries except for the
normal rights as a stockholder or an employee and except for such other matters
which, under the rules of the SEC, are not required to be disclosed.
SECTION 2.12 Compliance with Laws. Parent and its Subsidiaries hold all
required, necessary or applicable permits, licenses, grants, authorizations,
easements, variances, exemptions, certificates, orders, franchises and approvals
necessary to own, lease and operate its material properties and to carry on its
material business as now being conducted (the "Parent Permits") and there is no
action, proceeding or investigation pending or threatened regarding the
suspension or cancellation of any of the Parent Permits. Parent and its
Subsidiaries are in compliance in all material respects with the terms of the
Parent Permits except where the failure to so comply would not have a Material
Adverse Effect on Parent. Neither Parent nor any of its Subsidiaries has
violated or failed to comply with any statute, law, ordinance, regulation, rule
or order of any Governmental Entity, any arbitration award or any judgment,
decree or order of any court or other Governmental Entity, applicable to Parent
or any of its Subsidiaries or their respective business, assets or operations.
SECTION 2.13 Intellectual Property. Parent and its Subsidiaries own, or are
licensed or otherwise have the right to use, all patents, patent rights,
trademarks, rights, trade names, trade name rights, service marks, service mark
rights, copyrights, technology, know-how, processes and other proprietary
intellectual property rights and computer programs ("Intellectual Property")
currently used in the conduct of the business and operations of Parent and its
Subsidiaries, except where the failure to so own or otherwise have the right to
use such Intellectual Property would not, individually or in the aggregate, have
a Material Adverse Effect on Parent. The use of such Intellectual Property by
Parent and its Subsidiaries does not infringe on the rights of any person,
subject to such claims and infringements as do not, individually or in the
aggregate, give rise to any liability on the part of Parent and its Subsidiaries
which could have a Material Adverse Effect on Parent, and
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no person is infringing on any right of Parent or any of its Subsidiaries with
respect to any such Intellectual Property. No claims are pending or threatened
that Parent or any of its Subsidiaries is infringing or otherwise adversely
affecting the rights of any person with regard to any Intellectual Property.
SECTION 2.14 Labor Matters. There are no collective bargaining agreements
or other labor union agreements or understandings to which Parent or any of its
Subsidiaries is a party or by which any of them is bound, nor is Parent or any
of its Subsidiaries the subject of any proceeding asserting that Parent or any
Subsidiary has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions. Since September
30, 1994 neither Parent nor any of its Subsidiaries has encountered any labor
union organizing activity, or had any actual or threatened employee strikes,
work stoppages, slowdowns or lockouts.
SECTION 2.15 Insurance. All of Parent's and its Subsidiaries' insurance
policies or contracts of insurance are sufficient for compliance with all
requirements of law and of all agreements to which Parent or any of its
Subsidiaries is a party. All insurance policies pursuant to which any such
insurance is provided are in full force and effect, no notice of cancellation or
termination has been given to Parent or any of its Subsidiaries by the carrier,
and all premiums required to be paid have been paid in full.
SECTION 2.16 Condition of Assets. Parent and each of its respective
Subsidiaries owns or has the right to use under customary industry terms the
assets it needs to operate its business, including, but not limited to, (a)
plants, facilities, pipelines, gathering and processing systems, compressors and
equipment, all of which have been maintained in a state of repair so as to be
adequate for normal operations; and (b) easements, rights-of-way, surface
leases, surface fee interests, licenses and permits.
SECTION 2.17 Environmental Matters. Except to the extent, if any, that
would not have a Material Adverse Effect on Parent: (a) Parent and its
Subsidiaries have not received notice of any violation of or investigation
relating to any U.S., Canadian, or other federal, state, provincial or local
environmental or pollution law, regulation, or ordinance with respect to assets
now or previously owned or operated by Parent or any of its Subsidiaries that
has not been fully and finally resolved; (b) all permits, licenses and other
authorizations which are required under U.S., Canadian, or other federal, state,
provincial and local laws with respect to pollution or protection of the
environment ("Environmental Laws") relating to assets now owned or operated by
Parent or any of its Subsidiaries, including Environmental Laws relating to
actual or threatened emissions, discharges or releases of pollutants,
contaminants or hazardous or toxic materials or wastes ("Pollutants"), have been
obtained and are effective, and, with respect to assets previously owned or
operated by Parent or any of its Subsidiaries, were obtained and were effective
during the time of Parent's or any Subsidiaries' operation; (c) no conditions
exist on, in or about the properties now or previously owned or operated by
Parent or any of its Subsidiaries or any third-party properties to which any
Pollutants generated by Parent or any of its Subsidiaries were sent or released
that could give rise on the part of Parent or any of its Subsidiaries to
liability under any Environmental Laws, claims by third parties under
Environmental Laws or under common law or the incurrence of costs to avoid any
such liability or claim; and (d) all operators of Parent's or any of its
Subsidiaries' assets are in compliance with all terms and conditions of such
Environmental Laws, permits, licenses and authorizations, and are also in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
such laws or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder,
relating to Parent's or any of its Subsidiaries' assets.
SECTION 2.18 Tax Matters. (a) "Parent Group" shall mean any "affiliated
group" (as defined in Section 1504(a) of the Code without regard to the
limitations contained in Section 1504(b) of the Code) that includes Parent.
"Parent Subsidiaries" shall mean Sub and the corporations set forth on Section
2.18 of the Parent Disclosure Schedule (being Subsidiaries of which Parent owns,
directly or indirectly, 80% or more of the stock). "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") shall mean any United States, Canadian, or other
federal, state, provincial, local or foreign income, gross receipts, property,
sales, goods and services use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, transfer or excise tax,
or any other tax, custom, duty, governmental fee or other like assessment or
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charge of any kind whatsoever, together with any interest or penalty, imposed by
any governmental authority. "Tax Return" shall mean any return, report or
similar statement required to be filed with respect to any Tax (including any
attached schedules), including, without limitation, any information return,
claim for refund, amended return and declaration of estimated Tax.
(b) With respect to each of Parent, the Parent Group and each Parent
Subsidiary: (i) all Tax Returns required to be filed have been timely filed with
the appropriate Governmental Entities in all jurisdictions in which such Tax
Returns are required to be filed; (ii) all Taxes shown to be due on the Tax
Returns referred to in clause (i) have been paid; (iii) no claim has ever been
made by any Governmental Entity in a jurisdiction in which Parent, the Parent
Group or any Parent Subsidiary does not file Tax Returns that Parent, the Parent
Group or any Parent Subsidiary is or may be subject to taxation by that
jurisdiction; (iv) neither Parent nor any Parent Subsidiary has ever been a
member of any affiliated group as defined in Section 1504 of the Code other than
the Parent Group; (v) Parent, the Parent Group and each Parent Subsidiary has
paid (or accrued in its most recent financial statements filed with the Parent
SEC Documents) all Taxes attributable to all periods or portions thereof ending
on or before September 30, 1994, except for any Taxes which are not material in
amount; (vi) the Tax Returns referred to in clause (i) relating to foreign,
federal, state and provincial income Taxes have been examined by the Internal
Revenue Service, Revenue Canada or the appropriate state or other taxing
authority or the period for assessment of the Taxes in respect of which such Tax
Returns were required to be filed has expired; (vii) there are no liens for
Taxes upon any asset of Parent, the Parent Group or any Parent Subsidiary except
for liens for current Taxes not yet due; (viii) no deficiency in respect of
Taxes which have been assessed against Parent, the Parent Group or any Parent
Subsidiary remains unpaid and there are no audits or investigations pending
against Parent, the Parent Group or any Parent Subsidiary with respect to any
Taxes; (ix) there are no claims, assessments, levies, administrative proceedings
or lawsuits pending or threatened against Parent, the Parent Group or any Parent
Subsidiary by any tax authority; and (x) none of Parent, the Parent Group or any
Parent Subsidiary has any liability for penalties with respect to the Tax
Returns described in clause (i).
SECTION 2.19 Tax-Free Reorganization. With respect to the qualification of
the Merger as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code: (a) immediately following the Merger, the Company will
hold at least 90 percent of the fair market value of Sub's net assets and at
least 70 percent of the fair market value of Sub's gross assets held immediately
prior to the Effective Time, provided that amounts used by Sub to pay
reorganization expenses will be included as assets of Sub immediately prior to
the Merger, (b) prior to the Merger, Parent will be in control of Sub within the
meaning of Section 368(c) of the Code, (c) Parent has no plan or intention to
cause the Company, after the Merger, to issue additional shares of Company Stock
that would result in Parent losing control of Company within the meaning of
Section 368(c) of the Code, (d) Parent has no plan or intention to reacquire any
of the Parent Common Stock issued in the Merger, (e) Parent has no plan or
intention to liquidate Company, to merge Company with or into another
corporation, to sell or otherwise dispose of its Company Stock except for
transfers of Company Stock to corporations of which Parent has control (within
the meaning of Section 368(c) of the Code) at the time of such transfer, or to
cause Company to sell or otherwise dispose of any of its assets or of any of the
assets acquired from Sub, except for dispositions made in the ordinary course of
business or transfers of assets to a corporation of which the Company has
control (within the meaning of 368(c) of the Code) at the time of such transfer,
(f) the liabilities of Sub assumed by Company and the liabilities to which the
transferred assets of Sub are subject were incurred by Sub in the ordinary
course of its business, (g) following the Merger, the Company will continue its
historic business or use a significant portion of its historic business assets
in a business, (h) Parent and Sub will pay their respective expenses, if any,
incurred in connection with the Merger, (i) there is no intercorporate
indebtedness existing between Parent and the Company or between Sub and the
Company that was issued, was acquired or will be settled at a discount, (j) the
Parent Common Stock that will be exchanged for Company Stock is voting stock
within the meaning of Section 368(a)(2)(E) of the Code, (k) Parent does not own,
nor has it owned during the past five years any Company Stock, (l) Parent and
Sub are not investment companies as defined in Sections 368(a)(2)(F)(iii) and
(iv) of the Code, (m) the payment of cash in lieu of fractional shares of Parent
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to Parent of issuing fractional shares and does not represent separately
bargained-for consideration, (n) the total cash considera-
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tion that will be paid in the Merger to the holders of Company Stock instead of
issuing fractional shares of Parent Common Stock will not exceed one percent of
the total consideration that will be issued in the Merger to the holders of
Company Stock in exchange for their Company Stock, (o) none of the compensation
received by any shareholder-employees of the Company will be separate
consideration for, or allocable to, any of their shares of Company Stock, (p)
none of the Parent Common Stock received by any shareholder-employees of the
Company will be separate consideration for, or allocable to, any employment
agreement, and (q) and the compensation paid to any shareholder-employees of the
Company will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar services.
SECTION 2.20 Internal Financial Report. The consolidated financial report
for the period ended October 31, 1994 prepared for the internal use of Parent's
management (a true and correct copy of which has been furnished to the Company)
was prepared in accordance with and consistent with past practice.
SECTION 2.21 Undisclosed Liabilities. Except as set forth in the Parent SEC
Documents filed with the SEC prior to the date hereof, at the date of the most
recent audited financial statements of Parent included in the Parent SEC
Documents, neither Parent nor any of its Subsidiaries had, and since such date
neither Parent nor any of such Subsidiaries has incurred, any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by generally accepted accounting principles to be set forth on a
financial statement or in the notes thereto or that, individually or in the
aggregate, would have a Material Adverse Effect on Parent.
SECTION 2.22 No Stock Ownership in Company. Neither Parent nor any of its
affiliates as of the date hereof beneficially own any Company Stock.
SECTION 2.23 No Misrepresentation. None of the factual information
furnished in written or electronic form to the Company or its representatives by
Parent in connection with this Agreement or the investigation by the Company
with respect to this Agreement (i) was inaccurate or false in any material
respect or (ii) knowingly omitted any portion of such information necessary to
make the information that was furnished, in light of the circumstances, not
misleading in any material respect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Company Disclosure Schedule (as defined below),
the Company represents and warrants to Parent and Sub as follows:
SECTION 3.1 Organization, Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as now being conducted. Each of the Company's Subsidiaries that
is a corporation is duly incorporated, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each of the Company's Subsidiaries that is not a corporation is duly
organized under the laws of the jurisdiction in which it is organized and has
the requisite corporate power and authority to carry on its business as now
being conducted. The Company and each of its Subsidiaries is duly qualified to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or held under lease or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. The Company has delivered to Parent complete and correct copies of
its Restated Certificate of Incorporation and By-laws and of the articles or
certificates of incorporation, by-laws or other similar organizational or
governing documents of its Subsidiaries. Section 3.1 of the Company Disclosure
Schedule lists each direct or indirect Subsidiary of the Company and the number
and percentage of outstanding shares of capital stock or other ownership
interests owned by the Company in such Subsidiary. All the outstanding shares of
capital stock of the Company's Subsidiaries that are corporations and all of the
Company's direct or indirect ownership interests in the Company's Subsidiaries
that are not corporations are validly issued, fully paid and non-
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assessable and were not issued in violation of any preemptive rights. All such
stock and ownership interests are owned of record and beneficially by the
Company or the Company's Subsidiary identified on such schedule as owning such
interest, free and clear of all liens, pledges, security interests, charges,
claims and other encumbrances of any kind or nature. Except for the capital
stock and ownership interests of its Subsidiaries, the Company does not own,
directly or indirectly, any capital stock, equity interest or other ownership
interest in any corporation, partnership, association, joint venture (exclusive
of any joint operating agreement), limited liability company or other entity. No
Subsidiary that is not wholly owned holds any shares of Company Stock. "Company
Disclosure Schedule" means the schedule of disclosures made by the Company to
Parent that has been delivered simultaneously with the execution of this
Agreement.
SECTION 3.2 Capital Structure. (a) The authorized capital stock of the
Company consists of 6,000,000 shares of Company Class A Stock, 13,000,000 shares
of Company Class B Stock and 500,000 shares of Preferred Stock, $1.00 par value,
of the Company ("Company Preferred Stock"). At the close of business on December
15, 1994, 2,304,007 shares of Company Class A Stock and 7,302,218 shares of
Company Class B Stock (including 220,000 shares of Company Class B Stock held of
record and beneficially by DEKALB Energy Canada Ltd.) were issued and
outstanding. As of the date hereof, (i) an aggregate of 9,606,225 shares of
Company Stock were issued and outstanding, (ii) 435,383 shares of Company Class
A Stock and 7,050 shares of Company Class B Stock were reserved for issuance
upon the exercise of outstanding Company Stock Options (as defined below), (iii)
79,782 shares of Company Class A Stock and 4,212,466 shares of Company Class B
Stock were held by the Company in its treasury and (iv) no shares of Company
Preferred Stock were issued or outstanding or reserved for issuance. All
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable and not subject to preemptive rights.
(b) Except for the Company Stock Options, exercisable for 435,383 shares of
Company Class A Stock and 7,050 shares of Company Class B Stock, outstanding as
of the date of this Agreement, there are no options, warrants, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any of its Subsidiaries is a party or by which any of them is bound
obligating the Company or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of the Company or of any of its Subsidiaries. There are
no outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any securities of the Company or any
Subsidiary.
(c) Section 3.2 to the Company Disclosure Schedule sets forth a complete
and correct list of all outstanding Company Stock Options, setting forth as of
the date hereof (i) the number and type of Company Stock Options outstanding,
(ii) the exercise price of each outstanding Company Stock Option, (iii) the
number of Company Stock Options exercisable, and (iv) assuming no amendment or
waiver of the terms thereof, the number of Company Stock Options that will
become exercisable on account of the Merger or any other transaction
contemplated hereby. Section 3.2 of the Company Disclosure Schedule also sets
forth a complete and correct list of all outstanding phantom stock awards, stock
appreciation rights or other equity based incentive compensation arrangements,
including all material terms thereof. The Company has delivered to Parent true
and correct copies of all agreements, instruments and other governing documents
relating to the foregoing.
SECTION 3.3 Authority; Non-Contravention. The Board of Directors of the
Company has declared the Merger advisable and the Company has all requisite
power and authority to enter into this Agreement and, subject to approval of the
Merger by the stockholders of the Company, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, subject to approval of the Merger by the stockholders of the Company as
set forth in Section 6.1. This Agreement has been duly executed and delivered by
the Company and (assuming the valid authorization, execution and delivery of
this Agreement by Parent and Sub) constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or
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acceleration of any obligation or to the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any of its Subsidiaries
under, any provision of (i) the Certificate of Incorporation or By-laws of the
Company or any provision of the comparable charter or organization documents of
any of its Subsidiaries, (ii) any contract, agreement, loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
Subsidiaries or (iii) any judgment, injunction, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, other than, in the
case of clause (ii) or (iii), any such conflicts, violations, defaults, rights,
liens, security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect on the Company, materially
impair the ability of the Company to perform its obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby. No
filing or registration with, or authorization, consent or approval of, any
Governmental Entity is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the transactions contemplated
hereby, except for (i) the filing, if required, of a premerger notification and
report form by the Company under the HSR Act, and filings under the Investment
Canada Act and the Competition Act, (ii) the filing with the SEC of (x) the
Proxy Statement and (y) such reports under Section 13(a) of the Exchange Act as
may be required in connection with this Agreement and the transactions
contemplated hereby, (iii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which the Company or any of its
Subsidiaries is qualified to do business, (iv) such filings and consents as may
be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by the
Merger or the transactions contemplated by this Agreement, (v) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under (a) the laws of Canada (or any territory or
province thereof) or any other foreign country in which the Company or any of
its Subsidiaries conducts any business or owns any property or assets or (b) the
corporation, takeover or "Blue Sky" or securities laws of various states of the
United States and territories or provinces of Canada, and (vi) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to be obtained or made would not, individually or
in the aggregate, have a Material Adverse Effect on the Company, materially
impair the ability of the Company to perform its obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby.
SECTION 3.4 SEC Documents. The Company has timely filed all required
documents with the SEC since January 1, 1991, and will file all required Company
SEC Documents between the date hereof and the Effective Time (all such
documents, the "Company SEC Documents"). As of their respective dates, the
Company SEC Documents complied or will comply in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
none of the Company SEC Documents contained or will contain any untrue statement
of a material fact or omitted or will omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
consolidated financial statements of the Company included or to be included in
the Company SEC Documents comply or will comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been or will be prepared in
accordance with generally accepted accounting principles (except, in the case of
the unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto) and fairly present or will present the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of their operations and changes in
financial position for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein).
SECTION 3.5 Absence of Certain Changes or Events. Except as disclosed in
the Company SEC Documents filed with the SEC prior to the date hereof, between
September 30, 1994 and the date hereof, the Company has conducted its business
only in the ordinary course consistent with past practice, and there has not
been (i) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock
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or property) with respect to any of the Company's capital stock or any
securities of a Subsidiary not wholly-owned by the Company or any redemption,
purchase or other acquisition by the Company of any of its securities or any
securities of a Subsidiary not wholly owned by the Company, (ii) any material
damage, destruction or loss (whether or not covered by insurance) to any
material asset of the Company, (iii) other than in the ordinary course of
business, any expenditure of funds, contractual commitment to expend or
liability or obligation incurred by the Company involving an amount in excess of
$50,000, or any series thereof of similar type or nature aggregating to an
amount in excess of $50,000, (iv) any obligation incurred by the Company of the
nature referred to in the first sentence of Section 3.23, (v) any change in
accounting methods, principles or practices by the Company materially affecting
its assets, liabilities or business, except insofar as may have been required by
a change in generally accepted accounting principles, (vi) except as
contemplated in this Agreement, any revaluation by the Company of any of its
assets, including the writing down or off of notes or accounts receivable, other
than in the ordinary course of business and consistent with past practices and,
in the case of notes or accounts receivable, not in excess of $50,000 in the
aggregate, (vii) any event which, if it had taken place following the execution
of this Agreement, would not have been permitted by Section 5.1(b), except for
capital expenditures provided for in the Company's fourth quarter 1994 capital
expenditure budget, a copy of which is attached to the Company Disclosure
Schedule ("1994 Capital Budget"), (viii) any condition, event or occurrence
which, individually or in the aggregate, could reasonably be expected to
prevent, hinder or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement, or (ix) any condition, event or
occurrence which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect on the Company or give rise to a Material
Adverse Change with respect to the Company.
SECTION 3.6 Litigation. Except as disclosed in the Company SEC Documents
filed with the SEC prior to the date hereof, there are no investigations,
claims, actions, suits, or proceedings pending or threatened, before or by any
court or government agency which (i) will, or can reasonably be expected to,
have a Material Adverse Effect on the Company, or (ii) could have a material
adverse effect on the transactions contemplated hereby or the performance of
Parent's or the Company's obligations hereunder.
SECTION 3.7 Brokers. No broker, investment banker or other person, other
than Merrill Lynch & Co., the fees and expenses of which will be paid by the
Company on the terms set forth in the engagement letter a copy of which has been
furnished to Parent, is entitled to any broker's, finder's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
SECTION 3.8 Benefit Plans; ERISA Compliance. (a) Except as disclosed in the
Company SEC Documents filed with the SEC prior to the date hereof, since
December 31, 1993, there has not been any adoption or material amendment by the
Company or any of its Subsidiaries of any collective bargaining agreement or any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical,
dependent care, cafeteria, employee assistance, scholarship or other plan,
program, arrangement or understanding (whether or not legally binding)
maintained in whole or in part, contributed to, or required to be contributed to
by the Company or any of its Subsidiaries for the benefit of any present or
former officer, employee or director of the Company or any of its Subsidiaries
(collectively, and including all amendments thereto, for purposes of this
Section 3.8, "Benefit Plans").
(b) Section 3.8 of the Company Disclosure Schedule contains a list of all
"employee pension benefit plans" (as defined in Section 3(2) of ERISA)
(sometimes referred to in this Section 3.8 as "Pension Plans"), "employee
welfare benefit plans" (as defined in Section 3(1) of ERISA) (sometimes referred
to in this Section 3.8 as "Welfare Plans") and all other Benefit Plans currently
maintained in whole or in part, contributed to, or required to be contributed to
by the Company or any of its Subsidiaries for the benefit of any present or
former officer, employee or director of the Company or any of its Subsidiaries.
Except for those documents relating to benefit plans that were terminated in
connection with the Company's ceasing substantially all of its operations in the
U.S., the Company has delivered to Parent true, complete and correct copies of
(A) each Benefit Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (B) the three annual reports on Form 5500 most recently
filed with the IRS with respect to each Benefit Plan (if any
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such report was required), (C) the most recent IRS determination letter
requested for each Benefit Plan intended to be qualified under Section 401(a) of
the Code and all rulings or determinations concerning such Benefit Plan
requested of the IRS subsequent to the date of that letter, (D) the most recent
actuarial report for each Benefit Plan for which an actuarial report is required
by ERISA, (E) the most recent summary plan description for each Benefit Plan for
which such summary plan description is required by ERISA and each summary of
material modifications prepared, as required by ERISA, after the last summary
plan description, (F) each trust agreement and/or group annuity contract
relating to any Benefit Plan and (G) all material correspondence for the last
three years prior to the Effective Date with the IRS or the United States
Department of Labor relating to plan qualification, filing of required forms, or
pending, contemplated and announced plan audits with respect to any Benefit
Plan, except that this sentence does not apply to any multiemployer plans.
(c) Each Pension Plan maintained and each pension plan formerly maintained
that is or was intended to be qualified under Section 401(a) of the Code has
been the subject of a determination letter from the IRS to the effect that such
plan is qualified under Section 401(a) of the Code or can still be submitted in
a timely manner to the IRS for such a letter, and no such determination letter
has been revoked nor has revocation of any such letter been threatened, nor has
any such plan been amended since the date of its most recent determination
letter or application therefor in any respect that would adversely affect its
qualification or materially increase its costs, and nothing has occurred or
failed to occur which would cause the loss of such qualification, and all
amendments required to be adopted before the Effective Time for any such Pension
Plan to continue to be so qualified have been or will be duly and timely
adopted, except that this sentence does not apply to any multiemployer plans;
provided however, that to the extent that this representation applies to
terminated pension plans, this representation refers to the qualified status of
any such plan through the time of its termination. The Company has paid all
premiums (including any applicable interest, charges and penalties for late
payment) due the PBGC with respect to each such Pension Plan for which premiums
to the PBGC are required. No such Pension Plan in whole or in part maintained by
the Company has been terminated or partially terminated under circumstances
which would result in liability to the PBGC.
(d) Each of the Benefit Plans sponsored by, and each of the benefit plans
formerly sponsored by, the Company or any of its Subsidiaries: (A) has been in
substantial compliance with all reporting and disclosure requirements of (i)
Part 1 or Subtitle B of Title I of ERISA, if applicable, or (ii) other
applicable law, (B) has had the appropriate required Form 5500 (or equivalent
annual report) filed, timely, with the appropriate Governmental Entity for each
year of its existence, (C) has at all times complied with the bonding
requirements of (i) Section 412 of ERISA, if applicable, or (ii) other
applicable law (D) has no issue pending (other than the payment of benefits in
the normal course) nor any issue resolved adversely to the Company or any of its
Subsidiaries which may subject the Company or any of its Subsidiaries to the
payment of a material penalty, interest, tax or other obligation, nor is there
any basis for any imposition of any such liability, and (E) has been maintained
in all respects in compliance with the applicable requirements of ERISA, the
Code and other applicable law (including all rules and regulations issued
thereunder) not otherwise covered hereunder so as not to give rise to any
material liabilities to the Company or its Subsidiaries.
(e) All voluntary employee benefit associations maintained by the Company
or any of its Subsidiaries and intended to be exempt from federal income tax
under Section 501(c)(9) of the Code have been submitted to and approved as
exempt from federal income tax under Section 501(c)(9) of the Code by the IRS,
and nothing has occurred or failed to occur which would cause the loss of such
exemption.
(f) The execution of this Agreement or the consummation of the transactions
contemplated by this Agreement will not give rise to any, or trigger any, change
of control, severance or other similar provisions in any Benefit Plan other than
with respect to Company Stock Options.
(g) Neither the Company nor any of its Subsidiaries provides material
post-retirement medical, health, disability or death protection coverage or
contributes to or maintains any employee welfare benefit plan which provides for
medical, health, disability or death benefit coverage following termination of
employment by any officer, director or employee except as is required by Section
4980B(f) of the Code or other applicable statute, nor has it made any
representations, agreements, covenants or commitments to provide that coverage.
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(h) No Pension Plan or pension plan subject to Title IV of ERISA (i) that
the Company or any of its Subsidiaries maintains or maintained, or (ii) to which
the Company or any of its Subsidiaries is or was obligated to contribute, other
than any such plan that is or was a "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) had, as of its most recent annual
valuation date, an "unfunded benefit liability" (as such term is defined in
Section 4001(a)(18) of ERISA), based on actuarial assumptions which have been
furnished to Parent. None of such plans subject to Section 302 of ERISA has an
"accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA), whether or not waived. None of the Company, any of its Subsidiaries, any
officer of the Company or any of its Subsidiaries or any of the Benefit Plans or
prior benefit plans (including the Pension Plans and prior pension plans) which
are subject to ERISA, or any trusts created thereunder, or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such term
is defined in Section 406, 407 or 408 of ERISA or Section 4975 of the Code) or
any other breach of fiduciary responsibility that could subject the Company, any
of its Subsidiaries or any officer of the Company or any of its Subsidiaries to
the tax or penalty on prohibited transactions imposed by such Section 4975 or to
any liability under Section 502(i) or (1) of ERISA which would have a Material
Adverse Effect on the Company. No "reportable event" (as that term is defined in
Section 4043 of ERISA) with respect to which the 30-day notice requirement has
not been waived has occurred and is continuing with respect to any such Pension
Plan, other than as may arise as a result of the consummation of the Merger.
Neither the Company nor any of its Subsidiaries has suffered a "complete
withdrawal" or a "partial withdrawal" (as such terms are defined in Section 4203
and Section 4205, respectively, of ERISA) since the effective date of such
Sections 4203 and 4205 for which the Company has any material liability
outstanding.
(i) With respect to any Benefit Plan that is a Welfare Plan, (A) each such
Benefit Plan that is a group health plan, as such term is defined in Section
5000(b)(1) of the Code, complies in all material respects with any applicable
requirements of Part 6 of Title I of ERISA and Section 4980B(f) of the Code and
(B) each such Benefit Plan (including any such plan covering retirees or other
former employees) may be amended or terminated with respect to health benefits
without material liability to the Company or any of its Subsidiaries on or at
any time after the consummation of the Merger.
(j) All contributions required by law or by a collective bargaining or
other agreement to be made under the Benefit Plans with respect to all periods
through the Effective Date including a pro rata share of contributions due for
the current plan year, will have been made by such date or provided for by
adequate reserves by the Company and/or each Subsidiary. No changes in
contribution rates or benefit levels have been implemented or negotiated (but
not yet implemented), with respect to any Benefit Plan since the date on which
the information provided in the attached schedule has been provided, and no such
changes are scheduled to occur.
(k) Neither the Company nor any Subsidiary has or will have any material
liability or obligation for taxes, penalties, contributions, losses, claims,
damages, judgments, settlement costs, expenses, costs, or any other liability or
liabilities of any nature whatsoever arising out of or in any manner relating to
any Benefit Plan or prior benefit plan (including but not limited to employee
benefit plans such as foreign plans which are not subject to ERISA), that has
been, or is, contributed to by any entity, whether or not incorporated, which is
deemed to be under common control (as defined in Section 414 of the Code), with
the Company or any Subsidiary.
(l) Neither the Company nor any Subsidiary has incurred a liability for
payment of premiums to the United Mine Workers of America Combined Benefit Fund
pursuant to Section 9704 of the Code, which liability has not been satisfied in
full.
(m) All Benefit Plans for employees of the Company in Canada are registered
as required and all reporting and filing requirements have been complied with on
a timely basis. Further, none of the Benefit Plans in place for employees in
Canada have, on the date of this Agreement, any accumulated funding deficiency.
SECTION 3.9 Director, Officer and Employee Agreements. (a) Except as
disclosed in the Company SEC Documents filed with the SEC prior to the date
hereof, there exist no material employment, consulting,
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severance, termination or indemnification agreements, arrangements or
understandings between the Company or any of its Subsidiaries and any officer,
director or key employee of the Company or any of its Subsidiaries.
(b) Section 3.9 of the Company Disclosure Schedule lists as of the date
hereof the 1994 base salary and targeted bonuses (including the maximum
aggregate amount of such bonuses) and the 1995 base salary and targeted bonuses
of each of the officers, directors and employees of the Company and each
Subsidiary. From the date hereof through the Effective Date, there will be no
increase in the compensation payable to any of such officers, directors or
employees, except for budgeted increases set forth in such schedule.
SECTION 3.10 Certain Business Practices. There are no situations with
respect to the Company or any of its Subsidiaries which involved or involve (i)
the use of any corporate funds or unlawful contributions, gifts or entertainment
or other unlawful expenses related to political activity, (ii) the making of any
direct or indirect unlawful payments to government officials or others from
corporate funds or the establishment or maintenance of any unlawful or
unrecorded funds, (iii) the violation of any of the provisions of the United
States Foreign Corrupt Practices Act of 1977, or any rules or regulations
promulgated thereunder, (iv) the receipt of any illegal discounts or rebates or
any other violation of the antitrust laws, or (v) any investigation by the SEC
or any Governmental Entity.
SECTION 3.11 No Excess Parachute Payments or Compensation. (a) No deduction
will be disallowed under Section 280G(a) of the Code for any amount that could
be received (whether in cash or property or the vesting of property) as a result
of any of the transactions contemplated by this Agreement by any employee,
officer or director of the Company or any of its Subsidiaries who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan currently in effect.
(b) No deduction for employee remuneration paid or payable to any covered
employee (as defined in Section 162(m)(3) of the Code) of the Company or any of
its Subsidiaries has been or will be disallowed under Section 162(m) of the
Code.
SECTION 3.12 Insider Interests. Except as disclosed in the Company SEC
Documents filed with the SEC prior to the date hereof, no affiliate, officer or
director of the Company or any of its Subsidiaries has any agreement with the
Company or any interest in any property, real or personal, tangible or
intangible, of the Company except for the normal rights as a stockholder or an
employee and except for such other matters which, under the rules of the SEC,
are not required to be disclosed.
SECTION 3.13 Compliance with Laws. The Company and its Subsidiaries hold
all required, necessary or applicable permits, licenses, grants, authorizations,
easements, variances, exemptions, certificates, orders, franchises and approvals
necessary to own, lease and operate its material properties and to carry on its
material business as now being conducted (the "Company Permits") and there is no
action, proceeding or investigation pending or threatened regarding the
suspension or cancellation of any of the Company Permits. The Company and its
Subsidiaries are in compliance in all material respects with the terms of the
Company Permits except where the failure to so comply would not have a Material
Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries
has violated or failed to comply with any statute, law, ordinance, regulation,
rule or order of any Governmental Entity, any arbitration award or any judgment,
decree or order of any court or other Governmental Entity, applicable to the
Company or any of its Subsidiaries or their respective business, assets or
operations.
SECTION 3.14 Intellectual Property. The Company and its Subsidiaries own,
or are licensed or otherwise have the right to use, all Intellectual Property
currently used in the conduct of the business and operations of the Company and
its Subsidiaries, except where the failure to so own or otherwise have the right
to use such Intellectual Property would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. The use of such Intellectual
Property by the Company and its Subsidiaries does not infringe on the rights of
any person, subject to such claims and infringements as do not, individually or
in the aggregate, give rise to any liability on the part of the Company and its
Subsidiaries which could have a Material Adverse Effect on the Company, and no
person is infringing on any right of the Company or any of its Subsidiaries with
respect to any such Intellectual Property. No claims are pending or threatened
that the
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Company or any of its Subsidiaries is infringing or otherwise adversely
affecting the rights of any person with regard to any Intellectual Property.
SECTION 3.15 Labor Matters. There are no collective bargaining agreements
or other labor union agreements or understandings to which the Company or any of
its Subsidiaries is a party or by which any of them is bound, nor is the Company
or any of its Subsidiaries the subject of any proceeding asserting that the
Company or any Subsidiary has committed an unfair labor practice or seeking to
compel it to bargain with any labor organization as to wages or conditions.
Since September 30, 1994 neither the Company nor any of its Subsidiaries has
encountered any labor union organizing activity, or had any actual or threatened
employee strikes, work stoppages, slowdowns or lockouts.
SECTION 3.16 Insurance. Section 3.16 of the Company Disclosure Schedule
summarizes the amount and scope of insurance as to which the Company or any of
its Subsidiaries has insurance contracts. All of the Company's insurance
policies or contracts of insurance are sufficient for compliance with all
requirements of law and of all agreements to which the Company or any of its
Subsidiaries is a party. All insurance policies pursuant to which any such
insurance is provided are in full force and effect, no notice of cancellation or
termination has been given to the Company or any of its Subsidiaries by the
carrier, and all premiums required to be paid have been paid in full.
SECTION 3.17 Property Records and Title. (a) The information set forth in
Section 3.17(a) of the Company Disclosure Schedule accurately reflects the
following information contained in the Company's internal land records (the
"Company Land Records"): (i) the working interest ("WI"); (ii) the distribution
of properties as between freehold and crown lands; (iii) freehold property
royalty burdens; (iv) overriding royalty burdens; (v) freehold property net
profits interest burdens; (vi) royalties owned; (vii) overriding royalties
owned; (viii) net profits interests owned; (ix) potential reversions of any of
the interests described in (i) through (viii) hereinabove; and (x) any payout
balances.
(b) The information in the Company Land Records regarding the categories of
information set forth in clauses (i) through (x) of Section 3.17(a) (the
"Relevant Categories") is consistent with the information regarding the Relevant
Categories contained or reflected in the Company's record of receipts and
disbursements with respect to the Company's oil and gas properties as set forth
in the Company's internal accounting and financial records.
(c) The historical rates of production of oil and gas set forth in the
Aries Database (as defined below) with respect to each well described therein
accurately reflect the rates of production of oil and gas obtained by the
Company from CD Pubco. The "Aries Database" shall mean the data recorded
electronically by the Aries computer program on two magnetic files which were
provided by the Company to Parent on three floppy diskettes (containing one file
setting forth the proved reserve report database dated November 30, 1994) and
one floppy diskette (containing one file setting forth the probable reserve
report database dated December 1, 1994).
(d) The Company and each of its Subsidiaries has Good and Defensible Title
to the Leases, Wells and Units listed in Section 3.17(a) of the Company
Disclosure Schedule, insofar as such Leases, Wells and Units cover the
formations shown for such Wells in Section 3.17(a) of the Company Disclosure
Schedule, together with the Leases or portions thereof attributable to such
Wells and Units.
(e) "Leases" means the oil and gas leases, oil, gas, and mineral leases,
royalties, overriding royalties, production payments, net profits interests, fee
minerals, and other oil, gas, and mineral interests (together with contractual
rights, options or interests in and to any of the foregoing) owned by the
Company or any of its Subsidiaries. "Units" means (i) all unitization and
pooling agreements and orders covering the lands subject to the Leases, or any
portion thereof, and the units and pooled areas created thereby, and (ii) all
existing or projected future units and pooled areas set forth or referenced in
Section 3.17(a) of the Company Disclosure Schedule. "Wells" means wells
(including projected future wells) for the production of crude oil, natural gas,
casinghead gas, coal bed methane, condensate, natural gas liquids and other
gaseous and liquid hydrocarbons or any combination thereof ("Hydrocarbons")
which are listed in Section 3.17(a) of the Company Disclosure
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Schedule or which are located on the lands (the "Lands") covered by the Leases
and the Units. "Properties" means, collectively, the Leases, Wells, Units and
Lands.
(f) "Good and Defensible Title" means, with respect to ownership of Leases
attributable to the Lands, a Well or Unit, a legal or beneficial title that (i)
entitles the Company or any of its Subsidiaries to receive, throughout the life
of the Properties, the revenue interests attributable to the Properties and the
Company's WI shown in Section 3.17(a) of the Company Disclosure Schedule; (ii)
obligates the Company or any of its Subsidiaries, as applicable, to bear,
throughout the life of a Well or Unit (and the plugging, abandonment and salvage
thereof), no greater WI for such Well or Unit than the WI shown therefor in
Section 3.17(a) of the Company Disclosure Schedule, except increases in such WI
that result in at least a proportionate increase in the Company's or its
applicable Subsidiaries' revenue interest attributable to such WI for such Well
or Unit (including, without limitation, increases resulting from co-owner
non-consents) and increases that result from contribution requirements with
respect to defaulting co-owners; and (iii) is free and clear of all liens,
security interests, collateral assignments, encumbrances, clouds on title,
irregularities and defects except for Permitted Encumbrances.
(g) "Permitted Encumbrances" means the following:
(i) liens for taxes not yet due or, if due, being challenged in good
faith by appropriate proceedings;
(ii) materialmen's, mechanics', builders' and other similar liens or
charges arising in the ordinary course of business for obligations that are
not delinquent and that will be paid or discharged in the ordinary course
of business or, if delinquent, that are being contested in good faith in
the ordinary course of business;
(iii) easements, rights-of-way, servitudes, permits, surface leases,
and other rights in respect of surface operations that do not materially
interfere with the Company's or its Subsidiary's, as applicable, operations
of the portion of the Properties burdened thereby;
(iv) rights reserved to or vested in any governmental authority to
control or regulate any of the Wells or Units and all applicable laws,
rules, regulations, and orders of such authorities so long as the same (i)
do not decrease the Company's or its Subsidiary's, as applicable, revenue
interest attributable to Properties shown in Section 3.17(a) of the Company
Disclosure Schedule, or increase the Company's or its Subsidiary's, as
applicable, WI above the WI shown in Section 3.17(a) of the Company
Disclosure Schedule, without at least a proportionate increase in the
Company's or its Subsidiary's, as applicable, revenue interest attributable
to such WI, or (ii) create any liens in respect of such Wells or Units.
(v) any title defects that Parent may have expressly waived in
writing;
(vi) liens arising under operating agreements, unitization, and
pooling agreements, orders and statutes and production sales contracts
securing amounts not yet due or, if due, being contested in good faith in
the ordinary course of business;
(vii) the terms and conditions of all contracts and agreements
relating to the Properties, including exploration agreements, gas sales
contracts, processing agreements, farmins, farmouts, operating agreements,
and right-of-way agreements, to the extent such terms and conditions (i) do
not decrease the Company's or its Subsidiary's, as applicable, revenue
interest attributable to the Properties shown in Section 3.17(a) of the
Company Disclosure Schedule, or increase the Company's WI above the WI
shown in Section 3.17(a) of the Company Disclosure Schedule, without at
least a proportionate increase in the Company's or its Subsidiary's, as
applicable, revenue interest attributable to such WI, (ii) are normal and
customary in the oil and gas industry, and (iii) would not conflict with
any other portion of this definition of Permitted Encumbrances;
(viii) royalties, overriding royalties, net profits interests,
production payments, reversionary interests, and similar interests as shown
in Section 3.17(a) of the Company Disclosure Schedule;
(ix) conventional rights of reassignment requiring notice to the
holders of the rights prior to surrendering or releasing a leasehold
interest;
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(x) calls on production exercisable only at prices substantially
equivalent to then-current fair market value;
(xi) consents to assignment and preferential rights to purchase any or
all of the Properties other than any such consents or rights which (i) are
applicable to the transactions contemplated by this Agreement or (ii) were
applicable to a previous transaction involving the transfer of all or any
portion of the Properties but were not complied with at the time of the
consummation of such transaction; and
(xii) those matters listed in Section 3.17(g) of the Company
Disclosure Schedule.
SECTION 3.18 Contracts. Set forth in Section 3.18 of the Company Disclosure
Schedule is a true and correct description of each contract, agreement, lease or
similar arrangement to which the Company or any of its Subsidiaries is a party
or by which any of the assets of the Company or any of its Subsidiaries are
bound and which:
(i) is an agreement for the sale or purchase of any Hydrocarbons
produced from or attributable to the Wells, the Lands or the Units, except
those sales or purchase agreements which (i) by the terms of such agreement
expire within six months or can be terminated by the Company or its
Subsidiary, as applicable, upon not more than six months notice without
penalty or (ii) involve aggregate expenditures or receipts not in excess of
$50,000;
(ii) creates any area of mutual interest with respect to the
acquisition by the Company or any of its Subsidiaries or any of their
respective assigns of any interest in any Hydrocarbons, lands or other
assets;
(iii) evidences an obligation to pay a deferred purchase price in
excess of $150,000 for property or services;
(iv) evidences a lease or rental of any land, building, or other
improvements or portion thereof for a price in excess of $50,000 per year;
(v) creates or evidences a mortgage, indenture, guarantee, note, loan
agreement, pledge agreement, installment obligation, or other instrument
for or relating to any borrowing of more than $50,000, except for
inter-company borrowings between or among the Company and its Subsidiaries;
(vi) subjects the Company or any of its Subsidiaries or the assets of
the Company or any of its Subsidiaries to any partnership agreement or
provisions requiring a partnership income tax return to be filed under
Subchapter K of Chapter 1 of Subtitle A of the Code or a partnership
information return under Section 229 of the Regulations to the Income Tax
Act (Canada);
(vii) creates or evidences an asset purchase or sale agreement
involving aggregate consideration in excess of $50,000;
(viii) creates or evidences an obligation to be or remain liable for
any Environmental Liabilities (as defined below), excluding joint operating
agreements entered into in the ordinary course of business; or
(ix) is not described in items (i) through (viii) above and involves
expenditures or receipts of $150,000 or more in any calendar year;
(x) is not described in items (i) through (ix) above and the breach or
loss of which would have a Material Adverse Effect on the Company.
As to all such contracts, agreements, leases and arrangements, and except for
such violations, breaches or other matters as do not involve amounts in excess
of $50,000 in the aggregate as to individual contracts, agreements, leases and
arrangements, (i) such contracts, agreements, leases and arrangements are in
full force and effect; (ii) except to the extent that they are non-monetary and
not material, there are no violations or breaches thereof, or existing facts or
circumstances which upon notice or the passage of time or both will constitute a
violation or breach thereof by the Company or any of its Subsidiaries or by any
other party thereto; (iii) no notice of the exercise or attempted exercise of
premature termination, price reduction, market-out or curtailment has been
received by the Company or any of its Subsidiaries with respect thereto;
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(iv) no notice has been received by the Company that any party thereto intends
not to honor its obligations thereunder; and (v) except with regard to contracts
as to which such delivery or access would violate the terms of such contract or
any other agreement, true, correct and complete copies thereof have been made
available to Parent by the Company and Company will, or will cause its
applicable Subsidiaries to, promptly make requests of the parties for which
delivery or access is so restricted and use reasonable best efforts to obtain or
afford Parent access to such contracts.
SECTION 3.19 Condition of Assets. Each of the Company and its Subsidiaries
owns or has the right to use under customary industry terms the assets it needs
to operate its business, including (a) plants, facilities, pipelines, gathering
and processing systems, compressors and equipment, all of which have been
maintained in a state of repair so as to be adequate for normal operations (b)
easements, rights-of-way, surface leases, surface fee interests, licenses and
permits and (c) seismic data (both proprietary and purchased from other
persons).
SECTION 3.20 Environmental Matters. The Company and its Subsidiaries have
not received notice of any violation of or investigation relating to any U.S.,
Canadian, or other federal, state, provincial or local environmental or
pollution law, regulation, or ordinance with respect to assets now or previously
owned or operated by the Company or any of its Subsidiaries that has not been
fully and finally resolved. All permits, licenses and other authorizations which
are required under Environmental Laws relating to assets now owned or operated
by the Company or any of its Subsidiaries, including Environmental Laws relating
to actual or threatened emissions, discharges or releases of Pollutants have
been obtained and are effective, and, with respect to assets previously owned or
operated by the Company or any of its Subsidiaries, were obtained and were
effective during the time of the Company's or any Subsidiaries' operation. No
conditions exist on, in or about the properties now or previously owned or
operated by the Company or any of its Subsidiaries or any third-party properties
to which any Pollutants generated by the Company or any or its Subsidiaries were
sent or released that give rise on the part of the Company or any of its
Subsidiaries to liability under any Environmental Laws, claims by third parties
under Environmental Laws or under common law or the incurrence of costs to avoid
any such liability or claim (collectively, "Environmental Liabilities"). All
operators of the Company's or any of its Subsidiaries' assets are in compliance
with all terms and conditions of Environmental Laws, permits, licenses and
authorizations, and are also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder, relating to the Company's or any of its
Subsidiaries' assets.
SECTION 3.21 Tax Matters. (a) "Company Group" shall mean as of any time any
"affiliated group" (as defined in Section 1504(a) of the Code without regard to
the limitations contained in Section 1504(b) of the Code) that includes the
Company as of that time.
(b) With respect to each of the Company, the Company Group and each
Subsidiary: (i) all Tax Returns required to be filed have been timely filed with
the appropriate Governmental Entities in all jurisdictions in which such Tax
Returns are required to be filed; (ii) all Taxes shown to be due on the Tax
Returns referred to in clause (i) have been paid; (iii) none of the Company, the
Company Group nor any Subsidiary has extended or waived the application of any
statute of limitations of any jurisdiction regarding the assessment or
collection of any Tax; (iv) none of the Company, the Company Group nor any
Subsidiary is a party to any Tax allocation or sharing agreement (i.e., any
agreement or arrangement for the payment of Tax liabilities or payment for Tax
benefits with respect to a consolidated, combined or unitary Tax Return which
includes the Company or any Subsidiary) with any corporation which is not
directly or indirectly 100% owned by Company; (v) there are no claims,
assessments, levies, administrative proceedings or lawsuits pending or
threatened against the Company, the Company Group or any Subsidiary by any tax
authority; (vi) there are no requests for rulings in respect of any Tax pending
by the Company, the Company Group or any Subsidiary with any tax authority;
(vii) none of the Company, the Company Group nor any Subsidiary has any
liability for penalties with respect to the Tax Returns described in clause (i);
(viii) no deficiency in respect of any Taxes which has been assessed against the
Company, the Company Group or any Subsidiary remains unpaid and there are no
audits or investigations pending against the Company, the Company Group or any
Subsidiary with respect to any
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Taxes; (ix) no claim has ever been made by any Governmental Entity in a
jurisdiction in which the Company, the Company Group or any Subsidiary does not
file Tax Returns that the Company, the Company Group or any Subsidiary is or may
be subject to taxation by that jurisdiction; (x) there are no liens for Taxes
upon any asset of the Company, the Company Group or any Subsidiary except for
liens for current Taxes not yet due; (xi) the Tax Returns referred to in clause
(i) relating to federal, state and provincial income Taxes have been examined by
the Internal Revenue Service, Revenue Canada or the appropriate state,
provincial or other tax authority or the period for assessment of the Taxes in
respect of such Tax Returns has expired; (xii) there are no accounting method
changes of the Company, the Company Group nor any Subsidiary that could
reasonably be expected to give rise to an adjustment under Section 481 of the
Code for periods after the Effective Date; (xiii) since January 1988, neither
the Company nor any Subsidiary has ever been a member of any affiliated group as
defined in Section 1504 of the Code, other than the Company Group; (xiv) the
Company, the Company Group and each Subsidiary has paid (or accrued in the most
recent financial statements filed with the Company SEC Documents) all Taxes
attributable to all periods or portions thereof ending on or before September
30, 1994, except for any Taxes which are not material in amount; and (xv) the
Company does not have an "excess loss account" (as determined pursuant to the
regulations under Section 1502 of the Code) with respect to the stock of any
Subsidiary or "deferred intercompany transactions" (as defined in the Code's
Treasury Regulation Section 1.1502-13(a)(2)).
(c) With respect to any spin-offs consummated by the Company and treated as
tax free pursuant to Section 355 of the Code, the Company complied with the
requirements of all letter rulings obtained from the IRS in respect thereto.
(d) The Company and its Subsidiaries have not, as of the date of this
Agreement, consummated any sales through any corporation intended to qualify as
a "DISC" under Section 992 of the Code.
SECTION 3.22 Tax-Free Reorganization. With respect to the qualification of
the Merger as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code: (a) to the best knowledge of the management of the
Company, there is no plan or intention on the part of stockholders of the
Company Stock to sell, exchange, or otherwise dispose of a number of shares of
Parent Common Stock received in the Merger that would reduce the Company
stockholders' ownership of Parent Common Stock to a number of shares having a
value, as of the date of the Merger, of less than 50 percent of the value of all
of the formerly outstanding shares of Company Stock as of the same date,
provided, however, that shares of Company Stock exchanged for cash or other
property surrendered by dissenters or exchanged for cash in lieu of fractional
shares of Parent Common Stock will be treated as outstanding Company Stock on
the date of the Merger, provided, further that shares of Company Stock and
Parent Common Stock held by holders of Company Stock and otherwise sold,
redeemed or disposed of prior or subsequent to the Merger will be considered in
making this representation; (b) as of the Effective Time and immediately
following the Merger, the Company will hold at least 90 percent of the fair
market value of its net assets and at least 70 percent of the fair market value
of its gross assets held immediately prior to the Merger, provided that amounts
paid by the Company to dissenters, amounts paid by the Company to holders of
Company Stock who receive cash or other property, amounts used by the Company to
pay reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by the Company will be included as assets of the
Company immediately prior to the Merger; (c) the Company will pay its respective
expenses, if any, incurred in connection with the Merger; (d) at the time of the
Merger, the Company will not have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any person could
acquire Company Stock that, if exercised or converted, would affect Parent's
acquisition or retention of control of Company, as defined in Section 368(c) of
the Code; (e) the Company is not an investment company as defined in Sections
368(a)(2)(F)(iii) and (iv) of the Code; (f) on the date of the Merger, the fair
market value of the assets of the Company will exceed the sum of its liabilities
plus (without duplication) the amount of liabilities, if any, to which the
assets are subject; (g) the Company is not under the jurisdiction of a court in
a title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code; (h) none of the compensation received by any shareholder-employees of the
Company will be separate consideration for, or allocable to, any of their shares
of Company Stock; (i) none of the Parent Common Stock received by any
shareholder-employees of the Company will be separate consideration for, or
allocable to, any employment
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agreement; (j) the compensation paid to any shareholder-employees of the Company
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar services; and (k)
no intercorporate indebtedness between Parent and the Company or between Sub and
the Company has been issued or acquired at a discount.
SECTION 3.23 Hedging. The statement attached hereto as Section 3.23 of the
Company Disclosure Schedule correctly sets forth for the periods shown
obligations of the Company and each of its Subsidiaries as of the date of this
Agreement for the delivery of Hydrocarbons attributable to any of the Company's
or any of its Subsidiaries' properties in the future on account of prepayment,
advance payment, take-or-pay or similar obligations without then or thereafter
being entitled to receive full value therefor. Neither the Company nor any of
its Subsidiaries is bound by futures, hedge, swap, collar, put, call, floor,
cap, option or other contracts which are intended to benefit from or reduce or
eliminate the risk of fluctuations in the price of commodities, including
Hydrocarbons, or securities.
SECTION 3.24 Accounts Receivable. Neither the Company nor any of its
Subsidiaries has any account receivable which exceeds $50,000 and (i) is more
than ninety days old as of October 31, 1994, (ii) is reasonably likely not to be
collected by the Company or its applicable Subsidiary and (iii) as to which no
specific reserve amount has been provided for and reflected on the Company's
balance sheet as of September 30, 1994 previously provided to Parent.
SECTION 3.25 Internal Financial Report. The consolidated financial report
for the period ended October 31, 1994 prepared for the internal use of the
Company's management (a true and correct copy of which has been furnished to
Parent) was prepared in accordance with and consistent with past practice.
SECTION 3.26 Undisclosed Liabilities. Except as set forth in the Company
SEC Documents filed with the SEC prior to the date hereof, at the date of the
most recent audited financial statements of the Company included in the Company
SEC Documents, neither the Company nor any of its Subsidiaries had, and since
such date neither the Company nor any of such Subsidiaries has incurred, any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required by generally accepted accounting principles to be set
forth or reflected on a financial statement or in the notes thereto or that,
individually or in the aggregate, would have a Material Adverse Effect on the
Company.
SECTION 3.27 Takeover Defense Mechanisms. The Company has taken all action
to assure that Section 203 of the DGCL shall not apply to prevent the Merger or
any of the other transactions contemplated hereby (including prior approval by
the Board of Directors of the Company of any "transaction which resulted in"
Parent "becoming an interested stockholder" within the meaning of Section 203 of
the DGCL). Except for the approval of the Merger as provided for in Section 6.1
of this Agreement, no other stockholder action on the part of the Company is
required for approval of the Merger and the transactions contemplated hereby. No
provision of the Certificate of Incorporation or Bylaws or other governing
instruments of the Company or any of its Subsidiaries or the terms of any rights
plan or other takeover defense mechanism of the Company or any of its
Subsidiaries would, directly or indirectly, restrict or impair the ability of
Parent to vote, or otherwise to exercise the rights of a stockholder with
respect to, securities of the Company or any of its Subsidiaries that may be
acquired or controlled by Parent or permit any stockholder to acquire securities
of the Company or any of its Subsidiaries on a basis not available to Parent in
the event that Parent were to acquire securities of the Company.
SECTION 3.28 Fairness Opinion. The Board of Directors of the Company has
received the opinion of Merrill Lynch & Co. to the effect that, as of the date
of delivery of such opinion, the Exchange Ratio is fair, from a financial point
of view, to the Company's stockholders.
SECTION 3.29 No Misrepresentation. None of the factual information
furnished in written or electronic form to Parent or its representatives by the
Company in connection with this Agreement or the investigation by Parent with
respect to this Agreement (i) was inaccurate or false in any material respect or
(ii) knowingly omitted any portion of such information necessary to make the
information that was furnished, in light of the circumstances, not misleading in
any material respect.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the Company
as follows:
SECTION 4.1 Organization and Standing. Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Sub was organized solely for the purpose of entering into this
Agreement and engaging in the transactions contemplated by this Agreement and
has not engaged in any business since it was incorporated which is not in
connection with this Agreement and the transactions contemplated by this
Agreement.
SECTION 4.2 Capital Structure. The authorized capital stock of Sub consists
of 5,000 shares of common stock, par value $1.00 per share, 1,000 of which are
validly issued and outstanding, fully paid and nonassessable and are owned by
Parent free and clear of all liens, claims and encumbrances.
SECTION 4.3 Authority. Sub has the requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, the performance by Sub of its
obligations hereunder and the consummation of the transactions contemplated
hereby have been duly authorized by its Board of Directors and Parent as its
sole stockholder, and, except for the corporate filings required by state law,
no other corporate proceedings on the part of Sub are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Sub and (assuming the due
authorization, execution and delivery hereof by the Company) constitutes a valid
and binding obligation of Sub enforceable against Sub in accordance with its
terms.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business by the Company and Parent Pending the
Merger. (a) During the period from the date of this Agreement through the
Effective Time, each of Parent and the Company shall, and shall cause its
Subsidiaries to, in all material respects carry on their respective businesses
in, and not enter into any material transaction other than in accordance with,
the ordinary course of business and, to the extent consistent therewith, use all
reasonable efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers and others having business
dealings with them with a view to retaining their goodwill and ongoing
businesses unimpaired at the Effective Time.
(b) Without limiting the generality of subparagraph (a), and, except as
otherwise expressly contemplated by this Agreement, the Company shall not, and
shall not permit any of its Subsidiaries to, without the prior written consent
of Parent:
(i)(x) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to stockholders of the
Company in their capacity as such, other than dividends payable to the
Company declared by any of the Company's wholly owned Subsidiaries, (y)
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (z) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
Subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities or equity equivalent (other than, in the case of the Company,
the issuance of Company Stock during the period from the date of this
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Agreement through the Effective Time upon the exercise of Company Stock
Options outstanding on the date of this Agreement);
(iii) amend its Certificate of Incorporation or amend its By-laws;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing all or substantially all of the assets of or equity in, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof;
(v) sell, lease or otherwise dispose of or agree to sell, lease or
otherwise dispose of, any of its assets except for (x) sales of actual
production in the ordinary course of business, (y) dispositions set forth
in Section 5.1 of the Company Disclosure Schedule and (z) sales of assets
(other than oil and gas properties or related plant, equipment, pipeline or
gathering system assets or real property) made in the ordinary course of
business consistent with past practice and not involving any asset with a
value greater than $50,000 or assets with an aggregate value greater than
$100,000;
(vi) except in the ordinary course of business consistent with past
practice and limited to borrowings under the existing principal revolving
credit agreement of DEKALB Energy Canada Ltd. and other transactions not
exceeding an aggregate amount equal to $100,000, (y) incur any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell any
debt securities or guarantee any debt securities of others or (z) make any
loans, advances or capital contributions to, or investments in, any other
person, other than to or in the Company or any wholly-owned Subsidiary of
the Company;
(vii) alter through merger, liquidation, reorganization, restructuring
or in any other fashion the corporate structure or ownership of any
Subsidiary of the Company;
(viii) enter into, adopt or amend any severance plan, agreement or
arrangement, any employee benefit plan or any employment or consulting
agreement or hire any additional employees or consultants except as
contemplated by Section 5.1(b)(viii) of the Company Disclosure Schedule;
(ix) make or incur any capital expenditures or any expenditures in
connection with this Agreement and the transaction contemplated hereby with
regard to fees and expenses of investment bankers, legal counsel,
accountants, experts and other consultants that are not set forth in
Section 5.1 of the Company Disclosure Schedule (with appropriate
contingencies) or in the Company's 1994 Capital Budget or the preliminary
1995 capital budget, a copy of which is attached to the Company Disclosure
Schedule, or the superseding definitive 1995 capital budget to be prepared
pursuant to Section 6.18, or make or incur any capital expenditure in an
amount in excess of that set forth for any such item therein;
(x) make any election relating to taxes or settle or compromise any
tax liability;
(xi) change any material accounting principle used by it, except for
any change required by generally accepted accounting principles or by the
rules of the SEC;
(xii) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement (except for any agreement
with Parent) to which the Company or any Subsidiary is a party; or
(xiii) authorize any of, or commit or agree to take any of, the
foregoing actions;
provided, however, that nothing herein shall be deemed to prohibit or prevent
the Company from (A) if the Effective Time is not on or before April 15, 1995,
incurring indebtedness on terms reasonably acceptable to Parent as required to
redeem in whole or in part the Company's 10% Notes due 1998 which become
redeemable April 15, 1995, (B) issuing Company Class A Stock or Company Class B
Stock upon exercise of Company Stock Options outstanding on or prior to the
Effective Time or (C) amending the Retirement Allowance Agreement of DEKALB
Energy Canada Ltd. substantially in accordance with the proposed amendment
heretofore furnished to Parent by the Company.
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(c) Without limiting the generality of subparagraph (a), and, except as
otherwise expressly contemplated by this Agreement, Parent shall not, and shall
not permit any of its Subsidiaries to, without the prior written consent of the
Company:
(i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to stockholders of Parent in
their capacity as such, other than (1) ordinary quarterly cash dividends by
Parent consistent with past practice in an amount not in excess of $.07 per
share of Parent Common Stock, (2) dividends declared prior to the date of
this Agreement, and (3) dividends payable to Parent declared by any of its
Subsidiaries;
(ii) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock; or
(iii) purchase, redeem or otherwise acquire any shares of capital
stock of Parent or any of its Subsidiaries or any other securities thereof
or any rights, warrants or options to acquire any such shares or other
securities.
SECTION 5.2 No Solicitation. (a) The Company shall immediately cease and
cause to be terminated all existing discussions and negotiations, if any, with
any parties conducted heretofore with respect to any Takeover Proposal. As used
in this Agreement, "Takeover Proposal" means any tender offer or exchange offer
for 20% or more of the outstanding shares of Company Class A Stock or Company
Class B Stock or any proposal or offer for a merger, consolidation, amalgamation
or other business combination involving the Company or its Subsidiaries or any
equity securities (or securities convertible into equity securities) of the
Company, or any proposal or offer to acquire in any manner a 20% or greater
equity or beneficial interest in, or a material amount of the assets or value
of, the Company or its Subsidiaries, other than pursuant to the transactions
contemplated by this Agreement.
(b) Unless and until this Agreement shall have been terminated pursuant to
Section 8.1 hereof, the Company will not, and will not permit any of its
Subsidiaries or any of its or its Subsidiaries' officers, directors, employees,
agents, financial advisors, counsel or other representatives (collectively, the
"Company Representatives") to, directly or indirectly, (i) (A) solicit, (B)
initiate or (C) (excluding any action referred to in clauses (ii) and (iii) of
this sentence) encourage or take any action to facilitate the making of, any
offer or proposal that constitutes or that is reasonably likely to lead to any
Takeover Proposal, (ii) participate in any discussions (other than among the
Company Representatives or as necessary to clarify the terms and conditions of
any unsolicited offer, including any financing or other contingencies and other
relevant facts with respect thereto) or negotiations regarding any Takeover
Proposal or (iii) furnish to any person (other than the Company Representatives,
Parent or its representatives) any nonpublic information or nonpublic data
outside the ordinary course of conducting the Company's ordinary business;
provided, however, that to the extent required by their fiduciary duties under
applicable law and after consultation with and based upon the advice of outside
legal counsel, the Company's Board of Directors and officers may in response to
a person who initiates communication with the Company without there having
occurred any action prohibited by clause (i) of this sentence take such actions
as would otherwise be prohibited by clauses (ii) and (iii). The Company shall
notify Parent orally and in writing of any such inquiries, offers or proposals
(including the terms and conditions of any offer or proposal and the identity of
the person making any inquiry, offer or proposal) and of any of the events
described in Section 8.1(f) or 8.1(g) as promptly as possible and in any event
within 24 hours after receipt thereof or the occurrence of such events, as
appropriate, and shall give Parent five days' advance notice of any agreement to
be entered into with or any information or data to be furnished to any person in
connection with any such inquiry, offer or proposal.
SECTION 5.3 Pooling of Interests; Reorganization. During the period from
the date of this Agreement through the Effective Time, unless the other parties
shall otherwise agree in writing, none of Parent, Sub, any other Subsidiary of
Parent, the Company or any Subsidiary of the Company shall (a) knowingly take or
fail to take any action which action or failure to act would jeopardize the
treatment of Sub's combination with the Company as a pooling of interests for
accounting purposes or (b) knowingly take or fail to take any action,
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which action or failure to act would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 5.4 Conduct of Business of Sub Pending the Merger. During the
period from the date of this Agreement through the Effective Time, Sub shall not
engage in any activities of any nature except as provided in or in furtherance
of the transactions contemplated by this Agreement.
SECTION 5.5 Notices of Certain Events. Each of the Company or Parent, as
appropriate, shall promptly notify the other of receipt of:
(a) any notice or other communication from any person other than a
Governmental Entity alleging that the consent of such person is or may be
required in connection with, or that any rights or properties of the
Company may be lost or subjected to any preferential purchase or other
similar rights by reason of, the transactions contemplated by this
Agreement;
(b) any notice or other communication from any Governmental Entity in
connection with the transactions contemplated by this Agreement; and
(c) notice of the inception of any actions, suits, claims,
investigations or proceedings commenced or, to the best of its knowledge
threatened, against, relating to or involving or otherwise affecting the
Company or Parent or any respective Subsidiary which, if pending on the
date of this Agreement, would have been required to have been disclosed
pursuant to Section 2.6 or Section 3.6 or which relate to the consummation
of the transactions contemplated by this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Company Stockholder Approval. The Company shall call a meeting
of the holders of the Company Class A Stock (the "Stockholder Meeting") for the
purpose of voting upon the Merger. The Stockholder Meeting shall be held as soon
as practicable following the date upon which the Registration Statement becomes
effective, and the Company will, through its Board of Directors recommend to the
holders of the Company Class A Stock the approval of the Merger and not rescind
its declaration that the Merger is advisable unless this Agreement is terminated
pursuant to Article VIII.
SECTION 6.2 Registration Statement; Proxy Statement. (a) As promptly as
practicable after the execution of this Agreement, Parent shall prepare and file
with the SEC the Registration Statement, containing a proxy statement/prospectus
for stockholders of the Company (the "Proxy Statement/Prospectus") in connection
with the registration under the Securities Act of the offer and sale of Parent
Common Stock to be issued in the Merger and the other transactions contemplated
by this Agreement. As promptly as practicable after the execution of this
Agreement, the Company shall prepare and file with the SEC a proxy statement
that will be the same as the Proxy Statement/Prospectus, and a form of proxy, in
connection with the vote of the holders of the Company's Class A Stock with
respect to the Merger (such proxy statement and form of proxy, together with any
amendments thereof or supplements thereto, in each case in the form or forms
mailed to the Company's stockholders, being the "Proxy Statement"). Unless this
Agreement is terminated pursuant to Article VIII, each of Parent and the Company
will use its best efforts to cause the Registration Statement to be declared
effective as promptly as practicable, and shall take or cause to be taken any
action required of it under any applicable federal or state securities laws in
connection with the issuance of shares of Parent Common Stock in the Merger.
Each of Parent and the Company shall furnish to the other all such information
concerning it and the holders of its capital stock as the other may reasonably
request in connection with such actions. As promptly as practicable after the
Registration Statement shall have been declared effective, the Company shall
mail the Proxy Statement (i) to its holders of Company Class A Stock entitled to
notice of and to vote at the Stockholders Meeting and (ii) to its holders of
Company Class B Stock. The Proxy Statement shall include the recommendation of
the Company's Board of Directors in favor of the Merger and adoption of this
Agreement.
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(b) The information supplied by the Company for inclusion in the
Registration Statement shall not, at the time the Registration Statement is
declared effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by the
Company for inclusion in the Proxy Statement to be sent to the stockholders of
the Company in connection with the Stockholders Meeting shall not, at the date
the Proxy Statement (or any supplement thereto) is first mailed to stockholders,
at the time of the Stockholders Meeting or at the Effective Time contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. If at
any time prior to the Effective Time any event or circumstance relating to the
Company or any of its affiliates, or its or their respective officers or
directors should be discovered by the Company that should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
the Company shall promptly inform Parent thereof in writing. All documents that
the Company is responsible for filing with the SEC in connection with the
transactions contemplated herein will comply as to form in all material respects
with the applicable requirements of the Securities Act and the rules and
regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
(c) The information supplied by Parent for inclusion in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The information supplied by Parent for
inclusion in the Proxy Statement to be sent to the stockholders of the Company
in connection with the Stockholders Meeting shall not, at the date the Proxy
Statement (or any supplement thereto) is first mailed to stockholders, at the
time of the Stockholders Meeting or at the Effective Time contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event or circumstance relating to Parent or
any of its affiliates, or to their respective officers or directors, should be
discovered by Parent that should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Parent shall
promptly inform the Company thereof in writing. All documents that Parent is
responsible for filing with the SEC in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder.
SECTION 6.3 Access to Information; Confidentiality; Standstill. (a) Each of
Parent and the Company shall, and shall cause each of its Subsidiaries to,
afford to the other, and to the other's accountants, counsel, financial advisors
and other representatives, reasonable access and permit them to make such
inspections as they may reasonably require during normal business hours during
the period from the date of this Agreement through the Effective Time to all
their respective properties, books, contracts, commitments and records and,
during such period, each of Parent and the Company shall, and shall cause each
of its Subsidiaries to, furnish promptly to the other (i) access to each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of U.S., Canadian, state, territorial,
provincial or local laws and (ii) all other information concerning its business,
properties and personnel as the other may reasonably request. In no event shall
the Company be required to supply to Parent, or to Parent's accountants,
counsel, financial advisors or other representatives, any information relating
to indications of interest from, or discussions with, any other potential
acquirors of the Company which were received or conducted prior to the date
hereof except to the extent necessary for use in the Registration Statement.
(b)(i) All data and information furnished by the Company to Parent or by
Parent to the Company (with the party furnishing such being the "Disclosing
Party" and the party receiving such being the "Receiving Party", as applicable)
or by such Disclosing Party's directors, officers, employees, agents,
consultants, attorneys, accountants, affiliates, or controlling persons (such
persons collectively referred to herein as "Representatives", as applicable),
whether furnished before or after the date hereof, and regardless of the manner
in which it is furnished, is referred to in this Agreement as "Proprietary
Information". Proprietary Information does not include, however, information
which (x) is or becomes generally available to the public
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other than as a result of a disclosure by the Receiving Party or its
Representatives, (y) was available to the Receiving Party on a non-confidential
basis prior to its disclosure by the Disclosing Party, or (z) becomes available
to the Receiving Party on a non-confidential basis from a person other than the
Disclosing Party who is not known by the Receiving Party to be (i) otherwise
bound by a confidentiality agreement with the Disclosing Party, or (ii) not
otherwise prohibited from transmitting the information to the Receiving Party.
As used in this Agreement, the term "person" shall be broadly interpreted to
include, without limitation, any corporation, company, partnership and
individual.
(ii) Unless otherwise agreed to in writing by the Disclosing Party, the
Receiving Party agrees (x) except as otherwise required by law, to keep all
Proprietary Information confidential and not to disclose or reveal any
Proprietary Information to any person other than its Representatives and those
employed by it who are actively and directly participating in the evaluation of
the Merger contemplated by this Agreement or who otherwise need to know the
Proprietary Information for the purpose of evaluating the Merger and to cause
those persons to observe the terms of this Section and (y) not to use
Proprietary Information for any purpose other than in connection with the
consummation of the Merger in a manner which both parties have approved. The
Receiving Party will be responsible for any breach of the terms hereof by it or
the persons or entities referred to in clause (x) of the preceding sentence. In
the event that the Receiving Party is requested pursuant to, or required by,
applicable law or regulation or by legal process to disclose any Proprietary
Information, the Receiving Party agrees to provide the Disclosing Party with
prompt notice of such request(s) to enable the Disclosing Party to seek an
appropriate protective order.
(iii) In the event that this Agreement is terminated for any reason, the
Receiving Party will, upon request, promptly (x) either deliver to the
Disclosing Party or, at the election of the Disclosing Party, destroy all of the
copies of the Disclosing Party's Proprietary Information as the same was
furnished to the Receiving Party and (y) furnish to the Disclosing Party a copy
of each summary, projection, analysis or extract prepared by the Receiving Party
from or based on the Disclosing Party's Proprietary Information; provided,
however, that the Receiving Party shall not be required to furnish any
information pursuant to clause (y) in violation of any contractual or other
applicable requirement not to disclose such summary, projection, analysis or
extract. Without prejudice to the rights and remedies otherwise available to it,
the Disclosing Party shall be entitled to equitable relief by way of injunction
if the Receiving Party or any of its Representatives breach or threaten to
breach any of the provisions of this Section 6.3(b); except that in no event
shall a party be liable for punitive, special, consequential, or indirect
damages. It is further understood and agreed that no failure or delay by a party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege
hereunder.
(c) The Receiving Party also agrees that (except pursuant to the Merger)
for a period of one (1) year from the date of this Agreement, neither the
Receiving Party nor any of its Representatives will knowingly without the prior
written consent of the Board of Directors of the Disclosing Party:
(i) acquire, offer to acquire, or agree to acquire, directly or
indirectly, by purchase or otherwise, any outstanding common stock or
direct or indirect rights to acquire any such common stock of the
Disclosing Party or any such common stock of the Disclosing Party or any
subsidiary thereof, or of any successor to or person in control of the
Disclosing Party, or (except in the ordinary course of business) any assets
of the Disclosing Party or any subsidiary or division thereof or of any
such successor or controlling person;
(ii) make, or in any way participate, directly or indirectly, in any
"solicitation" or "proxies" to vote (as such terms are used in the rules of
the SEC), or seek to advise or influence any person or entity with respect
to the voting of any voting securities of the Disclosing Party;
(iii) make any public announcement unless otherwise required by law or
stock exchange regulation with respect to, or submit a proposal for, or
offer of (with or without conditions) any extraordinary transaction
involving the Disclosing Party or its securities or assets; or
(iv) form, join or in any way participate in a "group" as defined
under Section 13(d) of the Exchange Act, in connection with any of the
foregoing.
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The Receiving Party will promptly advise the Disclosing Party of any inquiry or
proposal made to the Receiving Party with respect to any of the foregoing.
SECTION 6.4 Compliance with the Securities Act; Pooling. Section 6.4 to the
Company Disclosure Schedule identifies all persons who, to the knowledge of the
Company, may be deemed to be affiliates of the Company under Rule 145 of the
Securities Act, including, without limitation, all directors and executive
officers of the Company. Concurrently with the execution and delivery of this
Agreement, Parent has received executed letter agreements, substantially in the
form of Exhibit A hereto (the "Affiliate Agreements"), from certain of the
persons identified on Section 6.4 to the Company Disclosure Schedule and the
Company will use its reasonable best efforts to cause to be delivered to Parent
within ten days after the date of this Agreement an executed Affiliate Agreement
from each of the other persons identified thereon. Parent shall not be required
to maintain the effectiveness of the Registration Statement for the purpose of
resale by former stockholders of the Company who may be affiliates of the
Company or Parent pursuant to Rule 145.
SECTION 6.5 Stock Exchange Listing. Parent shall use its best efforts to
list on the NYSE, upon official notice of issuance, the shares of Parent Common
Stock to be issued in connection with the Merger and pursuant to the Company
Stock Options.
SECTION 6.6 Fees and Expenses. (a) Except as provided in Section 6.6(b),
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
(b) The Company and Parent agree that if this Agreement is terminated for
any reason, then (A) Parent shall pay (or reimburse the Company for) the fees
and expenses of Ryder Scott Company Petroleum Engineers incurred by the Company
pursuant to Section 6.15 hereof and (B) the Company and Parent shall share
equally all out-of-pocket expenses incurred relating to (i) printing and mailing
the Registration Statement and the Proxy Statement, (ii) the SEC and any "Blue
Sky" filing fees in the United States or Canada incurred with filing the
Registration Statement and (iii) the solicitation of stockholder approvals;
provided, however, that if this Agreement is terminated by reason of a party's
breach of this Agreement, such party shall not be entitled to reimbursement from
the other party hereto pursuant to this Section 6.6(b). Within 10 days of
termination of this Agreement, the Company and Parent shall deliver in writing
to the other a schedule of expenses. As soon thereafter as practicable, but not
later than 20 days after termination of this Agreement, either the Company or
Parent as the case may be shall reimburse the other so as to comply with this
Section 6.6(b).
SECTION 6.7 Company Stock Options. (a) Parent and the Company shall take
such actions as shall be required to permit Parent to, and Parent shall,
effective at the Effective Time, (A) assume each option to purchase shares of
Company Stock which is outstanding immediately prior to the Effective Time
pursuant to the Company's Stock Option Plans, the long-term incentive plan or
otherwise (each a "Company Stock Option") and which remains unexercised in whole
or in part as of the Effective Time and (B) substitute shares of Parent Common
Stock for the shares of Company Stock purchasable under each such assumed option
("Assumed Option"), which assumption and substitution shall be effected as
follows:
(i) the Assumed Option shall not give the optionee additional benefits
which such optionee did not have under the Company Stock Option before such
assumption, nor diminish the benefits which such options did have, and
shall be assumed on the same terms and conditions as the Company Stock
Option being assumed, subject to clauses (ii) and (iii) below;
(ii) the number of shares of Parent Common Stock purchasable under the
Assumed Option shall be equal to the number of shares of Parent Common
Stock that the holder of the Company Stock Option being assumed would have
received upon consummation of the Merger had such Company Stock Option been
exercised (without regard to any vesting schedule restrictions) in full for
Company Stock immediately prior to consummation of the Merger; and
(iii) the exercise price per share of Parent Common Stock of such
Assumed Option shall be an amount equal to (A) the exercise price per share
of Company Common Stock of the Company Stock Option being assumed divided
by (B) the Exchange Ratio.
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(b) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Assumed Options, and, immediately after the Effective Time,
Parent shall file with the SEC a registration statement on Form S-8 (or other
appropriate form) with respect to the shares of Parent Common Stock subject to
the Assumed Options and use its reasonable efforts to maintain the effectiveness
of such registration statement for so long as any of the Assumed Options remain
outstanding.
(c) Parent agrees to offer (the "Offer"), at the Effective Time, Parent
Common Stock to the holders of Company Stock Options outstanding on the date
hereof (each right to acquire a single share of Company Stock pursuant to a
Company Stock Option being referred to herein as a "Company Option") in
accordance with this Section 6.7(c) and Section 6.8. The number of shares of
Parent Common Stock issuable in exchange for cancellation of each Company Option
pursuant to the Offer shall be computed as follows: (i) the Market Price
computed pursuant to Section 1.5(d) shall be multiplied by the Exchange Ratio
determined pursuant to Section 1.5(c); (ii) the applicable exercise price of
each Company Option shall be subtracted from the product obtained in clause (i)
above; and (iii) the difference obtained in clause (ii) above shall be divided
by the Market Price. In the event that the Offer is not accepted as to any
Company Option, Parent shall assume such Company Option pursuant to Section
6.7(a) above.
SECTION 6.8 Reasonable Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger, the Offer and the other
transactions contemplated by this Agreement, including (a) the obtaining of all
necessary actions or non-actions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by any Governmental Entity, (b) the obtaining of all
necessary consents, approvals or waivers from third parties, (c) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay, temporary restraining order or
injunction entered by any court or other Governmental Entity vacated or
reversed, (d) the execution and delivery of any additional instruments necessary
to consummate the transactions contemplated by this Agreement, (e) the
preparing, filing and obtaining of a declaration of effectiveness of the
Registration Statement under the Securities Act, (f) the preparing, filing,
obtaining of SEC clearance and mailing to Company stockholders of the Proxy
Statement and (g) the holding of the Stockholder Meeting. The Company and Parent
shall confer on a regular and frequent basis between themselves and with
representatives of one another to report on and to coordinate operational
matters with regard to the Merger.
SECTION 6.9 Public Announcements. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except
upon the advice of counsel as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange.
SECTION 6.10 State Takeover Laws. If any "fair price" or "control share
acquisition" statute or other similar statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and the members
of the Board of Directors of the Company shall use their best efforts to grant
such approvals and take such actions as are necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to minimize the effects of such statute or
regulation on the transactions contemplated hereby.
SECTION 6.11 Directors and Officers Insurance; Indemnification. Parent will
provide, or cause the Surviving Corporation to provide, for a period of not less
than six years from the Effective Time, the Company's current directors and
officers an insurance and indemnification policy that provides coverage for
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events occurring through the Effective Time (the "D&O Insurance") that is no
less favorable than the coverage provided to such directors under the Company's
existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available comparable coverage; provided, however, that
Parent and the Surviving Corporation shall not be required to pay an annual
premium for the D&O Insurance in excess of five times the last annual premium
paid by the Company prior to the date hereof, but in such case shall purchase as
much coverage as possible for such amount. From and after the Effective Time,
Parent (i) agrees to indemnify and hold harmless all past and present officers
and directors of the Company and of its Subsidiaries to the same extent that
such persons are currently entitled to be indemnified by the Company pursuant to
the applicable provisions of the Company's Certificate of Incorporation or
By-Laws or of any Company indemnification agreement for the benefit of any such
officers or directors for acts or omissions occurring at or prior to the
Effective Time, including those in connection with the Merger and (ii) shall
advance reasonable litigation expenses incurred by such officers and directors
in connection with defending any action arising out of such acts or omissions,
and Parent agrees not to amend or modify any of such provisions after the
Effective Time.
SECTION 6.12 Employee Benefits. For at least 24 months following the
Effective Time, Parent shall maintain employee benefits and programs for
officers and employees of the Company and its Subsidiaries that are no less
favorable than those being provided to such officers and employees on the date
hereof. For purposes of eligibility to participate in and vesting in various
benefits provided to employees, employees of the Company and its Subsidiaries
will be credited with their years of service with the Company and its
Subsidiaries.
SECTION 6.13 Retention Bonuses; Severance Policy. (a) From the date hereof
up to the Effective Time, the Company shall be permitted to offer and pay
bonuses, in addition to any bonuses or payments pursuant to any existing bonus
or incentive plans of the Company, payable to employees who remain in the employ
of the Company or its Subsidiaries until the date three months after the
Effective Time; provided, however, that such bonuses shall contain terms no more
favorable than those described on Section 6.13(a) of the Company Disclosure
Schedule.
(b) Parent shall maintain the Company's severance policy for terminated
employees as in effect on the date hereof, or shall replace such policy with a
policy providing equal or more favorable compensation, for a period of at least
24 months following the Effective Time. The Company's severance policy is set
forth in Section 6.13(b) of the Company Disclosure Schedule.
SECTION 6.14 Signatory Stockholder Notice. If any Signatory Stockholder
gives any notice under any of the Stockholder Agreements to any of the officers
or directors of the Company, whether orally or in writing, such officer or
director will immediately repeat or cause such notice to be conveyed to Parent.
SECTION 6.15 Reserve Reports. Both Parent and the Company shall have Ryder
Scott Company Petroleum Engineers ("Ryder Scott") undertake an audit of the
respective parties' internal reports as of December 31, 1994 which shall set
forth (a) the estimated volume and rate of production of hydrocarbons which may
reasonably be expected to be produced from the proved reserves of their
respective properties and (b) projections as to the amount of proved reserves
for each property, showing separately proved developed producing reserves,
proved developed non-producing reserves and proved undeveloped reserves. Each of
the parties' respective audit reports shall be prepared in accordance with the
accounting and reporting standards prescribed for use by independent petroleum
engineers in making determinations and appraisals of hydrocarbon reserves,
including, without limitation, assumptions, estimates and projections as to
production expenses, availability of reserves and rates of production set forth
in the SEC's Regulation S-X Part 210.4-10(a), as clarified by subsequent SEC
Staff Accounting Bulletins; provided, however, that in preparing such report,
Ryder Scott need only provide an audit opinion covering (i) Parent's properties
comprising not less than 70% in value of the properties included in its most
recent reserve report, (ii) 80% in value of Parent's properties not included in
such reserve report, (iii) 80% in value of the Company's properties, and (iv)
may review the evaluation by the respective parties' petroleum engineers in
accordance with the foregoing criteria of the remainder of the respective
parties' properties. Both parties shall prepare their December 31, 1994
financial statements consistently with the Ryder Scott audit reports provided
for in this Section. Any impact of the adjustment of reserves of Parent or the
Company attributable to such audit reports shall be disregarded for all
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purposes in determining whether any representation or warranty has been breached
by, or whether there has occurred any Material Adverse Change or Material
Adverse Effect with respect to, Parent or the Company, as the case may be.
SECTION 6.16 Accrual of Expenses. Both Parent and the Company shall accrue
as liabilities on all financial statements prepared in accordance with generally
accepted accounting principles ("GAAP") after the date hereof all expenses
required by GAAP to be accrued in the event that the Merger is consummated and
is accounted for as a pooling of interests for accounting purposes.
SECTION 6.17 Publication of Financials. As promptly as reasonably
practicable after the first complete calendar month after the Effective Time,
Parent will cause to be publicly reported financial statements of Parent that
include at least 30 days of combined operations of the Company and Parent after
the Merger.
SECTION 6.18 Capital Budget. The Company and Parent shall prepare a
mutually acceptable 1995 budget of capital expenditures for the Company and its
Subsidiaries as promptly as practicable and in any event by January 16, 1995.
ARTICLE VII
CONDITIONS PRECEDENT TO THE MERGER
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. The Merger shall have been approved by the
requisite vote of the holders of Company Stock.
(b) NYSE Listing. Parent Common Stock issuable in the Merger and
pursuant to the Company Stock Options shall have been authorized for
listing on the NYSE, upon official notice of issuance.
(c) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and remain in effect. All necessary
authorizations by state, territorial or provincial securities regulatory
authorities shall have been received.
(d) No Order. No Governmental Entity or court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is then in effect
and has the effect of making the Merger or the transactions contemplated
hereby illegal.
(e) Other Approvals. All authorizations, consents, orders,
declarations or approvals of, or filings with, or terminations or
expirations of waiting periods imposed by, any Governmental Entity shall
have been obtained, shall have occurred or shall have been filed, except as
would not (assuming consummation of the Merger) have a Material Adverse
Effect on the Company.
SECTION 7.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. Parent
and Sub shall have performed in all material respects each of their
agreements contained in this Agreement required to be performed on or prior
to the Effective Time. Each of the representations and warranties of Parent
and Sub contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date and each of the representations and warranties that is not so
qualified (except for the second sentence of Section 2.2) shall be true and
correct in all material respects on and as of the Effective Time as if made
on and as of such date, in each case as contemplated or permitted by this
Agreement.
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(b) Third Party Consents. All required authorizations, consents or
approvals of any third party (other than a Governmental Entity), the
failure to obtain which would (assuming the Merger had taken place) have a
Material Adverse Effect on Parent, shall have been obtained.
(c) Tax Opinion. The Company shall have received an opinion of Sidley
& Austin, in form and substance satisfactory to the Company, dated the
Effective Time, substantially to the effect that, for United States federal
income tax purposes, on the basis of facts, representations and assumptions
set forth in such opinion which are consistent with the state of facts
existing as of the Effective Time:
(i) The Merger will constitute a reorganization for federal income
tax purposes within the meaning of Section 368(a) of the Code and the
Company, Parent and Sub will each be a party to that reorganization
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by the Company for federal
income tax purposes as a result of the Merger;
(iii) No gain or loss will be recognized for federal income tax
purposes by stockholders of the Company for federal income tax purposes
who are United States persons (within the meaning of the Code) upon the
conversion of their Company Stock into shares of Parent Common Stock
pursuant to the Merger except with respect to cash, if any, received in
lieu of fractional shares of Parent Common Stock or upon exercise of
dissenters' rights of appraisal;
(iv) The aggregate federal income tax basis of the shares of Parent
Common Stock received in exchange for shares of Company Stock pursuant
to the Merger will be the same as the aggregate federal income tax basis
of such shares of Company Stock at the time of the Merger, decreased by
the amount of any tax basis allocable to a fractional share interest for
which cash is received or to shares with respect to which dissenters'
rights of appraisal were exercised for which cash is received; and
(v) The federal income tax holding period for shares of Parent
Common Stock received in exchange for shares of Company Stock pursuant
to the Merger will include the federal income tax holding period of such
shares of Company Stock, provided such shares of Company Stock were held
as capital assets by the holder on the Effective Date.
In rendering such opinion, Sidley & Austin may receive and rely upon
representations contained in certificates of the Company, Parent, Sub and
others, and on the Affiliate Agreements.
(d) Canadian Tax Opinion. The Company shall have received an opinion
of Howard, Mackie, in form and substance satisfactory to the Company, dated
the Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing as of the Effective Time and
relying on an opinion of Sidley & Austin on the effect of the Merger under
Delaware corporate law, no gain or loss will be recognized by Parent, Sub
or the Company under the Income Tax Act (Canada) as a result of the Merger.
(e) Officers' Certificate. Parent shall have furnished to the Company
a certificate, dated the Effective Time, signed by the appropriate officers
of Parent, certifying to the effect that to the best of the knowledge and
belief of each of them, the conditions set forth in Section 7.1 and in this
Section 7.2, insofar as they relate to Parent or Sub, have been satisfied.
(f) Opinion of Counsel. The Company shall have received an opinion
from Mayor, Day, Caldwell & Keeton, L.L.P., dated the Effective Time,
substantially to the effect that:
(i) The incorporation and good standing of Parent and Sub are as
stated in this Agreement; the authorized shares of Parent and Sub are as
stated in this Agreement; all outstanding shares of Parent Common Stock
are duly and validly authorized and issued, fully paid and nonassessable
and have not been issued in violation of any preemptive right of any
stockholders.
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(ii) Each of Parent and Sub has corporate power and authority to
execute, deliver and perform this Agreement and this Agreement has been
duly authorized, executed and delivered by Parent or Sub, as the case
may be, and (assuming due and valid authorization, execution and
delivery by the Company) constitutes the legal, valid and binding
agreement of Parent or Sub enforceable against Parent or Sub in
accordance with its terms, except to the extent enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the
effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
(iii) The execution and performance by Parent and Sub of this
Agreement will not violate the Certificates of Incorporation or By-Laws
of Parent and Sub, respectively, and, to the knowledge of such counsel,
will not violate, result in a breach of or constitute a default under
any lease, mortgage, contract, agreement, instrument, law, rule,
regulation, judgment, order or decree to which Parent and Sub is a party
or by which they or any of their properties or assets may be bound.
(iv) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental agency or body which
has not been obtained is required on behalf of Parent and Sub for the
consummation of the transactions contemplated by this Agreement.
(v) To the knowledge of such counsel, there are no actions, suits
or proceedings, pending or threatened against or affecting Parent and
Sub, at law or in equity or before or by any court, governmental
department, commission, board, bureau, agency or instrumentality, or
before any arbitrator of any kind which seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement.
(vi) At the time the Registration Statement became effective, the
Registration Statement (other than the financial statements, financial
data, statistical data and supporting schedules included therein, and
information relating to or supplied by the Company as to which such
counsel expresses no opinion) complied as to form in all material
respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the SEC thereunder.
(vii) The shares of Parent Common Stock to be issued pursuant to
this Agreement will be, when so issued, duly authorized, validly issued
and outstanding, fully paid and nonassessable.
In addition, there shall be a statement to the effect that in the
course of the preparation of the Registration Statement and the Proxy
Statement such counsel has considered the information set forth therein in
light of the matters required to be set forth therein, and has participated
in conferences with officers and representatives of the Company and Parent,
including their respective counsel and independent public accountants,
during the course of which the contents of the Registration Statement and
the Proxy Statement and related matters were discussed. Such counsel has
not independently checked the accuracy or completeness of, or otherwise
verified, and accordingly is not passing upon, and does not assume
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Proxy Statement;
and such counsel has relied as to materiality, to a large extent, upon the
judgment of officers and representatives of the Company and Parent.
However, as a result of such consideration and participation, nothing has
come to such counsel's attention which causes such counsel to believe that
the Registration Statement (other than the financial statements, financial
data, statistical data and supporting schedules included therein, and
information relating to or supplied by the Company as to which such counsel
expresses no belief), at the time it became effective, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading or that the Proxy Statement (other than the financial
statements, financial data, statistical data and supporting schedules
included therein, and information relating to or supplied by the Company,
as to which such counsel expresses no belief), at the time the Registration
Statement became effective, included any untrue statement of a material
fact or
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omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
In rendering such opinion, counsel for Parent may rely as to matters
of fact upon the representations of officers of Parent or Sub contained in
any certificate delivered to such counsel and certificates of public
officials, which certificates shall be attached to or delivered with such
opinion. Such opinion shall be limited to the General Corporation Law of
the State of Delaware and the laws of the United States of America.
(g) Comfort Letters. The Company shall have received, in form
reasonably satisfactory to the Company, comfort letters from Coopers &
Lybrand and Arthur Andersen LLP covering such matters with respect to the
Proxy Statement and the Registration Statement as reasonably requested by
the Company.
(h) Other Documents. Parent and Sub shall have furnished to the
Company at the Closing such other customary documents, certificates or
instruments as the Company may reasonably request.
SECTION 7.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time. Each of the representations and warranties of the
Company contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date and each of the representations and warranties that is not so
qualified (except for the second sentence of Section 3.2 and clause (iii)
of Section 3.5) shall be true and correct in all material respects on and
as of the Effective Time as if made on and as of such date, in each case as
contemplated or permitted by this Agreement.
(b) Third Party Consents. All required authorizations, consents or
approvals of any third party (other than a Governmental Entity), the
failure to obtain which would (assuming the Merger had taken place) have a
Material Adverse Effect on the Company, shall have been obtained.
(c) Accounting. Based on the advice of Arthur Andersen LLP and such
other advice as Parent may deem relevant, Parent shall have no reasonable
basis for believing that following the Merger, the combination of the
Company and Sub may not be accounted for as a "pooling of interests" in
accordance with generally accepted accounting principles.
(d) Tax Opinion. Parent shall have received an opinion of Mayor, Day,
Caldwell & Keeton, L.L.P., in form and substance satisfactory to Parent,
dated the Effective Time, substantially to the effect that for United
States federal income tax purposes, on the basis of facts, representations
and assumptions set forth in such opinion which are consistent with the
state of facts existing as of the Effective Time:
(i) The Merger will constitute a reorganization for federal income
tax purposes within the meaning of Section 368(a) of the Code and the
Company, Parent and Sub will each be a party to that reorganization
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by Parent, Sub or the
Company for federal income tax purposes as a result of the Merger;
(iii) No gain or loss will be recognized for federal income tax
purposes by the stockholders of the Company for federal income tax
purposes who are United States persons (within the meaning of the Code)
upon the conversion of their Company Stock into shares of Parent Common
Stock pursuant to the Merger except with respect to cash, if any,
received in lieu of fractional shares of Parent Common Stock or upon
exercise of dissenters' rights of appraisal;
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(iv) The aggregate federal income tax basis of the shares of Parent
Common Stock received in exchange for shares of Company Stock pursuant
to the Merger will be the same as the aggregate federal income tax basis
for such shares of Company Stock at the time of the Merger, decreased by
the amount of any tax basis allocable to a fractional share interest for
which cash is received or to shares with respect to which dissenters'
rights of appraisal were exercised for which cash is received; and
(v) The federal income tax holding period for shares of Parent
Common Stock received in exchange for shares of Company Stock pursuant
to the Merger will include the federal income tax holding period of such
shares of Company Stock, provided such shares of Company Stock were held
as capital assets by the holder on the Effective Date.
In rendering such opinion, Mayor, Day, Caldwell & Keeton, L.L.P., may
receive and rely upon representations contained in certificates of the
Company, Parent, Sub and on the Affiliate Agreements.
(e) Canadian Tax Opinion. Parent shall have received an opinion of
Bennett Jones Verchere, in form and substance satisfactory to Parent, dated
the Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing as of the Effective Time and
relying on an opinion of Mayor, Day, Caldwell & Keeton, L.L.P. on the
effect of the Merger under Delaware corporate law, no gain or loss will be
recognized by Parent, Sub or the Company under the Income Tax Act (Canada)
as a result of the Merger.
(f) Officers' Certificate. The Company shall have furnished to Parent
a certificate, dated the Effective Time, signed by the appropriate officers
of the Company, certifying to the effect that to the best of the knowledge
and belief of each of them, the conditions set forth in Section 7.1 and in
this Section 7.3, insofar as they relate to the Company, have been
satisfied.
(g) Opinion of Counsel. Parent shall have received an opinion of
counsel from Sidley & Austin, counsel to the Company, dated the Effective
Time, substantially to the effect that:
(i) The incorporation, good standing and capitalization of the
Company are as stated in this Agreement; the authorized shares of
Company Stock are as stated in this Agreement; all outstanding shares of
Company Stock are duly and validly authorized and issued, fully paid and
non-assessable and have not been issued in violation of any preemptive
right of stockholders; and, to the knowledge of such counsel, there is
no existing option, warrant, right, call, subscription or other
agreement or commitment obligating the Company to issue or sell, or to
purchase or redeem, any shares of its capital stock other than as stated
in this Agreement.
(ii) The Company has corporate power and authority to execute,
deliver and perform this Agreement and this Agreement has been duly
authorized, executed and delivered by the Company, and (assuming the due
and valid authorization, execution and delivery by Parent and Sub)
constitutes the legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except to
the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws of
general applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(iii) To the knowledge of such counsel, there are no actions, suits
or proceedings, pending or threatened against or affecting the Company
or its Subsidiaries, at law or in equity or before or by any court,
governmental department, commission, board, bureau, agency or
instrumentality, or before any arbitrator of any kind which seek to
restrain, prohibit or invalidate the transactions contemplated by this
Agreement.
(iv) The execution and performance by the Company of this Agreement
will not violate the Certificate of Incorporation or By-laws of the
Company or the charter or By-laws of any of its
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Subsidiaries, and, to the knowledge of such counsel, will not violate,
result in a breach of, or constitute a default under, any material
lease, mortgage, contract, agreement, instrument, law, rule, regulation,
judgment, order or decree to which the Company or any of its
Subsidiaries is a party or to which they or any of their properties or
assets may be bound.
(v) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental agency or body which
has not been obtained is required on behalf of the Company or any of its
Subsidiaries for consummation of the transactions contemplated by this
Agreement.
(vi) At the time the Registration Statement became effective, the
Registration Statement (other than the financial statements, financial
data, statistical data and supporting schedules included therein, and
information relating to or supplied by Parent or Sub as to which such
counsel expresses no opinion) complied as to form in all material
respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the SEC thereunder.
In addition, there shall be a statement to the effect that in the
course of the preparation of the Registration Statement and the Proxy
Statement such counsel has considered the information set forth therein in
light of the matters required to be set forth therein, and has participated
in conferences with officers and representatives of the Company and Parent,
including their respective counsel and independent public accountants,
during the course of which the contents of the Registration Statement and
the Proxy Statement and related matters were discussed. Such counsel has
not independently checked the accuracy or completeness of, or otherwise
verified, and accordingly is not passing upon, and does not assume
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Proxy Statement;
and such counsel has relied as to materiality, to a large extent, upon the
judgment of officers and representatives of the Company and Parent.
However, as a result of such consideration and participation, nothing has
come to such counsel's attention which causes such counsel to believe that
the Registration Statement (other than the financial statements, financial
data, statistical data and supporting schedules included therein, and
information relating to or supplied by Parent or Sub, as to which such
counsel expresses no belief), at the time it became effective, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or that the Proxy Statement (other than the financial
statements, financial data, statistical data and supporting schedules
included therein, and information relating to or supplied by Parent or Sub,
as to which such counsel expresses no belief), at the time the Registration
Statement became effective, included any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering such opinion, counsel for the Company may rely as to
matters of fact upon the representations of officers of the Company and its
Subsidiaries contained in any certificate delivered to such counsel and
certificates of public officials which certificates should be attached to
and delivered with such opinion. Such opinion shall be limited to the
General Corporation Law of the State of Delaware and the laws of the United
States of America.
(h) Comfort Letters. Parent shall have received, in form reasonably
satisfactory to Parent, comfort letters from Arthur Andersen LLP and
Coopers & Lybrand covering such matters with respect to the Registration
Statement and the Proxy Statement as reasonably requested by Parent.
(i) Other Documents. The Company shall have furnished to Parent at the
closing such other customary documents, certificates or instruments as
Parent may reasonably request.
(j) Dissenting Stockholders. Holders of not more than 10% of the
outstanding shares of Company Class A Stock shall have properly demanded
appraisal rights for their shares as provided for in Section 1.11.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after any approval by the stockholders
of the Company:
(a) by mutual consent of Parent and the Company;
(b) by Parent if (i) the Company shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement required to be complied with by the Company prior to the date of
such termination, which failure to comply has not been cured within ten
business days following receipt by the Company of notice of such failure to
comply or (ii) the stockholders of the Company shall have failed to approve
the Merger at the Stockholder Meeting;
(c) by the Company if (i) Parent shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement required to be complied with by Parent prior to the date of such
termination, which failure to comply has not been cured within ten business
days following receipt by Parent of notice of such failure to comply or
(ii) the stockholders of the Company shall have failed to approve the
Merger at the Stockholder Meeting;
(d) by either Parent or the Company if (i) the Merger has not been
effected on or prior to the close of business on June 30, 1995; provided,
however, that the right to terminate this Agreement pursuant to this clause
shall not be available to any party whose failure to fulfill any obligation
of this Agreement has been the cause of, or resulted in, the failure of the
Merger to have occurred on or prior to the aforesaid date; or (ii) any
court of competent jurisdiction or any governmental, administrative or
regulatory authority, agency or body shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable;
(e) (i) by the Company if there has been a breach by Parent (which
breach has not been cured within ten business days following receipt by
Parent of notice of the breach) of one or more representations or
warranties (determined without regard to any qualification therein as to
materiality) such that the adverse consequences of such breach or breaches
would in the aggregate have a Material Adverse Effect on Parent; or
(ii) by Parent if there has been a breach by the Company (which breach
has not been cured within ten business days following receipt by the
Company of notice of the breach) of one or more representations or
warranties (determined without regard to any qualification therein as to
materiality and in the case of Section 3.17, determined with reference to
the net consequences of all variances whether favorable or adverse) such
that the adverse consequences of such breach or breaches would in the
aggregate have a Material Adverse Effect on the Company;
(f) by Parent, (i) if the Company shall have taken or permitted any of
the actions described in the first sentence of Section 5.2(b), (ii) if the
Board of Directors of the Company shall have recommended, or shall have
resolved to recommend, to the stockholders of the Company any Takeover
Proposal or (iii) a tender offer or exchange offer for 20% or more of the
outstanding shares of Company Class A Stock is commenced, and the Board of
Directors of the Company does not recommend, within five days after the
commencement of such offer, that stockholders not tender their shares into
such tender or exchange offer;
(g) by the Company if the Company's Board of Directors, to the extent
required by their fiduciary duties under applicable law and after
consultation with and based upon the advice of outside legal counsel,
resolved to recommend to the stockholders of the Company, or agree to, a
Takeover Proposal that provides stockholders of the Company a value per
share of Company Stock in excess of a value equal to the product of (i) the
Exchange Ratio (calculated as if the Effective Date were the date on which
the Board of Directors of the Company is considering terminating this
Agreement pursuant to this Section 8.1(g)) multiplied by (ii) the average
of the per share closing prices of Parent Common Stock as
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reported on the NYSE Composite Transactions Reporting System during the 10
consecutive trading days immediately preceding the day on which the Board
of Directors of the Company is considering terminating this Agreement under
this Section 8.1(g); or
(h) by either Parent or the Company if the Market Price (calculated as
if the Effective Date were the date of the Stockholder Meeting) is less
than $22.00.
In the event that either party may terminate this Agreement pursuant to
more than one of the provisions set forth above, such party may terminate this
Agreement pursuant to all of such provisions and may seek reimbursement and
payments pursuant to Section 6.6 as such terminating party deems most favorable.
SECTION 8.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent or Sub or their respective officers or
directors (except for Sections 6.3(b), 6.3(c), 6.6 and 6.9, which shall to the
extent provided therein survive the termination); provided, however, that
nothing contained in this Section 8.2 shall relieve any party hereto from any
liability for any breach of this Agreement.
SECTION 8.3 Amendment. This Agreement may be amended by the parties hereto,
by or pursuant to action taken by their respective Boards of Directors, at any
time before or after approval of the Merger at the Stockholders Meeting, but
after any such approval at the Stockholders Meeting no amendment shall be made
which changes the Exchange Ratio as provided in Section 1.5 or which in any way
materially adversely affects the rights of the stockholders of the Company,
without the further approval of the holders of the Company Class A Stock. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
SECTION 8.4 Waiver. At any time prior to the Effective Time, any party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of any other party hereto, (ii) waive any inaccuracies in the
representations and warranties of any other party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements of any other party or any of the conditions to the obligations of
such waiving party contained herein which may legally be waived. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party and
shall not constitute an amendment requiring the approval of the stockholders of
the Company pursuant to Section 8.3 hereof.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time.
SECTION 9.2 Written Notices. All written notices and other communications
hereunder shall be and shall be deemed given if delivered personally, sent by
overnight courier or telecopied (with a confirmatory copy sent by overnight
courier) to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Apache Corporation
2000 Post Oak Blvd., Ste. 100
Houston, Texas 77056
Attention: James R. Bauman, Senior Vice President
Telephone: (713) 296-6206
Telecopy: (713) 296-6457
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with copies (which shall not constitute notice) to:
Apache Corporation
2000 Post Oak Blvd., Ste. 100
Houston, Texas 77056
Attention: Zurab S. Kobiashvili, General Counsel
Telephone: (713) 296-6204
Telecopy: (713) 296-6458
Geoffrey K. Walker
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002-2778
Telephone: (713) 225-7023
Telecopy: (713) 225-7047
(b) if to the Company, to:
DEKALB Energy Company
700-9th Avenue, SW
10th Floor
Calgary, Alberta,
Canada T2P 3V4
Attention: John H. Witmer, Jr., General Counsel
Telephone: (403) 261-1200
Telecopy: (403) 266-5987
with a copy (which shall not constitute notice) to:
Wilbur C. Delp, Jr.
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Telephone: (312) 853-7416
Telecopy: (312) 853-7036
SECTION 9.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
SECTION 9.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
including the documents and instruments referred to herein, (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (b) except for provisions of Sections 6.11, 6.12 and 6.13, is not intended
to confer upon any person other than the parties any rights or remedies
hereunder.
SECTION 9.6 Governing Law and Jurisdiction. (a) This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
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(b) Any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby shall be brought against any of the parties in
any state court sitting in the City of Wilmington, Delaware, and each of the
parties hereby consents to the exclusive jurisdiction of such court (and of the
appropriate appellate courts) in any such suit, action or proceeding and waives
any objection to venue. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the State
of Delaware. Without limiting the foregoing, each of the parties hereto agrees
that service of process upon such party at the address referred in Section 9.2
shall be deemed effective service of process upon such party.
SECTION 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect
wholly-owned subsidiary of Parent, but no such assignment shall relieve Sub of
any of its obligations hereunder. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 9.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions be consummated as originally contemplated to the fullest extent
possible.
SECTION 9.9 Enforcement of this Agreement. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 9.10 Further Assurances. If at any time after the Effective Time
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations in the Merger, all such deeds,
bills of sale, assignments and assurances and do, in the name and on behalf of
such Constituent Corporations, all such other acts and things necessary,
desirable or proper to vest, perfect or confirm its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties or
assets of such Constituent Corporations and otherwise to carry out the purposes
of this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
APACHE CORPORATION
By: /s/ RAYMOND PLANK
--------------------------------
Name: Raymond Plank
Title: Chairman of the Board
XPX ACQUISITIONS, INC.
By: /s/ RAYMOND PLANK
--------------------------------
Name: Raymond Plank
Title: Chairman of the Board
DEKALB ENERGY COMPANY
By: /s/ BRUCE P. BICKNER
--------------------------------
Name: Bruce P. Bickner
Title: Chairman of the Board
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APPENDIX II
Investment Banking Corp.
World Financial Center
North Tower
New York, New York 10281-1324
212 449 1000
{MERRILL LYNCH LOGO}
December 20, 1994
Board of Directors
DEKALB Energy Company
700 9th Avenue SW
Calgary, Alberta, Canada T2P 3V4
Gentlemen:
DEKALB Energy Company (the "Company"), Apache Corporation
("Apache") and XPX Acquisitions, Inc., a wholly owned subsidiary of Apache (the
"Merger Sub"), propose to enter into an agreement and plan of merger (the
"Merger Agreement") pursuant to which the Company will be merged with the
Merger Sub in a transaction (the "Merger") in which each outstanding share of
the Company's voting Class A Stock, no par value, and each outstanding share of
the Company's Class B (nonvoting) stock, no par value (together, the "Shares")
(other than any Shares held in the treasury of the Company and any Shares owned
by Apache, Merger Sub or any other wholly-owned subsidiary of Apache, all of
which will be cancelled, and other than any Shares held by any wholly-owned
subsidiary of the Company, which will remain outstanding), will be converted
into the right to receive 0.85 shares of the Common Stock, par value $1.25 per
share, of Apache (the "Apache Shares"), subject to adjustment as described in
the Merger Agreement. The ratio at which the Shares will be converted into
Apache Shares in accordance with the Merger Agreement is referred to herein as
the "Exchange Ratio".
You have asked us whether, in our opinion, the Exchange Ratio
is fair to the holders of the Shares from a financial point of view.
In arriving at the opinion set forth below, we have, among
other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and
related financial information for the three fiscal
years ended December 31, 1993 and the Company's Forms
10-Q and the related unaudited financial information
for the quarterly periods ended March 31, 1994, June
30, 1994 and September 30, 1994;
(2) Reviewed Apache's Annual Reports, Forms 10-K and
related financial information for the three fiscal
years ended December 31, 1993 and Apache's Forms 10-Q
and the related unaudited financial information for
the quarterly periods ended March 31, 1994, June 30,
1994 and September 30, 1994;
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{MERRILL LYNCH LOGO}
(3) Reviewed certain information relating to the
business, earnings, cash flow and assets of the
Company and Apache furnished to us by the Company and
Apache, respectively;
(4) Reviewed financial forecasts for the Company
furnished to us by the Company;
(5) Reviewed certain reserve and reserve production
estimates for 1993 and 1994 for the Company and
Apache prepared by the Company and Apache,
respectively, and the reserve audit letters for l993
for the Company and Apache, respectively, prepared by
Ryder Scott Company, and discussed such reserve and
reserve production estimates with the Company,
Apache, and Ryder Scott Company, respectively;
(6) Considered the pro forma effect of the pending
acquisitions by Apache of U.S. assets of Crystal Oil
Company and certain oil and gas assets of Texaco
Exploration & Production Inc.;
(7) Conducted discussions with members of senior
management of the Company and Apache concerning their
respective businesses and prospects;
(8) Reviewed the historical market prices and trading
activity for the Shares and the Apache Shares and
compared them with that of certain publicly traded
companies which we deemed to be reasonably similar to
the Company and Apache, respectively;
(9) Compared the results of operations of the Company and
Apache with that of certain companies which we deemed
to be reasonably similar to the Company and Apache,
respectively;
(10) Compared the proposed financial terms of the Merger
with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(11) Reviewed a draft dated December 18, 1994 of the
Merger Agreement; and
(12) Reviewed such other financial studies and analyses
and performed such other investigations and taken
into account such other matters as we deemed
necessary, including our assessment of general
economic, market and monetary conditions.
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{MERRILL LYNCH LOGO}
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company and Apache, and we have not independently verified such information
or undertaken an independent appraisal of the assets of the Company or Apache.
With respect to the reserve-related information furnished by the Company and
Apache, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgment of the managements of the
Company and Apache as to the reserves of the Company or Apache, as the case
may be. With respect to the financial forecasts furnished by the Company, we
have assumed that they have been reasonably prepared and reflect the best
currently available estimates and judgment of the Company's management as to
the expected future financial performance of the Company. We have also assumed
(i) that the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended, and will
not result in any liability to the Company under the Income Tax Act (Canada),
and (ii) that the Merger will be accounted for as a pooling-of-interests in
accordance with generally accepted accounting principles. Our opinion is based
upon market, economic, financial and other conditions as they exist and can be
evaluated as of the date hereof.
In connection with the preparation of this opinion, we have not
been authorized by the Company or its Board of Directors to solicit, nor have
we solicited, third-party indications of interest for the acquisition of all or
any part of the Company. We have, however, had discussions with a number of
parties who submitted unsolicited indications of interest in acquiring the
Company.
We have, in the past, provided financial advisory and financing
services to the Company and Apache and have received fees for the rendering of
such services. We have acted as financial advisor to the Company in connection
with the Merger and will receive a fee for our services upon consummation of
the Merger. In the ordinary course of business, we may actively trade the
securities of both the Company and Apache for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
On the basis of, and subject to the foregoing, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair to the holders
of the Shares from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE,
FENNER & SMITH
INCORPORATED
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APPENDIX III
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Appraisal Rights. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or (ii)
held of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of
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their shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list at
the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall
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be dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
262, L. '94, eff. 7-1-94.)
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL, inter alia, authorizes a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) because the person is or was a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
the suit or proceeding if the person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reason to believe his conduct was unlawful. Similar indemnity is authorized
against expenses (including attorneys' fees) actually and reasonably incurred in
defense or settlement of any pending, completed or threatened action or suit if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, and provided further
that (unless a court of competent jurisdiction otherwise provides) the person
shall not have been adjudged liable to the corporation. The indemnification may
be made only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any capacity,
or arising out of his status as such, whether or not the corporation would
otherwise have the power to indemnify him. Apache maintains policies insuring
the officers and directors of Apache and its subsidiaries against certain
liabilities for actions taken in their capacities, including liabilities under
the Securities Act.
Article VII of Apache's Bylaws provides, in substance, that directors,
officers, employees and agents of Apache shall be indemnified to the extent
permitted by Section 145 of the DGCL. Additionally, Article Seventeen of
Apache's Charter eliminates in certain circumstances the monetary liability of
directors of Apache for a breach of their fiduciary duty as directors. These
provisions do not eliminate the liability of a director (i) for a breach of a
director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions by a director not in good faith; (iii) for acts or omissions by a
director involving intentional misconduct or a knowing violation of the law;
(iv) under Section 174 of the DGCL (relating to the declaration of dividends and
purchase or redemption of shares in violation of the DGCL); and (v) for
transactions from which the director derived an improper personal benefit.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed herewith unless otherwise indicated:
<TABLE>
<S> <C>
2.1 -- Agreement and Plan of Merger among Apache Corporation, XPX
Acquisitions, Inc., and DEKALB Energy Company dated December 21, 1994
(included as Appendix I to the Proxy Statement/Prospectus filed as
part of this Registration Statement)
2.2 -- Form of Stockholder Agreement dated December 21, 1994 (incorporated
by reference to Exhibit 7(b) to Schedule 13D relating to DEKALB Class
A Stock, filed with the Commission on January 3, 1995)
2.3 -- Form of Affiliate Agreement dated December 21, 1994 (incorporated by
reference to Exhibit 7(c) to Schedule 13D relating to DEKALB Class A
Stock, filed with the Commission on January 3, 1995)
4.1 -- Restated Certificate of Incorporation of Apache Corporation
(incorporated by reference to Exhibit 3.1 to Apache's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, Commission
File No. 1-4300)
4.2 -- Bylaws of Apache Corporation (incorporated by reference to Exhibit
3.3 to Apache's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, Commission File No. 1-4300)
4.3 -- Form of Apache Common Stock Certificate (incorporated by reference to
Exhibit 4.4 to Apache's Registration Statement on Amendment No. 1 to
Form S-3, Registration No. 33-5097, filed with the Commission on May
16, 1986)
4.4 -- Rights Agreement dated as of January 10, 1986, between Apache and
First Trust Company, Inc., rights agent, relating to the declaration
of Rights to Apache's common stockholders of record on January 24,
1986 (incorporated by reference to Exhibit 4.9 to Apache's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985,
Commission File No. 1-4300)
4.5 -- Indenture dated as of May 15, 1992, among Apache and Norwest Bank,
Minnesota, N.A. as trustee, relating to Apache's 9.25% Notes due 2002
(incorporated by reference to Exhibit 4.01 to Apache's Registration
Statement on Form S-3, Registration No. 33-47363, filed with the
Commission on April 21, 1992)
4.6 -- Indenture dated as of July 15, 1986, and First Supplemental Indenture
dated as of October 5, 1988, between Apache, Key Production Company,
Inc. and NCNB Texas National Bank, as trustee, relating to the 9%
Convertible Subordinated Debentures due 2001 (incorporated by
reference to Exhibit 4.16 to Apache's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989, Commission File No. 1-4300)
4.7 -- Fiscal Agency Agreement dated as of January 4, 1995, between Apache
and Chemical Bank, as fiscal agent, relating to the 6% Convertible
Subordinated Debentures due 2002 (incorporated by reference to
Exhibit 99.2 to Apache's Current Report on Form 8-K/A dated December
6, 1994, Commission File No. 1-4300)
5.1* -- Form of opinion of Mayor, Day, Caldwell & Keeton, L.L.P., as to
legality of issuance of Apache Common Stock
8.1* -- Form of opinion of Mayor, Day, Caldwell & Keeton, L.L.P., as to
certain U.S. tax issues
8.2* -- Form of opinion of Sidley & Austin as to certain U.S. tax issues
8.3* -- Form of opinion of Bennett Jones Verchere as to certain Canadian tax
issues
8.4* -- Form of opinion of Howard, Mackie as to certain Canadian tax issues
</TABLE>
II-2
<PAGE> 136
<TABLE>
<S> <C>
13.1 -- Annual Report of DEKALB Energy Company on Form 10-K for the fiscal
year ended December 31, 1993
13.2 -- Quarterly Report of DEKALB Energy Company on Form 10-Q for the period
ended September 30, 1994
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Coopers & Lybrand
23.3* -- Consent of Mayor, Day, Caldwell & Keeton, L.L.P.
23.4* -- Consent of Sidley & Austin
23.5* -- Consent of Bennett Jones Verchere
23.6* -- Consent of Howard, Mackie
23.7* -- Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
24.1 -- Power of Attorney (included as a part of the signature pages in Part
II of this Registration Statement)
99.1 -- Form of Proxy Card
99.2 -- Opinion dated December 20, 1994 of Merrill Lynch, Pierce, Fenner &
Smith Incorporated as to the fairness of the Exchange Ratio to the
holders of DEKALB Stock (included as Appendix II to the Proxy
Statement/Prospectus filed as part of this Registration Statement)
99.3 -- Letter of Coopers & Lybrand regarding review of interim financial
information
</TABLE>
- ---------------
* To be filed by pre-effective amendment
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows:
(a) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(b) (1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person who is deemed to be an underwriter within the meaning
of Rule 145 (c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form;
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a) (3) of the Securities Act of 1933, and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such
II-3
<PAGE> 137
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue;
(d) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request; and
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired therein, that was not
the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE> 138
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS.
<TABLE>
<S> <C>
APACHE CORPORATION
Date: January 17 1995 By: RAYMOND PLANK
------------------------------------- ---------------------------------
Chairman and Chief Executive Officer
</TABLE>
POWER OF ATTORNEY
The officers and directors of Apache Corporation, whose signatures appear
below, hereby constitute and appoint Raymond Plank, G. Steven Farris, Z.S.
Kobiashvili and Mark A. Jackson, and each of them (with full power to each of
them to act alone), the true and lawful attorney-in-fact to sign and execute, on
behalf of the undersigned, any amendment(s) to this registration statement and
each of the undersigned does hereby ratify and confirm all that said attorneys
shall do or cause to be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.*
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ----------------
<C> <S> <C>
RAYMOND PLANK Chairman and Chief Executive January 17, 1995
- --------------------------------------------- Officer (Principal Executive
Raymond Plank Officer)
MARK A. JACKSON Vice President, Finance January 17, 1995
- ---------------------------------------------
Mark A. Jackson
R. KENT SAMUEL Controller and Chief January 17, 1995
- --------------------------------------------- Accounting Officer
R. Kent Samuel
- ---------------
* Apache Corporation does not have a Principal Financial Officer.
</TABLE>
(continued)
<PAGE> 139
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ----------------
<C> <S> <C>
FREDERICK M. BOHEN Director January 17, 1995
- ---------------------------------------------
Frederick M. Bohen
VIRGIL B. DAY Director January 17, 1995
- ---------------------------------------------
Virgil B. Day
G. STEVEN FARRIS Director January 17, 1995
- ---------------------------------------------
G. Steven Farris
RANDOLPH M. FERLIC Director January 17, 1995
- ---------------------------------------------
Randolph M. Ferlic
EUGENE C. FIEDOREK Director January 17, 1995
- ---------------------------------------------
Eugene C. Fiedorek
W. BROOKS FIELDS Director January 17, 1995
- ---------------------------------------------
W. Brooks Fields
ROBERT V. GISSELBECK Director January 17, 1995
- ---------------------------------------------
Robert V. Gisselbeck
STANLEY K. HATHAWAY Director January 17, 1995
- ---------------------------------------------
Stanley K. Hathaway
JOHN A. KOCUR Director January 17, 1995
- ---------------------------------------------
John A. Kocur
JAY A. PRECOURT Director January 17, 1995
- ---------------------------------------------
Jay A. Precourt
JOSEPH A. RICE Director January 17, 1995
- ---------------------------------------------
Joseph A. Rice
</TABLE>
<PAGE> 140
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<S> <C>
2.1 -- Agreement and Plan of Merger among Apache Corporation, XPX
Acquisitions, Inc., and DEKALB Energy Company dated December 21, 1994
(included as Appendix I to the Proxy Statement/Prospectus filed as
part of this Registration Statement)
2.2 -- Form of Stockholder Agreement dated December 21, 1994 (incorporated
by reference to Exhibit 7(b) to Schedule 13D relating to DEKALB Class
A Stock, filed with the Commission on January 3, 1995)
2.3 -- Form of Affiliate Agreement dated December 21, 1994 (incorporated by
reference to Exhibit 7(c) to Schedule 13D relating to DEKALB Class A
Stock, filed with the Commission on January 3, 1995)
4.1 -- Restated Certificate of Incorporation of Apache Corporation
(incorporated by reference to Exhibit 3.1 to Apache's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993, Commission
File No. 1-4300)
4.2 -- Bylaws of Apache Corporation (incorporated by reference to Exhibit
3.3 to Apache's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, Commission File No. 1-4300)
4.3 -- Form of Apache Common Stock Certificate (incorporated by reference to
Exhibit 4.4 to Apache's Registration Statement on Amendment No. 1 to
Form S-3, Registration No. 33-5097, filed with the Commission on May
16, 1986)
4.4 -- Rights Agreement dated as of January 10, 1986, between Apache and
First Trust Company, Inc., rights agent, relating to the declaration
of Rights to Apache's common stockholders of record on January 24,
1986 (incorporated by reference to Exhibit 4.9 to Apache's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985,
Commission File No. 1-4300)
4.5 -- Indenture dated as of May 15, 1992, among Apache and Norwest Bank,
Minnesota, N.A. as trustee, relating to Apache's 9.25% Notes due 2002
(incorporated by reference to Exhibit 4.01 to Apache's Registration
Statement on Form S-3, Registration No. 33-47363, filed with the
Commission on April 21, 1992)
4.6 -- Indenture dated as of July 15, 1986, and First Supplemental Indenture
dated as of October 5, 1988, between Apache, Key Production Company,
Inc. and NCNB Texas National Bank, as trustee, relating to the 9%
Convertible Subordinated Debentures due 2001 (incorporated by
reference to Exhibit 4.16 to Apache's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989, Commission File No. 1-4300)
4.7 -- Fiscal Agency Agreement dated as of January 4, 1995, between Apache
and Chemical Bank, as fiscal agent, relating to the 6% Convertible
Subordinated Debentures due 2002 (incorporated by reference to
Exhibit 99.2 to Apache's Current Report on Form 8-K/A dated December
6, 1994, Commission File No. 1-4300)
5.1* -- Form of opinion of Mayor, Day, Caldwell & Keeton, L.L.P., as to
legality of issuance of Apache Common Stock
8.1* -- Form of opinion of Mayor, Day, Caldwell & Keeton, L.L.P., as to
certain U.S. tax issues
8.2* -- Form of opinion of Sidley & Austin as to certain U.S. tax issues
8.3* -- Form of opinion of Bennett Jones Verchere as to certain Canadian tax
issues
8.4* -- Form of opinion of Howard, Mackie as to certain Canadian tax issues
</TABLE>
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<S> <C>
13.1 -- Annual Report of DEKALB Energy Company on Form 10-K for the fiscal
year ended December 31, 1993
13.2 -- Quarterly Report of DEKALB Energy Company on Form 10-Q for the period
ended September 30, 1994
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Coopers & Lybrand
23.3* -- Consent of Mayor, Day, Caldwell & Keeton, L.L.P.
23.4* -- Consent of Sidley & Austin
23.5* -- Consent of Bennett Jones Verchere
23.6* -- Consent of Howard, Mackie
23.7* -- Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
24.1 -- Power of Attorney (included as a part of the signature pages in Part
II of this Registration Statement)
99.1 -- Form of Proxy Card
99.2 -- Opinion dated December 20, 1994 of Merrill Lynch, Pierce, Fenner &
Smith Incorporated as to the fairness of the Exchange Ratio to the
holders of DEKALB Stock (included as Appendix II to the Proxy
Statement/Prospectus filed as part of this Registration Statement)
99.3 -- Letter of Coopers & Lybrand regarding review of interim financial
information
</TABLE>
- ---------------
* To be filed by pre-effective amendment
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
/X/ SECURITIES EXCHANGE ACT OF 1934
___ FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
____ THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 0-2886
DEKALB ENERGY COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-0987809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700-9TH AVENUE S.W. T2P 3V4
CALGARY, ALBERTA CANADA (Postal Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (403) 261-1200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Class A Stock, no par value
Class B (nonvoting) Stock, no par value
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
___
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
___ ___
As of January 31, 1994, 2,337,208 shares of the registrant's Class A Stock
and 7,269,017 shares of Class B (nonvoting) Stock were outstanding and the
aggregate market value of all voting stock held by non-affiliates was
$12,345,744 based upon the closing price on the NASDAQ Over-the-Counter markets
on the last trading day of January. (The officers, directors and 10%
shareholders of the registrant are considered affiliates for purposes of this
calculation.)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement pertaining to the annual shareholders'
meeting to be held on May 18, 1994 are incorporated herein by reference into
Part III.
EXHIBIT INDEX IS LOCATED ON PAGES 49 TO 51. TOTAL NUMBER OF PAGES IS 63.
<PAGE> 2
DEKALB ENERGY COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
- --------
Item 1. Business..................................................................... 3
Item 2. Properties................................................................... 5
Item 3. Legal Proceedings............................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders Executive Officers of the
Registrant................................................................. 8
PART II
- --------
Item 5. Market for Registrant's Stock and Related Stockholders' Matters.............. 10
Item 6. Selected Financial Data...................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................. 14
Item 8. Financial Statements and Supplementary Financial Information................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................. 48
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant........................... 48
Item 11. Executive Compensation....................................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 48
Item 13. Certain Relationships and Related Transactions............................... 48
PART IV
- --------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 49
Signatures................................................................... 52
APPENDIX
- --------
Documents Filed in Paper Format Under Form SE.......................................... 63
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
(a) On July 2, 1990, DEKALB Energy Company ("DEKALB" or the "Company")
purchased from Royal Producing Corp.-Texas for $130.2 million, an interest in
thirty-six onshore oil and gas fields, most of which were located in the Texas
Gulf Coast. On July 3, 1990, the Company transferred its interest in certain of
these acquired fields in exchange for $5.2 million and an increased interest in
one of the fields obtained through the acquisition.
The purchase price was funded through the Company's revolving credit
agreement. On July 12, 1990, the Company issued $75 million of 9 7/8% notes due
July 15, 2000, in a public offering. The net proceeds of $74.4 million were used
to reduce the line of credit borrowing.
On October 16, 1992, the Company sold substantially all of its U.S. oil and
gas properties to Louis Dreyfus Gas Holdings Inc. The effective date of the
transaction was July 1, 1992. The Company did not sell its Canadian or
California properties. Proceeds from the transaction were used primarily to
reduce the Company's long-term debt.
On August 5, 1993, the Company sold all of its California gas wells to
Samedan Oil Corporation for $5.1 million. The effective date of the transaction
was July 1, 1993. Proceeds from the transaction were used to repurchase
long-term debt. The Company's only remaining assets in the U.S. are a
non-operated interest in an oil well in California and acreage adjacent thereto.
In 1994, the Company will concentrate on exploration and development of
Canadian prospects in the provinces of Alberta and British Columbia. To take
advantage of strong natural gas demand and prices, the Company will direct most
of its activities toward natural gas prospects. Oil prospects will be pursued
where there is potential for significant additions and immediate opportunities
for development.
(b) DEKALB is engaged in only one industry segment on a continuing basis.
(c) DEKALB is engaged in the exploration for, and the development and
production of, crude oil and natural gas in Canada and in California. The
Company's wholly-owned Canadian subsidiary, DEKALB Energy Canada Ltd.,
concentrates its exploration and development activity in the provinces of
Alberta and British Columbia. Since the disposition of the U.S. assets in 1992
and 1993, DEKALB's only U.S. activity is in the state of California.
DEKALB's operations are largely dependent upon its ability to discover or
acquire reserves of oil and natural gas, to produce oil and natural gas in
commercial quantities, and to obtain additional unproved oil and gas lands by
lease, option, concession, or otherwise. The prices obtained for the sale of oil
and natural gas depend upon numerous factors, most of which are beyond the
control of the Company, including the domestic and foreign production rates of
oil and natural gas, market demand, and the effect of government regulations and
incentives.
3
<PAGE> 4
ITEM 1. BUSINESS -- (CONTINUED)
COMPETITION
There is a high degree of competition in the oil and gas industry for the
acquisition of prospective oil and gas properties and oil and gas reserves, and
in the marketing and transportation of natural gas. A number of the companies
with which DEKALB competes are substantially larger and have greater financial
resources than DEKALB.
MARKETING
Oil produced by DEKALB is sold to crude oil purchasers or refiners at
market prices which depend on worldwide crude prices adjusted for location and
quality of the oil. Natural gas produced by DEKALB is sold to major aggregators
of natural gas, gas marketers and direct users under long and short-term
contracts. These contracts provide for sales at specified prices, or at prices
which are subject to change due to market conditions. Also, the Company enters
into hedge contracts from time to time to reduce the Company's exposure to oil
and gas price fluctuations.
It is a Company goal to diversify markets for Canadian gas by exporting
directly to the United States. The Company began exporting gas into the U.S.
Midwest market area from Canada in June 1989 using interruptible transportation.
In 1990, 1991 and 1992 the Company used a combination of interruptible
transportation and storage in Michigan to provide Midwest customers with gas.
This program was discontinued in 1992 due to lack of transportation into the
Midwest marketplace from Canada. In November 1993, the Company began flowing gas
subject to a long term transportation agreement for 12 million cubic feet per
day of Canadian gas to California. This gas is being sold to end users. Based on
1993 volumes, this volume represents approximately 16.3% of the annual Canadian
production.
ENVIRONMENTAL MATTERS
In general, the exploration and production activities of the Company are
subject to certain federal, provincial, state, and local laws and regulations
relating to environmental quality and pollution control. Such laws and
regulations increase the cost of these activities and may prevent or delay the
commencement, or continuance of a given operation. The Company charged $0.6
million in 1992 and $0.6 million in 1993 against income for future removal and
site restoration costs. These amounts related primarily to the Canadian
operations for both years.
GENERAL
In 1993, the Company had three Canadian customers who accounted for 11%,
16% and 18% of sales, respectively. The Company does not believe that the loss
of these customers would have a material adverse effect upon the Company.
At December 31, 1993, the Company had 90 employees in Canada, and 2
employees in the United States.
(d) Geographic Segment Information for 1992 and 1991 is included in Part
II, Item 8, Footnote K of the financial statements. Information for the U.S and
Canada has been combined for 1993 due to the immateriality of the U.S.
information in relation to the Company as a whole.
4
<PAGE> 5
ITEM 2. PROPERTIES
OFFICES
DEKALB leases approximately 40,000 square feet of office space in Calgary,
Alberta, Canada from which it directs its business. DEKALB closed its
exploration office in Bakersfield in 1993. The Denver and Houston offices were
closed in 1992. DEKALB is committed to lease payments on the Bakersfield office
until mid-1995. These future lease payments have been accrued in the financial
statements as of December 31, 1993.
ACREAGE
The following table summarizes DEKALB's interest in developed and
undeveloped oil and gas acreage as of December 31, 1993. U.S. acreage is not
significant and has been combined with the Canadian acreage.
<TABLE>
<CAPTION>
UNDEVELOPED
ACREAGE(A) DEVELOPED ACREAGE
- --------------------- ---------------------
GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
- -------- -------- -------- --------
<S> <C> <C> <C>
242,165 157,612 328,654 218,261
</TABLE>
- ---------------
(a) Undeveloped acreage represents leased acres on which wells have not been
drilled or completed to a point that would permit the production of
commercial quantities of oil or gas.
PRODUCTIVE WELLS AND DRILLING ACTIVITY
The Company owns varying working interests in producing oil and gas wells
located in the Provinces of Alberta and British Columbia, Canada and in the
State of California. The Company also owns interests in twelve gas processing
plants located in the province of Alberta, Canada.
The following table summarizes DEKALB's interest in productive oil and gas
wells as of December 31, 1993. The number of U.S. wells is not significant and
has been combined with the Canadian well count.
<TABLE>
<CAPTION>
OIL WELLS(1) GAS WELLS(1)
- -------------- --------------
GROSS NET GROSS NET
- ----- ---- ----- ----
<S> <C> <C> <C>
857 140 365 228
</TABLE>
- ---------------
(1) One or more completions in the same well bore are counted as one well. The
data in the above table includes 20 oil wells (12 net) and 53 gas wells (49
net) that are multiple completions in Canada. The only U.S. well is
completed in one zone.
5
<PAGE> 6
ITEM 2. PROPERTIES -- (CONTINUED)
The following table summarizes the number of net productive exploratory and
development wells in which DEKALB participated, the number of net dry
exploratory and development wells drilled and the net total wells drilled for
the years ended December 31, 1993, 1992, and 1991:
<TABLE>
<CAPTION>
Net Productive Wells
Drilled Net Dry Wells Drilled Net Total Wells Drilled
--------------------------- ------------------------- -------------------------
Exploratory Development Exploratory Development Exploratory Development
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1993(1) 8 6 11 1 19 7
1992
Canada 2 1 3 2 5 3
United States 1 3 1 3 2 6
-- -- -- -- -- --
TOTAL 3 4 4 5 7 9
1991
Canada 3 0 5 0 8 0
United States 2 14 5 3 7 17
-- -- -- -- -- --
TOTAL 5 14 10 3 15 17
</TABLE>
- ---------------
As of December 31, 1993 DEKALB was participating in the completion of 3
gross (1.8 net) wells in Canada.
(1) 1993 U.S. well data is not significant and has been combined with the
Canadian well data.
SALES
The following table summarizes DEKALB's net oil and gas sales for the years
ended December 31, 1993, 1992, and 1991:
<TABLE>
<CAPTION>
1993 1992 1991
------- ----------------- -----------------
(1) CANADA U.S.(2) CANADA U.S.
------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Oil and Condensate (MBBLS) 742 776 633 797 1,502
Natural Gas Liquids (MBBLS) 247 220 132 228 354
Gas (MMCF) 20,969 17,309 6,671 17,030 12,511
</TABLE>
- ---------------
(1) 1993 U.S. volumes are not significant and have been combined with the
Canadian volumes.
(2) 1992 includes six months of U.S. sales on divested properties, and 12 months
of California properties.
6
<PAGE> 7
ITEM 2. PROPERTIES -- (CONTINUED)
AVERAGE PRICES AND COST PER UNIT OF SALES
The following table shows the average sales prices received by DEKALB for
its sales and the lease operating expense per equivalent barrel of oil for the
years ended December 31, 1993, 1992, and 1991:
<TABLE>
<CAPTION>
1993 1992 1991
------ ---------------- ----------------
(1) CANADA U.S. CANADA U.S.
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Avg. price/bbl of oil and condensate* $15.98 $18.37 $16.97 $19.97 $18.97
Avg. price/bbl of natural gas liquids $ 9.82 $ 9.79 $11.00 $10.45 $12.54
Avg. price/MCF of natural gas* $ 1.44 $ 1.16 $ 1.58 $ 1.22 $ 1.67
Lease operating expense/equivalent bbl of oil $ 2.78 $ 2.98 $ 3.85 $ 3.19 $ 4.41
</TABLE>
- ---------------
(1) 1993 U.S. operating data is not significant and has been combined with the
Canadian data.
* Includes effect of hedging contracts. Oil and condensate prices before the
effect of hedging were $18.74 for Canada and $17.45 for the U.S. in 1992,
and $19.75 for Canada and $18.77 for the U.S. in 1991. A hedging contract
for natural gas began in December 1993 and had no effect on 1993 prices.
RESERVES
The estimated proved developed and undeveloped oil and gas reserves of
DEKALB, as of December 31, 1993, 1992, and 1991 and the standardized measure of
discounted future net cash flows attributable thereto are included in
Supplementary Financial Information.
Reserve estimates for U.S. operated wells were reported by the Company to
the U.S. Department of Energy during the last year and were prepared on a basis
consistent with the reserve estimates contained herein. Reserve Estimates
submitted to the U.S. Department of Energy were prepared as of December 31, 1991
and 1992 based on December 31, 1991 and 1992 reserve reports, respectively and
represent the gross remaining recoverable reserves assigned to the properties
operated by DEKALB. Effective July 1, 1992 DEKALB sold substantially all of its
U.S. holdings to Louis Dreyfus Gas Holdings Inc. Effective July 1, 1993 DEKALB
sold substantially all of its remaining U.S. holdings to Samedan Oil
Corporation. The only U.S. assets retained by DEKALB are a single non-operated
oil well in California and acreage adjacent thereto.
December 31, 1993 reserve forecasts utilized December 1993 actual prices
for gas and natural gas liquids and the December 31st postings for oil and
condensate. The Company has also incorporated future abandonment costs of $6.9
million ($0.8 million present value) as of December 31, 1993, and $7.7 million
($1.1 million present value) as of December 31, 1992 into the forecasts.
Since December 31, 1993, there have been no material discoveries,
extensions or revisions which would either favorably or adversely affect the
Company's proved reserve quantities.
ITEM 3. LEGAL PROCEEDINGS
Management is of the opinion there are no pending legal proceedings that
would have a material effect on the consolidated financial position of the
Company.
7
<PAGE> 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of the security holders in the
fourth quarter of 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, and positions of the executive officers of the Company,
with their business experience during the past five years, are shown below.
Officers are elected annually by the Board of Directors.
<TABLE>
<CAPTION>
OFFICER AGE
- --------------------------------------------------------------------------------------- ---
<S> <C>
BRUCE P. BICKNER....................................................................... 50
CHAIRMAN OF THE BOARD AND DIRECTOR
Mr. Bickner has served as Chairman of the Board of the Company since March 1988.
He was elected President of the Company commencing on January 1, 1992. He
relinquished the titles of President and Chief Executive Officer on November 11,
1992. In June 1988, he was elected Chairman, Chief Executive Officer, President,
and a Director of DEKALB Genetics Corporation. He relinquished the title of
President of DEKALB Genetics Corporation in January, 1990.
VINCENT J. TKACHYK..................................................................... 49
PRESIDENT
Mr. Tkachyk was elected President of the Company on November 11, 1992. From
January 21, 1992, to November 11, 1992, he served as Executive Vice President,
Canada. From March 2, 1989 to January 21, 1992, he served as Senior Vice President,
Production and Engineering. Prior to that, he served as a manager or officer of
one or more of the oil and natural gas subsidiaries of the Company.
JOHN H. WITMER, JR..................................................................... 53
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
Mr. Witmer was elected Senior Vice President, General Counsel and Secretary on
March 2, 1989. Prior to that, he served as Vice President, General Counsel and
Secretary of the Company. He relinquished the title of Senior Vice President and
was elected Vice President on November 11, 1992. On February 9, 1989, he was
elected Senior Vice President and General Counsel of DEKALB Genetics Corporation.
He served as Vice President and General Counsel of DEKALB Genetics Corporation from
June 1988, until that date. He has served as Secretary of DEKALB Genetics Corporation
since June 1988.
RICHARD G. NASH........................................................................ 51
VICE PRESIDENT, EXPLORATION AND LAND
Mr. Nash has served as Vice President, Exploration and Land of the Company since
July 22, 1992. Since November 11, 1992, he has served in the additional position of
Assistant Secretary of the Company. He joined DEKALB Energy Canada Ltd. as Vice
President, Exploration in 1986.
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
OFFICER AGE
- --------------------------------------------------------------------------------------- ---
<S> <C>
MICHAEL E. FINNEGAN.................................................................... 37
VICE PRESIDENT, FINANCE AND TREASURER
Mr. Finnegan was elected Vice President, Finance and Treasurer on November 11,
1992. He has also served as DEKALB Energy Canada Ltd.'s Vice President, Finance
and Treasurer since December 1990, and as Assistant Vice President, Finance and
Treasurer from December 1988 until December 1990. Prior to that, he served as
Assistant Corporate Controller of the Company.
LARRY G. EVANS......................................................................... 38
VICE PRESIDENT, PRODUCTION -- DEKALB ENERGY CANADA LTD.
Mr. Evans has served as Vice President, Production of DEKALB Energy Canada Ltd.
since August 1993. From August 1990 to August 1993, he served as Vice President,
Engineering. Prior to that date, he served as Manager of Engineering.
BRUCE A. CRAIG......................................................................... 40
VICE PRESIDENT, MARKETING -- DEKALB ENERGY CANADA LTD.
Mr. Craig has served as Vice President, Marketing of DEKALB Energy Canada Ltd.
since November 1992 when he joined the Company. Prior to joining DEKALB Energy
Canada Ltd., he served as Manager, Oil and Gas Marketing for Kerr-McGee Canada Ltd.
(formerly Maxus Energy Canada Ltd.)
EDDY Y. TSE............................................................................ 43
CHIEF ACCOUNTING OFFICER
Mr. Tse was elected Chief Accounting Officer on November 11, 1992. He has also
served as Chief Accounting Officer of DEKALB Energy Canada Ltd. since November 1992
and as Controller since July 1991. Prior to that date, he had served DEKALB Energy
Canada Ltd. as the Manager of Taxes.
</TABLE>
9
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S STOCK
AND
RELATED STOCKHOLDERS' MATTERS
A. As of January 31, 1994 there were approximately 950 record holders of Class
A Stock and approximately 2,300 record holders of Class B (nonvoting)
Stock. Class B shares are currently being traded on NASDAQ/NMS
over-the-counter market.
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
B. STOCK DATA QTR. QTR. QTR. QTR.
- ------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1993
Market price range -- Low 10.75 14.25 15.75 13.00
-- High 15.00 18.75 17.25 17.375
FOR THE YEAR ENDED
DECEMBER 31, 1992
Market price range -- Low 11.75 12.00 12.00 10.25
-- High 14.50 15.75 14.25 13.25
</TABLE>
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
1993 1992 1991 1990(8) 1989
--------- --------- --------- --------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Operating revenues
Oil and liquids sales $ 14,291 $ 28,605 $ 51,231 $ 60,107 $ 44,178
Natural gas sales 30,215 30,678 41,718 40,773 34,308
Other 1,397 1,450 1,743 2,023 2,534
--------- --------- --------- --------- ---------
Total Operating Revenues 45,903 60,733 94,692 102,903 81,020
Operating expenses
Lease operations and other direct
charges 12,467 18,833 29,802 28,699 24,699
Depreciation, depletion and
amortization 15,142 22,522 41,080 39,933 30,585
Provision for impairment of oil
and gas properties -- 53,320 94,241 -- --
General and administrative expense 3,468 6,441 12,656 13,555 10,803
(Gain) loss on disposal of U.S.
assets (513) 34,942 -- -- --
--------- --------- --------- --------- ---------
Income (loss) from operations 15,339 (75,325) (83,087) 20,716 14,933
Non-operating expense (income) 3,672 3,716 4,652 (5,732 (66)
Income tax expense (benefit) 5,995 (9,788) (25,153) 10,922 5,527
--------- --------- --------- --------- ---------
Earnings (loss) from continuing
operations 5,672 (69,253) (62,586) 15,526 9,472
Earnings (loss) from discontinued
operations -- (1,050) -- 11,633 16,456
Earnings on cumulative effect of
change in accounting principle 5,334 -- -- -- --
--------- --------- --------- --------- ---------
$ 11,006 $ (70,303) $ (62,586) $ 27,159 $ 25,928
========= ========= ========= ========= =========
RETURNS
Return on sales(1) 12.36% (114.03)% (66.1)% 15.1% 11.7%
Return on assets(2) 2.59% (16.29)% (11.3)% 3.8% 2.4%
Return on equity(3) 5.93% (37.56)% (24.9)% 6.4% 4.4%
FINANCIAL POSITION
Working capital $ 6,611 $ 11,020 $ (2,570) $ 2,680 10,576
Current ratio 1.27 1.58 0.92 1.06 1.25
Net property, plant and equipment $ 177,915 $ 182,130 $ 383,362 $ 500,848 352,449
Total assets $ 210,089 $ 218,985 $ 425,031 $ 558,892 416,263
Net long-term debt $ 51,325 $ 69,725 $ 167,407 $ 191,799 51,765
Shareholders' equity $ 100,599 $ 95,587 $ 184,357 $ 251,251 242,321
Total debt as a % of capitaliza-
tion(4) 36.16% 42.30% 47.9% 43.4% 19.9%
Oil and gas capital expendi-
tures(9) $ 19,461 $ 17,031 $ 34,157 $ 201,803 46,133
Standardized measure of dis-
counted future net cash flows
(pre-tax) $ 266,979 $ 210,373 $ 325,561 $ 503,760 363,997
</TABLE>
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA (continued)
OPERATING DATA
<TABLE>
<CAPTION>
AVERAGE PRICES
--------------------------------------------------------------------
Oil & Condensate
As Of Or For The Year ($ Per Natural Gas Liquids Natural Gas
Ended December 31, Barrel)(7) ($ Per Barrel) ($ Per Thousand Cubic Feet)
- ------------------------------------ ---------------- ------------------- ---------------------------
<S> <C> <C> <C>
1993 15.98(10) 9.82(10) 1.44(10)
1992
-- Canada 18.37 9.79 1.16
-- U.S. 16.97(10) 11.00(10) 1.58(10)
1991
-- Canada 19.97 10.45 1.22
-- U.S. 18.97 12.54 1.67
1990
-- Canada 21.72 11.80 1.37
-- U.S. 21.22 10.78 1.83
1989
-- Canada 17.16 6.29 1.36
-- U.S. 16.60 8.16 1.83
</TABLE>
<TABLE>
<CAPTION>
SALES
--------------------------------------------------------------------------------------------------
Oil & Condensate Natural Gas Liquids Natural Gas Oil & Gas Equivalents
(Thousands Of Barrels) (Thousands Of Barrels) (Million Cubic Feet) (Thousands Of Barrels)(5)
---------------------- ---------------------- -------------------- -------------------------
<S> <C> <C> <C> <C>
1993 742(10) 247(10) 20,969(10) 4,484(10)
1992
-- Canada 776 220 17,309 3,881
-- U.S. 633(10) 132(10) 6,671(10) 1,877(10)
------- ----- -------- -------
TOTAL 1,409 352 23,980 5,758
1991
-- Canada 797 228 17,030 3,863
-- U.S. 1,502 354 12,511 3,941
------- ----- -------- -------
TOTAL 2,299 582 29,541 7,804
1990
-- Canada 835 214 14,626 3,487
-- U.S. 1,780 155 11,354 3,827
------- ----- -------- -------
TOTAL 2,615 369 25,980 7,314
1989
-- Canada 770 174 13,382 3,174
-- U.S. 1,731 139 8,825 3,341
------- ----- -------- -------
TOTAL 2,501 313 22,207 6,515
</TABLE>
PROVED RESERVES
<TABLE>
<CAPTION>
Oil, Condensate
& Natural Gas Liquids Natural Gas Oil & Gas Equivalents
(Thousands Of Barrels) (Million Cubic Feet) (Thousands Of Barrels)(5)
---------------------- -------------------- -------------------------
<S> <C> <C> <C>
1993(11) 13,234 277,411 59,469
1992
-- Canada 13,984 271,825 59,288
-- U.S. -- 4,518 753
-------- ----------- --------
TOTAL 13,984 276,343 60,041
1991
-- Canada 14,384 280,730 61,172
-- U.S. 11,693 80,464 25,104
-------- ----------- --------
TOTAL 26,077 361,194 86,276
1990
-- Canada 15,381 295,110 64,566
-- U.S. 13,881 93,732 29,503
-------- ----------- --------
TOTAL 29,262 388,842 94,069
1989
-- Canada 16,946 296,573 66,375
-- U.S. 10,021 55,170 19,216
-------- ----------- --------
TOTAL 26,967 351,743 85,591
</TABLE>
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1992 1991 1990(8) 1989
------ ------ ------ ------- -------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Data per Share
Book value per share(6) $10.47 $ 9.93 $19.19 $ 25.72 $ 23.49
Cash dividends declared $ -- $ -- $ 0.08 $ 0.29 $ 0.20
Weighted average shares outstanding 9,675 9,630 9,618 10,351 10,444
Earnings (loss) from continuing operations $ 0.59 $(7.19) $(6.51) $ 1.50 $ 0.91
Earnings (loss) from discontinued operations -- (0.11) -- 1.12 1.57
Earnings on cumulative effect of change in
accounting principle 0.55 -- -- -- --
------ ------ ------ ------- -------
Net Earnings (loss) $ 1.14 $(7.30) $(6.51) $ 2.62 $ 2.48
====== ====== ====== ======= =======
</TABLE>
- ---------------
NOTES:
(1) Return on sales was calculated by dividing earnings (loss) from continuing
operations by total operating revenues.
(2) Return on assets was calculated by dividing earnings (loss) from continuing
operations by beginning total continuing assets.
(3) Return on equity was calculated by dividing earnings (loss) from continuing
operations by beginning shareholders' equity.
(4) Total debt as a % of capitalization was calculated by dividing total debt
by shareholders' equity plus total debt.
(5) Gas is converted to oil at 6,000 cubic feet per barrel.
(6) Book value per share was calculated by dividing shareholders' equity by
total shares outstanding.
(7) Includes the effect of hedge contracts. Prices before the effect of hedging
were $17.45 for the U.S and $18.74 for Canada in 1992, $18.77 for the U.S.
and $19.75 for Canada in 1991, $22.07 for the U.S. and $22.73 for Canada in
1990, and $17.19 for the U.S. and $17.75 for Canada in 1989.
(8) Includes the effect of the Royal acquisition.
(9) 1992 includes six months of U.S. expenditures on all divested properties,
and 12 months of California properties; 1993 includes six months of U.S.
expenditures on divested California properties, and 12 months of all
expenditures in Canada and on the one remaining oil well in California.
(10) 1992 includes six months of U.S. operating data on divested properties, and
12 months of California properties. For 1993, six months of U.S. operating
data on divested California properties and 12 months of the remaining
California property has been combined with Canadian operating data due to
the immateriality in relation to the operating results as a whole.
(11) U.S. reserve data has been combined with Canada for 1993 due to the
immateriality of the U.S. reserves in relation to the total Company
reserves as a whole.
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations and to the Financial Statements and
Supplementary Financial Information for a discussion of the Company's operations
and financial position.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY OF FINANCIAL DATA
-------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
1993 1992 1991
----- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Revenues $45.9 $ 60.7 $ 94.7
Income (loss) from operations $15.3 $(75.3) $(83.1)
Earnings (loss) from continuing operations $ 5.7 $(69.3) $(62.6)
Loss from discontinued operations $ -- $ (1.1) $ --
Earnings on cumulative effect of change in accounting
principle $ 5.3 $ -- $ --
Net earnings (loss) $11.0 $(70.3) $(62.6)
Cash flows from continuing operations $31.5 $ 28.7 $ 43.4
</TABLE>
Overview
In 1993, with the strengthening of natural gas prices and increased
production in Canada, the Company has returned to profitability. The Company
reported net earnings of $11 million, including a one time tax benefit of $5.3
million due to the adoption of Statement of Financial Accounting Standard (SFAS)
109 "Accounting for Income Taxes" in the first quarter of 1993. Prior years'
losses were primarily due to the disposition of substantially all of the
Company's U.S. oil and gas properties to Louis Dreyfus Gas Holding Inc. in 1992,
and the writedown of oil and gas properties of $53.3 million pre-tax ($40.6
million after-tax) and $94.2 million pre-tax ($66.0 million after-tax) in 1992
and 1991, respectively.
Disposition of U.S. Assets
--------------------------
Effective July 1, 1993, the Company sold all of its California gas wells to
Samedan Oil Corporation for $5.1 million. The Company, in the third quarter of
1993, recorded a $0.5 million pre-tax and after-tax gain on the disposition of
the California gas wells. Also in the same quarter, the exploration office in
Bakersfield was closed down. The Company's only remaining assets in the U.S. are
a non-operated working interest oil well in California and acreage adjacent
thereto.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Disposition of U.S. Assets (Continued)
---------------------------------------
On July 9, 1992, the Company announced that it had entered into a
definitive agreement to sell substantially all of its U.S. oil and gas
properties to Dreyfus. On October 16, 1992, the Dreyfus transaction was approved
by the shareholders at a special shareholders' meeting, and the closing of the
transaction was completed on the same day. The Company did not sell its
California properties in this transaction. The Company received $104.0 million
of gross proceeds from the sale, which included approximately $6.0 million of
cash flow from the properties from the effective date (July 1, 1992). In
addition, Dreyfus assumed certain liabilities. In 1992 a loss on the disposition
of $34.9 million was recorded ($32.3 million after-tax).
Sales revenues and volumes, lease operating expenses and DD&A associated
with the divested properties for the six months ended June 30, 1992 and 1993,
are shown under Note B, Disposition of U.S. Assets in the Notes to the
Consolidated Financial Statements.
Operating Revenues
------------------
TOTAL COMPANY PRICE AND SALES DATA(1)
-------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Oil price ($ per Bbl)* $ 15.98 $ 17.74 $ 19.32
Oil volumes (M Bbls) 742 1,409 2,299
Natural gas liquids price ($ per Bbl) $ 9.82 $ 10.26 $ 11.72
Natural gas liquids volumes (M Bbls) 247 352 582
Gas price ($ per MCF) $ 1.44 $ 1.28 $ 1.41
Gas volumes (MMCF) 20,969 23,980 29,541
</TABLE>
- ---------------
* Includes the effect of hedging contracts
(1) 1993 includes sales on divested California properties for 6 months, and 12
months of sales in Canada and one remaining oil well in California. 1992
includes 6 months of U.S. sales on divested properties, and 12 months of
Canadian and California properties sales. 1991 includes the U.S. and Canada
for the full year.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Operating Revenues (Continued)
------------------------------
1993 revenues of $45.9 million declined 24.4% from 1992 and 51.5% from 1991
due to the disposition of the U.S. oil and gas properties.
In Canada, 1993 gas revenues increased 42.7% and 37.8% compared to 1992 and
1991, respectively. Gas prices rose to an average of $1.42 per thousand cubic
feet (MCF) from $1.16 and $1.22 in 1992 and 1991, respectively. Gas volumes
increased to 20,111 MMCF compared to 17,309 MMCF in 1992 and 17,030 MMCF in
1991.
In 1990 and 1991, the Company utilized interruptible transportation and
stored Canadian gas in Michigan (April-October) for sale during the following
winter season (November-March). During the period from April 1992 to October
1992, interruptible transportation was, for the most part, unavailable,
preventing the Company from utilizing storage capacity. As a result, the storage
contracts were terminated.
Due to increased gas prices, previously curtailed gas was on full
production in 1993. Compared to 1992, 1993 system gas prices were 11.6% higher
and sales volumes were relatively constant. Non-system (short-term and spot) gas
prices increased 41.5% and the Company increased sales volumes by 50.8% over
1992. Eight gas wells were tied in and commenced production during 1993 in the
province of Alberta. In addition, the Company brought one new well on production
in late 1992 in the province of British Columbia. To protect the Company from
fluctuations of natural gas prices, the Company entered into a hedge contract
for a portion of its 1993 gas. The result of this hedge contract did not have a
significant impact on 1993 operating revenues.
For the Canadian operations, compared to 1992 and 1991, oil and condensate
volumes remained relatively constant. Production commenced in 1993 from two new
oil wells in the province of Alberta and one in the province of British
Columbia. One additional well was brought on production in late 1992 in the
province of British Columbia. However, the average price per barrel of oil and
condensate declined to $16.00 per barrel compared to $18.37 in 1992 and $19.97
in 1991. To protect the Company against exposure to lower oil prices, the
Company entered into hedge contracts in 1992 and 1991. The results of these
contracts were included in revenues as oil was produced, increasing revenue by
$0.5 million in 1991 and decreasing revenue by $0.6 million in 1992. There were
no hedge contracts for oil in 1993. Both prices and volumes for natural gas
liquids remained relatively constant for the three years.
Operating Expenses
------------------
In Canada, 1993 lease operating expenses increased 9.1% to $12.1 million
from 1992, due to the increase in production offset in part by the lower
Canadian dollar rate in 1993. In addition, the 1993 increase included a prior
period third party gas processing fee adjustment of $0.6 million. However, on a
barrel of oil equivalent ("BOE") basis, 1993 lease operating expenses of $2.79
were down 6.4% compared to 1992. Since 1991, the Company's field fixed expenses
have been kept constant. Besides the Company's increased production, more third
party gas was processed through Company operated gas plants.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Operating Expenses (Continued)
------------------------------
1993 depreciation, depletion and amortization expense ("DD&A") fell $7.4
million from 1992, due to the disposition of the U.S. assets, a lower Canadian
DD&A rate due to lower exchange rates, and the writedown of oil and gas
properties in 1992. In the first quarter of 1992, the Company recorded a $24.7
million pre-tax and after-tax writedown of its U.S. oil and gas properties and a
$28.6 million ($15.9 million after-tax) writedown of its Canadian oil and gas
properties. 1993 DD&A expenses decreased $25.9 million from 1991, principally
due to the sale of U.S. assets and writedowns of oil and gas properties in 1992,
and the writedown of oil and gas properties by $94.2 million ($66 million
after-tax) in 1991.
1993 general and administrative expense decreased by $3.0 million and $9.2
million compared to 1992 and 1991, respectively. This was primarily due to the
closure of the Denver office in 1992. In addition, in late 1991, the decision
was made to reduce the Company's U.S. staff by approximately 30%, restructure
its management team and close its Houston office. As a result, the Company
recorded $2.5 million in 1991 for these restructuring expenses.
A $0.5 million gain resulting from the sale of the California gas wells to
Samedan Oil Corporation was reflected in the third quarter of 1993. The $34.9
million loss in the prior year related to the sale of U.S. assets to Dreyfus.
Non-operating Items
-------------------
Interest expense, net of interest income and capitalized interest,
decreased $3.1 million in 1993 compared to 1992, mainly due to the repurchase of
$18.4 million in 1993 and $55.3 million in 1992 of the Company's public notes
and the reduction of borrowing on the Company's line of credit, partly offset by
a decrease in capitalized interest. 1991 net interest expense was $7.1 million
higher than 1993 because of the public notes outstanding and increased borrowing
on the line of credit, which resulted from the Royal acquisition in 1990.
Net other income in 1993 mainly related to a gas contract settlement. In
1992, the Company recorded a $2.0 million gain on the sale of its 5% interest in
Natural Gas Clearinghouse ("NGC"). Equity earnings from the partnership interest
in NGC of $0.8 million and $2.0 million were recognized in 1992 and 1991,
respectively. There was no income effect in 1993 and 1992 associated with the
Phantom Stock Plan compared to income of $4.0 million in 1991.
Income Taxes
------------
The Company adopted the Statement of Financial Accounting Standard ("SFAS")
No. 109, "Accounting for Income Taxes" as of January 1, 1993. A one time benefit
adjustment of $5.3 million was recognized in the first quarter of 1993.
In 1993, the income tax expense reflected a different effective tax rate
(51.4%) from the statutory Canadian income tax rate of 44.34% due to the lack of
tax benefits associated with interest and other costs incurred in the U.S.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Income Taxes (Continued)
------------------------
The tax benefit of $9.8 million and $25.2 million for 1992 and 1991
respectively resulted from the disposition of U.S. assets in 1992 and the oil
and gas writedown in each of the two years.
For Canadian income tax purposes, the Large Corporation Tax ("LCT") is
creditable against the federal surtax (3% of federal income tax). Any unused LCT
may be carried back three years and forward seven years. In 1993, based on
estimated future taxable income in Canada, the Company recognized a portion of
the LCT paid ($0.6 million) as a tax asset for the deferred tax computation.
Cash Flows From Operating Activities
------------------------------------
1993 cash flow from continuing operations increased $2.9 million from 1992
and decreased $11.9 million from 1991. 1993 reflected the Company as a primarily
Canadian operation, while 1992 and 1991 include revenues from the U.S. assets
which were subsequently sold. Furthermore, the Company in 1993 received U.S. tax
refunds of $5.6 million from tax loss carrybacks. The income tax paid in 1992
and 1991 predominantly related to U.S. taxes, while the 1993 payment represents
mainly the current Canadian Large Corporation Tax, withholding taxes and U.S.
franchise taxes.
Cash Flows from Investing Activities
------------------------------------
Additions to property, plant and equipment (excluding capitalized interest
and acquisitions) were $19.2 million in 1993 compared to $21.5 million in 1992
and $42.8 million in 1991. In 1993, acquisitions in Canada were $2.1 million
compared to $2.0 million in 1992.
1993 proceeds of $0.9 million from the sale of property, plant and
equipment were received primarily as a result of the sale of several small
Canadian properties. 1993 proceeds of $6.2 million from the sale of U.S. assets
were composed of $5.1 million from the sale of the California gas wells to
Samedan Oil Corporation in the third quarter of 1993, and additional proceeds
received in the first quarter of 1993 of $1.1 million relating to the 1992
disposition of U.S. assets to Dreyfus.
Proceeds from the disposition of U.S. assets to Dreyfus, excluding post
effective date revenues retained and offset against the purchase price, were
$97.1 million in 1992. Additional 1992 divestiture proceeds of $7.8 million were
received primarily as a result of the sale of some smaller U.S. properties.
Also, $7.5 million was received during the second quarter of 1992 from the sale
of the Company's interest in NGC.
Divestitures of non-strategic properties in 1991 generated $17.2 million
and $1.8 million of proceeds in the U.S. and Canada, respectively. Proceeds in
1991 also included $2.4 million from the sale of gas plants in the U.S.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Cash Flows from Financing Activities
------------------------------------
Cash flows from financing activities resulted in an outflow of $13.0
million in 1993 compared with an outflow of $99.6 million and $27.5 million for
1992 and 1991, respectively. In 1993, the Company repurchased $18.4 million of
its long-term notes ($1.9 million of its 9 7/8% and $16.5 million of its 10%
notes) and 7,191 shares of its stock.
In December 1993, the Company borrowed $5.7 million on its line of credit.
During 1992, the Company used proceeds from asset sales to pay down a net
$99.3 million in debt. It repurchased $55.3 million of its notes ($43.9 million
of its 9 7/8% notes and $11.4 million of its 10% notes). The Company also repaid
its line of credit in full, representing a net $42.0 million reduction during
1992, and repaid other debt totalling $2.0 million. During 1991, the Company
paid down debt by a net $22.7 million.
The Company repurchased 31,365 and 170,500 shares of its stock in the open
market for $0.3 million and $4.0 million during 1992 and 1991, respectively. The
Company suspended its dividend in May 1991. During 1991, the Company's dividend
payments were $0.8 million.
Liquidity
---------
The Company plans to fund its capital expenditures, working capital needs
and interest payments through its operating cash flow and its revolving line of
credit. At December 31, 1993, the Company had $17 million available under its
Canadian line of credit. (See Note F to the Consolidated Financial Statements
for further information on the revolving line of credit.)
Future Trends and Uncertainties
-------------------------------
The prices obtained for the sale of oil and natural gas have a significant
impact on the Company's future earnings and cash flows. The Company sells its
gas on the spot market and under short and long-term contracts. A majority of
gas contracts do not have prices fixed for more than twelve months; therefore,
gas prices are subject to volatility depending on fluctuations in the gas
market. Oil prices generally follow worldwide oil prices, which are subject to
fluctuations resulting from world supply and demand and other factors such as
events occurring in the Middle East. Oil and gas prices also affect the
estimated present value of the Company's reserves, which is a component of the
quarterly full cost ceiling test.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
FUTURE TRENDS AND UNCERTAINTIES (Continued)
-------------------------------------------
The Company's future oil and gas production is dependent in part on the
replacement of production with new reserves and its ability to market its
deliverable quantities of production. The Company plans to concentrate on adding
gas reserves and to continue to develop shut-in properties in Canada. The
Company will continue to pursue oil prospects where there is potential for
significant reserve additions and immediate opportunities for development. In
marketing gas reserves, the Company plans to increase geographical diversity
within the customer portfolio targeting in particular California and the Pacific
Northwest. In addition, the Company intends to shift more natural gas production
into direct sales contracts, which generally are one year in length. 1994
production volumes are expected to be approximately equal to 1993 volumes. To
protect against exposure to natural gas price fluctuations in 1994, the Company
has entered into hedge contracts for a portion of its gas.
In 1993, the Company replaced its reserves due to active exploration,
development and acquisitions programs. For 1994, the Company's capital spending
is anticipated to be approximately $28.0 million. Approximately $18.0 million
will be directed towards exploration, development and acquisition activities,
while approximately $10.0 million has been reserved for maintenance, tie-ins,
compression and plant facilities.
The Company believes its future operating cash flow and future credit
availability will be adequate to fund its planned capital expenditures and
working capital needs. In addition, the Company anticipates sufficient funds
will be available to call a portion if not all of the 10% long-term notes
payable, which are redeemable at the option of the Company after April 15, 1995.
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL INFORMATION
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of DEKALB Energy Company:
We have audited the accompanying consolidated balance sheets of DEKALB
Energy Company as of December 31, 1993 and 1992, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of DEKALB Energy
Company as of December 31, 1993 and 1992, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with United States generally accepted
accounting principles.
As discussed in Note D of the financial statements for the year ended
December 31, 1993, the Company has changed its method of accounting for deferred
income taxes.
COOPERS & LYBRAND
Calgary, Alberta
February 18, 1994
21
<PAGE> 22
RESPONSIBILITIES FOR FINANCIAL STATEMENTS
The financial statements on the following pages for the years ended
December 31, 1993, 1992, and 1991, were prepared by management in conformity
with generally accepted accounting principles appropriate in the circumstances.
The integrity and objectivity of data in these financial statements and
related financial data are the responsibility of management. The financial
statements are presented on the accrual basis of accounting and, accordingly,
include some amounts based on judgements of management. Management maintains
what it believes to be an adequate system of internal accounting controls. More
fundamentally, the Company seeks to ensure objectivity and integrity of its
accounts by its selection of qualified personnel, by organizational arrangements
that provide an appropriate division of responsibility, and by communicating its
policies and standards throughout the organization.
DEKALB Energy Company has engaged Coopers & Lybrand, Independent
Accountants, to audit these financial statements. Their report is included
herein which advises that the audit was conducted in accordance with generally
accepted auditing standards. Those standards require that they plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. They include examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
They also include assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
The Board of Directors pursues its responsibility for these financial
statements through its Audit Committee composed of outside directors. Coopers &
Lybrand has full and free access to the Audit Committee and has met with it to
discuss auditing and financial reporting matters.
Vincent J. Tkachyk Michael E. Finnegan
President Vice President, Finance
and Treasurer
Eddy Y. Tse
Chief Accounting Officer
22
<PAGE> 23
DEKALB ENERGY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1993 1992 1991
-------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES
Oil and liquids sales $ 14,291 $ 28,605 $ 51,231
Natural gas sales 30,215 30,678 41,718
Other 1,397 1,450 1,743
-------- --------- ---------
TOTAL OPERATING REVENUES 45,903 60,733 94,692
OPERATING EXPENSES
Lease operations and other direct charges 12,467 18,833 29,802
Depreciation, depletion and amortization 15,142 22,522 41,080
Provision for impairment of oil and gas properties -- 53,320 94,241
General and administrative expense 3,468 6,441 12,656
(Gain) loss on disposal of U.S. assets (513) 34,942 --
-------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 15,339 (75,325) (83,087)
Interest expense, net of interest income and capitalized
interest 3,795 6,938 10,902
Other income, net (123) (3,222) (6,250)
-------- --------- ---------
Earnings (loss) from continuing operations before income
taxes 11,667 (79,041) (87,739)
Income tax expense (benefit) 5,995 (9,788) (25,153)
-------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 5,672 (69,253) (62,586)
Loss from discontinued operations (net of applicable
income taxes) -- (1,050) --
Earnings on cumulative effect of change in accounting
principle 5,334 -- --
-------- --------- ---------
NET EARNINGS (LOSS) $ 11,006 $ (70,303) $ (62,586)
======== ========= =========
Earnings (loss) per share:
Earnings (loss) from continuing operations $ 0.59 $ (7.19) $ (6.51)
Loss from discontinued operations -- (0.11) --
Earnings on cumulative effect of change in accounting
principle 0.55 -- --
-------- --------- ---------
NET EARNINGS (LOSS) PER SHARE $ 1.14 $ (7.30) $ (6.51)
======== ========= =========
Weighted average shares outstanding 9,675 9,630 9,618
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 24
DEKALB ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1993 1992
-------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,664 $ 18,872
Receivables 7,874 10,116
Other current assets 781 989
-------- ---------
Total current assets 31,319 29,977
Other assets 855 6,878
Property, plant, and equipment:
Oil and gas assets, full cost method
Proved properties, being amortized 298,235 313,122
Unproved properties and properties under development, not being
amortized 9,048 15,729
Other property and equipment 2,817 2,847
Less accumulated depreciation, depletion and amortization (132,185) (149,568)
-------- ---------
Net property, plant and equipment 177,915 182,130
-------- ---------
TOTAL ASSETS $210,089 $ 218,985
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit and notes payable $ 5,663 $ 360
Accounts payable, trade 13,868 10,799
Other current liabilities 5,177 7,798
-------- ---------
Total current liabilities 24,708 18,957
Other long-term liabilities 10,612 10,352
Deferred income taxes 22,845 24,364
Long-term debt 51,325 69,725
-------- ---------
TOTAL LIABILITIES 109,490 123,398
-------- ---------
Commitments and contingencies (Notes A and G)
Shareholders' equity:
Capital stock:
Class A; $.625 stated value; 6,000,000 shares authorized;
2,418,000 shares issued at December 31, 1993; 2,544,304 shares
issued at December 31, 1992 1,511 1,590
Class B (nonvoting); $.625 stated value; 13,000,000 shares
authorized; 11,260,483 shares issued at December 31, 1993;
11,134,179 shares issued at December 31, 1992 7,038 6,959
Capital in excess of stated value 51,657 51,765
Retained earnings 142,554 131,548
Currency translation adjustments (12,141) (6,225)
-------- ---------
190,619 185,637
Treasury shares, at cost (4,072,258 shares in 1993 and 4,067,371
shares in 1992) (90,020) (90,050)
-------- ---------
TOTAL SHAREHOLDERS' EQUITY 100,599 95,587
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $210,089 $ 218,985
======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 25
DEKALB ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS from OPERATING ACTIVITIES
Net income (loss) $ 11,006 $(69,253) $(62,586)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 15,142 22,522 41,080
Provision for impairment of oil and gas properties -- 53,320 94,241
Provision (benefit) for deferred income taxes 5,226 (8,342) (27,291)
Cumulative effect of change in accounting principle (5,334) -- --
(Gain) Loss on disposal of U.S. assets (513) 34,942 --
Other (86) (1,176) (1,544)
-------- -------- --------
25,441 32,013 43,900
Changes in assets and liabilities:
Receivables 840 8,833 8,331
Other current assets 196 2,817 197
Other assets 6,024 (4,553) --
Accounts payable and other current liabilities 596 (16,887) (6,873)
Other long term liabilities (1,560) 3,427 (2,508)
Current taxes payable -- 2,635 1,421
Deferred income taxes -- -- (1,070)
Other assets and liabilities -- 367 23
-------- -------- --------
Cash flows from continuing operations 31,537 28,652 43,421
-------- -------- --------
Cash flows from discontinued operations 840 480 919
-------- -------- --------
NET CASH FLOWS from OPERATING ACTIVITIES 32,377 29,132 44,340
-------- -------- --------
CASH FLOWS from INVESTING ACTIVITIES
Purchases of property, plant and equipment (22,875) (25,106) (48,470)
Proceeds from sale of property, plant and equipment 912 7,750 23,234
Proceeds from sale of U.S. assets 6,175 97,181 --
Proceeds from sale of investments -- 7,500 --
-------- -------- --------
NET CASH FLOWS from INVESTING ACTIVITIES (15,788) 87,325 (25,236)
-------- -------- --------
CASH FLOWS from FINANCING ACTIVITIES
Purchases of common stock (79) (328) (4,121)
Proceeds from exercise of stock options 1 79 67
Proceeds from debt -- 35,000 10,000
Net short-term borrowings 5,455 (1,631) 1,744
Payments made on long-term debt and net capital lease
changes (18,400) (132,688) (34,461)
Dividends paid -- -- (768)
-------- -------- --------
NET CASH FLOWS from FINANCING ACTIVITIES (13,023) (99,568) (27,539)
-------- -------- --------
NET EFFECT of EXCHANGE RATES on CASH 226 (134) 65
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 3,792 16,755 (8,370)
Cash and cash equivalents, prior year 18,872 2,117 10,487
-------- -------- --------
CASH and CASH EQUIVALENTS, CURRENT YEAR $ 22,664 $ 18,872 $ 2,117
======== ======== ========
Note: Cash paid during the period for:
Income taxes $ 371 $ 713 $ 2,744
Interest $ 6,472 $ 9,708 $ 11,936
Capitalized interest $ 1,515 $ 2,961 $ 5,686
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 26
DEKALB ENERGY COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ THOUSANDS)
<TABLE>
<CAPTION>
ISSUED
------------------------------------
CLASS A CLASS B
(NONVOTING) CAPITAL IN
STOCK STOCK EXCESS OF CURRENCY TREASURY STOCK
---------------- ----------------- STATED RETAINED TRANSLATION -------------------
SHARES AMOUNT SHARES AMOUNT VALUE EARNINGS ADJUSTMENTS SHARES AMOUNT
------ ------- ------- ------- ---------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1990 2,683 $1,677 10,992 $6,870 $ 52,640 $265,205 $ 11,502 (3,907) $ (86,643)
Net Loss (62,586)
Dividends ($.08 per share) (768)
Exchange Class A for Class B (35) (22) 35 22
Exercise of Stock Options (245) 13 304
Treasury Shares Purchased (173) (4,121)
Translation Adjustment 514
Other 1 (18) 26
------ ------- ------- ------- --------- --------- ----------- ------- ---------
DECEMBER 31, 1991 2,649 $1,655 11,027 $6,892 $ 52,377 $201,851 $ 12,016 (4,067) $ (90,434)
Net Loss (70,303)
Exchange Class A for Class B (107) (67) 107 67
Exercise of Stock Options (665) 31 712
Treasury Shares Purchased (31) (328)
Translation Adjustment (18,241)
Other 2 2 53
------ ------- ------- ------- --------- --------- ----------- ------- ---------
DECEMBER 31, 1992 2,544 $1,590 11,134 $6,959 $ 51,765 $131,548 $ (6,225) (4,067) $ (90,050)
Net Income 11,006
Exchange Class A for Class B (126) (79) 126 79
Exercise of Stock Options (108) 2 109
Treasury Shares Purchased (7) (79)
Translation Adjustment (5,916)
------ ------- ------- ------- --------- --------- ----------- ------- ---------
DECEMBER 31, 1993 2,418 $1,511 11,260 $7,038 $ 51,657 $142,554 $ (12,141) (4,072) $ (90,020)
====== ======= ======= ======= ========= ========= =========== ======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 27
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES AND PROCEDURES
(1) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions between
consolidated companies have been eliminated.
(2) Statement of Cash Flows
The Company classifies highly liquid investments with maturities of three
months or less as cash and cash equivalents. Cash equivalents are stated at cost
which approximates market. The cash flows from contracts that have been
accounted for as hedges have been classified as cash flows from operating
activities.
(3) Oil and Gas Properties
The Company uses the full cost method of accounting, under which the cost
of all exploration and development activities (both successful and unsuccessful)
is capitalized and subsequently amortized to expense using the
unit-of-production method based upon production and estimates of proved reserve
quantities. Unevaluated costs and related capitalized interest costs are
excluded from the amortization base until the properties associated with these
costs are evaluated and determined to be productive or impaired. Should the net
evaluated capitalized costs (net of deferred income taxes) exceed the estimated
after-tax present value of oil and gas reserves and unimpaired value of
unevaluated properties on a country-by-country basis, the excess would be
charged to expense. Included in the estimated present value are Canadian tax
credits expected to be realized beyond the scheduled expiration date of the
legislation (see Supplemental Financial Information). Proceeds from disposals of
oil and gas properties are applied as reductions of capitalized costs. Gain or
loss is recognized only on the sale of oil and gas properties involving
significant amounts of reserves.
(4) Future Removal and Site Restoration Costs
Estimated dismantlement, abandonment and clean-up costs, net of estimated
salvage values, are expensed on the unit-of-production basis using proved oil
and gas reserves.
(5) Other Property, Plant and Equipment
It is the policy of the Company to capitalize expenditures for major
renewals and betterments at cost and to charge to operating expenses the cost of
current maintenance and repairs. Provisions for depreciation have been computed
principally on the straight-line method based on expected useful lives. Rates
used for depreciation are based principally on the following expected lives:
Equipment -- 2 to 10 years; Other -20 years; and Leasehold improvements -- term
of lease.
27
<PAGE> 28
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ACCOUNTING POLICIES AND PROCEDURES
The cost and accumulated allowances for depreciation and amortization
relating to assets retired or otherwise disposed of are eliminated from the
respective accounts at the time of disposition. The resultant gain or loss is
included in current operating results.
(6) Income Taxes
Effective January 1, 1993, the Company adopted the liability method of
accounting for income taxes under Statement of Financial Accounting Standard
(SFAS) No. 109. The adoption of SFAS No. 109 resulted in a one time benefit
adjustment of $5.3 million in the first quarter of 1993.
Prior to 1993, income taxes were calculated in accordance with Accounting
Principles Board Opinion No. 11. Investment tax credits were recognized using
the flow through method whereby current income tax expense was reduced by
investment tax credits utilized. Deferred taxes arose from timing differences
between financial and tax reporting. No taxes have been accrued on the
unremitted earnings of the Canadian subsidiary as these are intended to be
permanently invested in Canada.
(7) Foreign Currency Translation
The Company's reporting currency is U.S. dollars. Translation adjustments
resulting from translating foreign currency financial statements into U.S.
dollar equivalents are reported separately and accumulated in a separate
component of shareholders' equity. Aggregate exchange gains and losses arising
from the translation of foreign currency transactions, excluding intercompany
debt, are included in income.
(8) Earnings Per Share Calculation
Earnings (loss) per share is calculated by dividing the earnings (loss) by
the weighted average shares outstanding during each year. The 1992 and 1991
computation of weighted average shares outstanding exclude anti-dilutive shares.
(9) Gas Balancing
The Company uses the sales method to account for gas imbalances. Under this
method, revenue is recorded on the basis of the Company's share of actual gas
sold. The Company did not have any significant gas imbalances outstanding at
December 31, 1992 or 1993.
28
<PAGE> 29
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A. ACCOUNTING POLICIES AND PROCEDURES -- (CONTINUED)
(10) Concentration of Credit Risk
Substantially all of the Company's receivables are within the oil and gas
industry. Although diversified within many companies, collectibility is
dependent upon the general economic conditions of the industry. Effective
December 1992, the Company has invested excess cash in high-grade securities
through a U.S. investment firm in New York City, and in term deposits with a
Canadian chartered bank.
(11) Hedge Contracts
The Company enters into various contracts to hedge a portion of its oil and
gas production against fluctuating prices. The results of these contracts are
included in revenues as the oil or gas is produced.
B. DISPOSITION OF U.S. ASSETS
On July 9, 1992, the Company announced that it had entered into a
definitive agreement to sell substantially all of its U.S. oil and gas
properties to Louis Dreyfus Gas Holdings Inc. ("Dreyfus"). On October 16, 1992,
the Dreyfus transaction was approved by the shareholders at a special
shareholders' meeting and the closing of the transaction was completed on the
same day. The Company did not sell its California properties. The Company
received $104 million of gross proceeds from the sale, which included
approximately $6.0 million of cash flow from the properties from the effective
date (July 1, 1992). In addition, Dreyfus assumed certain liabilities. A pre-tax
loss of $34.9 million ($32.3 million after-tax) was recorded on the sale in
1992.
Revenues, lease operating expense, DD&A and sales volumes for the 1992
divested properties were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1992
----------------
($ IN MILLIONS)
<S> <C>
Revenues $ 20.1
Lease Operating Expense $ 6.6
DD&A $ 8.3
Sales Volumes
-------------
Oil and Condensate (MBbls) 494
Natural Gas Liquids (MBbls) 125
Natural Gas (MMCF) 5,006
</TABLE>
29
<PAGE> 30
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. DISPOSITION OF U.S. ASSETS -- (CONTINUED)
On August 5, 1993, the Company announced the sale of all its California gas
wells to Samedan Oil Corporation for $5.1 million, effective July 1, 1993. The
Company, in the third quarter of 1993, recorded a $0.5 million pre-tax and
after-tax gain on the disposition of the California gas wells. Also, the Company
closed down its exploration office in Bakersfield. The only U.S. property
retained by the Company after this sale is the working interest in a single
non-operated oil well in California and adjacent acreage.
Revenues, lease operating expenses, DD&A and sales volumes for the 1993
divested properties were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1993
----------------
($ IN MILLIONS)
<S> <C>
Revenue $1.6
Lease Operating Expense $0.3
DD&A $0.9
Sales Volumes
Natural Gas (MMCF) 850
</TABLE>
C. NON-OPERATING ITEMS ($ IN THOUSANDS)
(1) Interest Expense, Net
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Interest expense* $ 4,588 $ 7,456 $ 11,694
Interest income (793) (518) (792)
------- ------- --------
Total interest expense, net $ 3,795 $ 6,938 $ 10,902
------- ------- --------
</TABLE>
- ---------------
* Interest of $1,515, $2,961, and $5,686 was capitalized in 1993, 1992 and
1991, respectively. In 1992 interest of $2,067 was charged to the loss on
the sale of the U.S. assets.
(2) Other Income, Net
<TABLE>
<CAPTION>
For The Years Ended December 31,
1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
Gas contract settlements $ (91) $ 300 $ --
Phantom stock income -- -- (4,015)
Equity in earnings -- (756) (2,035)
Gain on sale of equity investment -- (1,914) --
Adjustment to prior accruals -- (960) --
All other, net (32) 108 (200)
------- -------- --------
Total other income, net $ (123) $ (3,222) $ (6,250)
======= ======== ========
</TABLE>
30
<PAGE> 31
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D. INCOME TAX PROVISION (BENEFITS) ($ IN THOUSANDS)
<TABLE>
<CAPTION>
For The Years Ended December 31,
1993 1992 1991
-------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 140 $ (4,786) $ (1,050)
State 50 46 58
Foreign 579 3,293 3,130
-------- --------- ---------
769 (1,447) 2,138
Deferred:
Federal -- 2,340 (27,332)
Foreign 5,226 (10,681) 41
-------- --------- ---------
5,226 (8,341) (27,291)
-------- --------- ---------
Income tax provision (benefit) $ 5,995 $ (9,788) $ (25,153)
-------- --------- ---------
SFAS No. 109 adjustment (5,334) -- --
-------- --------- ---------
Total income tax provision (benefit) $ 661 $ (9,788) $ (25,153)
======== ========= =========
</TABLE>
The income tax provision for continuing operations was a provision of
$5,995 in 1993 and a benefit of $9,788 in 1992 and $25,153 in 1991. Deferred tax
expense (benefit) results from the following types of differences in the timing
of the recognition of revenues and expense for tax and financial statement
purposes.
<TABLE>
<CAPTION>
For The Years Ended December 31,
1993 1992 1991
------- --------- ---------
<S> <C> <C> <C>
Related to oil and gas operations including depletion
and intangible drilling costs $ 5,326 $ 4,534 $ 622
Tax depreciation greater than (less than) book
depreciation (412) (3,172) 1,872
Provision for impairment of oil and gas properties -- (21,108) (28,201)
Asset dispositions (515) 1,135 (5,325)
Foreign tax -- -- 41
Phantom stock accruals -- -- 875
Deferred compensation -- -- (198)
Bad debts -- -- (60)
Capitalized interest 515 475 869
Capitalized overhead -- 366 1,558
Deferred tax benefit not realizable -- 2,340 --
Losses for which no U.S. tax benefits were recorded -- 7,934 --
Other accruals 312 (845) 656
------- --------- ---------
Total timing differences from continuing operations $ 5,226 $ (8,341) $ (27,291)
======= ========= =========
</TABLE>
31
<PAGE> 32
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D. INCOME TAX PROVISION -- (CONTINUED)
Total tax provisions (benefits) resulted in effective tax rates differing
from that of the statutory income tax rates. The reasons for these differences
are:
<TABLE>
<CAPTION>
PERCENT OF PRETAX EARNINGS FOR
THE YEARS ENDED DECEMBER 31,
1993 1992 1991
------ ------- -------
% % %
<S> <C> <C> <C>
Statutory rate* 44.3 (34.0) (34.0)
Statutory deductions in excess of accounting charges (5.3) --
Tax refund limitation** 8.2 19.6 --
Other non-income tax 4.4 0.1 --
Other (0.2) 1.9 5.3
------ ------- -------
Effective rate for continuing operations 51.4 (12.4) (28.7)
SFAS No. 109 adjustment (45.7) -- --
------ ------- -------
$ 5.7 $ (12.4) $ (28.7)
====== ======= =======
</TABLE>
- ---------------
* 1993 Canadian statutory rate; 1992 and 1991 U.S. federal statutory rate.
** Tax refund limitations result from losses for which no U.S. tax benefit has
been recorded.
<TABLE>
<CAPTION>
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES FOR
THE YEARS ENDED DECEMBER 31,
1993 1992 1991
-------- --------- ---------
<S> <C> <C> <C>
U.S. $ (2,151) $ (59,707) $ (94,086)
Canada 13,818 (19,334) 6,347
-------- --------- ---------
Earnings (loss) from continuing operations before
taxes $ 11,667 $ (79,041) $ (87,739)
======== ========= =========
</TABLE>
For U.S. tax purposes there are approximately $21.2 million in tax
operating loss carryforwards remaining as at December 31, 1993. These losses, if
not utilized, will expire in 2007. Investment tax credits of approximately $1.5
million are available to offset taxable U.S. income after December 31, 1993. If
not utilized, these credits will expire by 2003.
Effective January 1, 1993, the Company adopted the liability method of
accounting for income taxes under Statement of Financial Accounting Standards
(SFAS) No. 109. Prior to 1993, income tax was calculated in accordance with
Accounting Principle Board Opinion No. 11. The adoption of SFAS 109 resulted in
a one time benefit adjustment of 5.3 million which was recorded in the first
quarter of 1993.
32
<PAGE> 33
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D. INCOME TAX PROVISION -- (CONTINUED)
The components of the net deferred tax liabilities under SFAS No. 109 are
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1993 1992(1)
-------- -------
<S> <C> <C>
Deferred Tax Assets
Current allowance for uncollectible accounts receivable $ (241) $ (231)
Non Current
Liabilities (3,423) (3,241)
Tax net operating loss carryforward (7,201) (3,570)
-------- -------
Total deferred assets (10,865) (7,042)
Valuation allowance 9,472 6,746
-------- -------
Net deferred tax assets (1,393) (296)
Deferred Tax Liabilities
Non-current oil & gas properties 24,238 19,326
-------- -------
Net deferred tax liability $ 22,845 $19,030
======== =======
</TABLE>
- ---------------
(1) The components of the net deferred tax liabilities reflect those after the
SFAS No. 109 adjustment.
The Company has recorded a valuation allowance for all U.S. federal tax
operating loss carryforwards and U.S. future deductible amounts under SFAS No.
109 since the Company has limited future taxable income in the United States to
realize these benefits.
E. OTHER CURRENT LIABILITIES ($ IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-----------------
1993 1992
------ ------
<S> <C> <C>
Interest $1,772 $2,219
Compensation 371 432
Insurance reserves 1,285 1,356
Taxes 247 368
Liabilities on disposition of U.S. assets 718 2,397
Other 784 1,026
------ ------
Total other current liabilities $5,177 $7,798
====== ======
</TABLE>
33
<PAGE> 34
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. DEBT ($ IN THOUSANDS)
<TABLE>
<CAPTION>
As Of December 31,
-------------------
1993 1992
------- -------
<S> <C> <C>
Term debt:
Notes -- 10.0% interest, due in 1998 $22,100 $38,600
Notes -- 9.875% interest, due in 2000 29,225 31,125
Line of credit debt 5,663 0
Notes payable -- majority at an interest rate of 7.25%, payable
in varying instalments through 1993 0 360
------- -------
56,988 70,085
Less current maturities 5,663 360
------- -------
Net long-term debt $51,325 $69,725
======= =======
</TABLE>
Aggregate maturities for the years ending December 31, 1994 through 1997
and thereafter, are as follows in thousands:
<TABLE>
1994 1995 1996 1997 Thereafter
- ------- ------ ------ ------ ----------
<S> <C> <C> <C> <C>
$5,663 $ -- $ -- $ -- $ 51,325
</TABLE>
The $22.1 million of 10.0% notes may be redeemed at the option of the
Company any time after April 15, 1995 at 100% of the principal amount thereof
plus accrued interest to the date of redemption.
The term debt agreements contain restrictions on the disposition of assets
of the Company and limitations on the amount of sale and leaseback transactions.
Effective November 19, 1992, DEKALB Energy Canada Ltd. ("DECL") entered
into a revolving term credit facility with the Royal Bank of Canada, which
allows borrowings of up to $30.0 million Canadian funds or the equivalent amount
in U.S. funds. DECL may borrow in Canadian dollars at Canadian prime (5.50% at
December 31, 1993), in U.S. dollars at U.S. prime (6% at December 31, 1993) plus
one-eighth of one percent or under a number of other financing alternatives.
Commitment fees are paid on the unused portion of the commitment to the extent
it exceeds $10.0 million Canadian dollars. This agreement replaced DECL's $13
million Canadian funds facility. At December 31, 1993, DECL had $7.5 million
Canadian funds ($5.7 million U.S.) outstanding under this revolving term credit
facility. The facility is guaranteed by DEKALB Energy Company. The current term
of the facility expires on June 30, 1994, at which time the Company expects a
twelve month extension. If the term is not extended by the bank, the commitment
will be reduced to the amount of the borrowings then outstanding or two-thirds
of DECL's reserve value, whichever is less. DECL is then required to pay down
the commitment in 20 quarterly installments. The first installment is due six
months after the cancellation date. The Company intends to repay the outstanding
line of credit debt within the next twelve months.
34
<PAGE> 35
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. DEBT -- (CONTINUED)
The revolving term credit facility contains a debt to equity covenant for
DECL during the term of the agreement, and a cash flow covenant during the
repayment period after the termination of the facility. DECL must notify the
bank when various adverse events occur. The bank, at its discretion, may require
DECL to collateralize certain of its properties.
At December 31, 1993, the Company had no collateralized oil and gas
properties.
In 1992, upon receipt of the proceeds from the disposition of U.S. assets,
the Company repaid its U.S. line of credit. The Company also used the proceeds
to repurchase a portion of its public debt. The Company repurchased $55.3
million of such public debt during 1992, and an additional $18.4 million was
repurchased during 1993.
G. COMMITMENTS AND CONTINGENCIES AND OFF-BALANCE SHEET RISKS
COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are defendants in various legal actions
arising in the course of their current and discontinued business activities. In
the opinion of management, these actions will not result in a material effect on
the Company's consolidated financial position.
The Company has noncancellable agreements with terms ranging from 1 to 10
years to lease office space and equipment, and for terms ranging from 15 to 30
years for pipeline transportation capacity. Minimum payments due under the term
of the agreements are as follows:
<TABLE>
<CAPTION>
($ IN THOUSANDS)
1994 1995 1996 1997 1998 THEREAFTER
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Lease commitments $ 316 $ 367 $ 380 $ 414 $ 414 $ 587
Pipeline commitments $3,077 $3,077 $3,077 $3,077 $3,077 $ 14,873
------ ------ ------ ------ ------ --------
Total $3,393 $3,444 $3,457 $3,491 $3,491 $ 15,460
====== ====== ====== ====== ====== ========
</TABLE>
Rental expense for operating leases for the years ended December 31, 1993,
1992, and 1991 was $370,000, $1,054,000 and $967,000 respectively.
OFF-BALANCE SHEET RISKS
At December 31, 1993, the Company had in its name stand-by letters of
credit in the amount of $0.4 million which covered 18 months of pipeline demand
charges with Alberta Natural Gas Co. Ltd.
35
<PAGE> 36
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. COMMITMENTS AND CONTINGENCIES AND OFF-BALANCE SHEET RISKS
The Company has entered into the following NYMEX price based hedge
contracts for its gas:
10,000 MMBTU per day for the term December 1993 through November 1994.
10,000 MMBTU per day for the term March 1994 through December 1994.
The fair value of the hedges approximate contract values based on terms
currently available to the Company.
H. CAPITAL STOCK AND INCENTIVE PLANS
Class A and Class B (Nonvoting) Stock
The holders of Class A Stock and Class B (nonvoting) Stock have the same
rights in all respects, including rights with respect to dividends and other
distributions, except that (i) the holders of Class B (nonvoting) Stock have no
voting rights other than as required by the Delaware General Corporation Law,
(ii) the holders of Class A Stock may exchange, at their election, any of their
shares for an equal number of shares of Class B (nonvoting) Stock on a
continuing basis and (iii) the Board of Directors of the Company may distribute
(1) voting stock of subsidiaries of the Company to the holders of Class A Stock
of the Company and (2) non-voting stock of subsidiaries of the Company to the
holders of Class B (nonvoting) Stock of the Company.
PREFERRED STOCK
The Company has 500,000 shares of $1 par value preferred stock authorized
and unissued.
INCENTIVE PLANS
In 1990, the Company adopted a Long-Term Incentive Plan (the "Plan") which
provides for the awarding, from time to time, of stock options, restricted
stock, stock appreciation rights (SARs), performance awards and stock
indemnification rights (SIRs). The Compensation Committee of the Board may make
awards of SARs, SIRs, restricted stock, performance awards, or stock options to
certain officers and other key employees of the Company. Stock options may be
granted at no less than fair market value of the Company's stock at the date of
grant and are exercisable within periods specified by the Compensation
Committee. The Plan replaced an Incentive Stock Option Plan and a non-qualified
stock option plan. All stock options granted prior to December 31, 1990, were
granted under these latter two plans and continue in effect, but no new stock
options may be awarded under these plans. At December 31, 1993, there were no
longer any options outstanding under the Incentive Stock Option Plan. At
December 31, 1993, 203,198 shares of Class A Stock subject to options and 7,050
shares of Class B (nonvoting) Stock subject to options were exercisable under
the Plan. The Company had 136,564 shares available for future grants either as
Class A or Class B shares, under the Plan at December 31, 1993.
36
<PAGE> 37
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. CAPITAL STOCK AND INCENTIVE PLANS -- (CONTINUED)
DEKALB ENERGY COMPANY
CAPITAL STOCK AND INCENTIVE PLAN
<TABLE>
<CAPTION>
Class Prices
----------------- ----------------------
A B A B
-------- ----- ------------- -----
<S> <C> <C> <C> <C>
Shares under option at December 31, 1990 243,173 7,050 $1.00-$31.75 $7.39
Activity:
Granted 92,850 -- $20.00-$25.00 --
Cancelled (85,750) -- $2.10-$31.75 --
Reissued 64,500 -- $20.00 --
Exercised (16,528) -- $1.00-$22.25 --
-------- ----- ------------- -----
Shares under option at December 31, 1991 298,245 7,050 $1.00-$31.75 $7.39
-------- ----- ------------- -----
Activity:
Granted 219,850 -- $11.50-$16.50 --
Cancelled (132,370) -- $13.00-$31.75 --
Reissued 13,875 -- $13.00-$16.00 --
Exercised (33,980) -- $1.00- $7.39 --
-------- ----- ------------- -----
Shares under option at December 31, 1992 365,620 7,050 $2.096-$22.25 $7.39
-------- ----- ------------- -----
Activity:
Granted 103,725 -- $12.25-$16.75 --
Cancelled (154,037) -- $12.25-$22.25 --
Exercised (15,843) -- $2.096-$16.00 --
-------- ----- ------------- -----
Shares under option at December 31, 1993 299,465 7,050 $2.096-$22.25 $7.39
======== ===== ============= =====
</TABLE>
Certain current and former officers of the Company were participants in a
Phantom Stock Plan. Income of $4.0 million was included in earnings from
continuing operations for 1991 resulting from price fluctuations in the stock of
the Company, DEKALB Genetics Corporation and Pride Petroleum Services Inc. The
Phantom Stock Plan expired in November of 1992. The Company paid $.5 million to
the remaining participants.
The Company previously granted 77,380 phantom units exercisable in 1993 at
$16.00 per unit, to certain former officers of the Company. All of the phantom
units were exercised in 1993, resulting in a $.1 million payment. This payment
had been accrued as part of the loss on the sale of the U.S. assets in 1992.
37
<PAGE> 38
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. PENSION PLANS
Prior to the sale of the U.S. assets in 1992, the Company's U.S. employees
participated in a noncontributory pension plan which was designed to provide
benefits based on such employees' career earnings. As part of the sale of the
U.S. assets, this plan was terminated, and assets were distributed.
The Company maintains a noncontributory pension plan covering certain
management employees which is not funded. Benefits are based on each
participant's years of service, final average compensation (in the U.S.), or
average of three highest paid years (in Canada) and estimated benefits received
from certain other plans. At December 31, 1993, the U.S. did not have any active
employees in the plan. Eight previous U.S. employees continue to receive
benefits under the plan. The 1993 interest cost of $203,000 associated with the
U.S. employees was accumulated as part of the loss on the sale of U.S. assets in
1992 and therefore did not result in an expense in 1993.
Total pension expense for the years ended December 31, 1993, 1992, and
1991, was $85,000, $2,134,000, and $740,000, respectively.
The components of total pension expense for 1993 are as follows ($ in
thousands):
<TABLE>
<S> <C>
Service cost -- benefits earned during the year $19
Interest cost on projected benefit obligations 65
Net amortization and deferral 1
---
Total pension expense $85
===
</TABLE>
Actuarial assumptions for December 31, 1993 and December 31, 1992 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
Discount rate 7.00% 8.00%
Average salary growth rate 4.50% 5.50%
</TABLE>
38
<PAGE> 39
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. PENSION PLANS -- (CONTINUED)
A reconciliation of accrued pension liability, included in other long-term
liabilities on the financial statements, is as follows ($ in thousands):
<TABLE>
<CAPTION>
Unfunded Plan As Of
-----------------------------
12/31/93 12/31/92
------------ ------------
<S> <C> <C>
Actuarial present value of benefits based on
service to date and present pay levels:
Vested $ 2,952 $ 2,866
Nonvested -- --
----------- -----------
Accumulated benefit obligation 2,952 2,866
Additional amounts related to projected pay
increases 241 648
----------- -----------
Projected benefit obligation 3,193 3,514
Plan assets at fair value -- --
----------- -----------
Plan assets (less than) benefit obligation (3,193) (3,514)
Unrecognized loss from experience 31 251
Unrecognized net (asset) liability (58) (68)
----------- -----------
Accrued pension (liability) included in the
Consolidated Balance Sheets $ (3,220) $ (3,331)
=========== ===========
</TABLE>
J. DEFINED CONTRIBUTION PLANS
Prior to the sale of the U.S. assets in 1992, the Company's U.S. employees
participated in a voluntary thrift plan which provided that the Company
contribute a minimum of $.50 for every dollar contributed by employees up to 6%
of their salaries. Additional discretionary amounts could have been contributed
when warranted by results of operations. Company contributions charged to
expense under this plan were $243,000 and $173,000 for the years ended December
31, 1992 and 1991, respectively.
Following the sale of the U.S. assets in 1992, this plan was discontinued
and the assets were distributed to the individuals. The remaining U.S. eligible
employees participated in a voluntary thrift plan with the same basic design as
the previous plan; however, it contained an aged based contribution in addition
to the $.50 match and the additional discretionary payments. Following the 1993
sale of assets in California, this plan is no longer active. The Company has
applied to the U.S. Internal Revenue Service for the right to distribute the
assets of this plan. Company contributions charged to expense under this plan
were $38,000 and $9,000 for the years ended December 31, 1993 and 1992,
respectively.
39
<PAGE> 40
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J. DEFINED CONTRIBUTION PLANS -- (CONTINUED)
The Company's Canadian employees participate in a voluntary retirement
savings plan established in 1991. The Company contributes not less than 1% and
not greater than 5.5% of the salary for each employee who participates in the
plan, regardless of the employees' contribution to the plan. In addition, the
Company contributes a minimum of $.50 for every dollar contributed by employees
up to 3% of their salaries. Additional discretionary amounts may also be
contributed when warranted by results of operations. Company contributions
charged to expense under this plan were $507,000, $375,000, and $357,000 for the
years ended December 31, 1993, 1992, and 1991 respectively.
K. OPERATIONS BY GEOGRAPHIC AREA
Information on the Company's continuing operations by geographic area for
the years ended December 31, 1992 and 1991, is shown below. U.S. operations have
been combined with Canada for 1993 due to the immateriality of the U.S.
operations in relation to the Company's operations as a whole. Operating
earnings from continuing operations are total revenues less operating expenses
of the geographic area, excluding interest and general corporate expenses.
In 1993, the Company had three Canadian customers who accounted for 18%,
16% and 11% of sales, respectively. In 1992, the Company had one Canadian
customer who accounted for 11% of sales. In 1991, the Company had one U.S.
customer who accounted for 16% of sales.
<TABLE>
<CAPTION>
OPERATING
AS OF OR FOR THE YEARS OPERATING EARNINGS IDENTIFIABLE
ENDED DECEMBER 31, REVENUES (LOSS) ASSETS
-------- --------- ------------
($ IN THOUSANDS)
<S> <C> <C> <C>
1993 $45,903 $ 15,339 $210,089
======== ========= =========
1992
United States $22,773 $ (57,801) $ 29,787
Canada 37,960 (17,524) 189,198
-------- --------- ----------
$60,733 $ (75,325) $218,985
======== ========= =========
1991
United States $54,313 $ (93,852) $193,816
Canada 40,379 10,765 229,413
Discontinued operations -- -- 1,802
-------- --------- ----------
$94,692 $ (83,087) $425,031
======== ========= =========
</TABLE>
- ---------------
Note: Included in 1992 and 1991 Canadian operating revenues were $1.6 million
and $10.5 million, respectively, of sales of natural gas from Canada to
the U.S. which were recorded at fair market value. The resale of such gas
to outside parties was eliminated from U.S. sales. Excluded from 1991
Canadian operating revenues was $1.2 million of natural gas sales to the
U.S. which was still in inventory at December 31, 1991. The intercompany
gross (loss) profit on such sales excluded from operating earnings was
($.3) million in 1991.
40
<PAGE> 41
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
L. DISCONTINUED OPERATIONS
SUMMARY OF EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
($ in thousands)
<S> <C> <C> <C>
Lindsay Manufacturing Co.
Pre-tax (loss) on divestiture $ -- $ (300) $ --
Commodities Brokerage
(Loss) on divesture -- (750) --
-------- -------- --------
Earnings (loss) from Discontinued Operations $ -- $ (1,050) $ --
======== ======== ========
</TABLE>
OTHER
The Company sold the stock of its commodities brokerage business in 1986
and Lindsay Manufacturing Co. in 1989. The 1992 losses resulted from changes in
estimated future expenses related to the above transactions. As a result of the
Company's cumulative loss position, no tax benefit was recognized for the
accruals.
M. OIL AND GAS DISCLOSURES
Capitalized costs at December 31, 1993, (all of which are located in
Canada) which have been excluded from the amortization base as prescribed by the
Securities and Exchange Commission Financial Reporting Release No. 14 for the
years ended December 31, 1993, 1992, and 1991 ($ in thousands) are as follows:
<TABLE>
<CAPTION>
INTEREST
FISCAL YEAR LEASEHOLD EXPLORATION RELATED TO
OF ACQUISITION COSTS COSTS EXCLUDED COSTS TOTAL
- -------------- --------- ----------- -------------- -------
<S> <C> <C> <C> <C>
CANADA
Prior 53 360 110 523
1991 15 638 172 825
1992 425 896 351 1,672
1993 2,645 2,120 1,263 6,028
-------- --------- ------------ -------
Total $ 3,138 $ 4,014 $1,896 $ 9,048
======== ========= ============ ======
</TABLE>
41
<PAGE> 42
DEKALB ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
M. OIL AND GAS DISCLOSURES -- (CONTINUED)
The properties associated with the above excluded costs are being evaluated
in the normal course of the Company's exploration activities. While it is not
possible to determine the exact period in which these costs will be transferred
to the amortization base, it is estimated that the majority will be included
within five years after the costs were incurred.
Any material impairment to the properties associated with the excluded
costs will be moved to the full cost amortization base.
N. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND SHORT TERM INVESTMENTS
The carrying amount approximates the fair value because of the short term
maturity of those instruments.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated to be $54.5
million, or $3.2 million over stated book value, based upon current rates
offered to the Company for debt of the same remaining maturities.
42
<PAGE> 43
DEKALB ENERGY COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
ESTIMATED NET QUANTITIES OF PROVED RESERVES*
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED DECEMBER 31,
1993(1) 1992 1991
------- ----------------------------- -----------------------------
TOTAL U.S. CANADA TOTAL U.S. CANADA
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OIL, CONDENSATE AND NATURAL GAS LIQUIDS
(THOUSANDS OF BARRELS)
Proved developed and undeveloped reserves:
Beginning of year 13,984 26,077 11,693 14,384 29,262 13,881 15,381
Revisions of previous estimates (300) (12) -- (12) 973 1,152 (179)
Sales of reserves (46) (10,928) (10,928) -- (1,997) (1,954) (43)
Purchase of minerals in place 188 382 -- 382 -- -- --
Extensions, discoveries and other
additions 397 227 -- 227 720 470 250
Production (989) (1,762) (765) (997) (2,881) (1,856) (1,025)
------- ------- ------- ------- ------- ------- -------
End of year 13,234 13,984 -- 13,984 26,077 11,693 14,384
======= ======== ======== ======== ======== ======== ========
Proved developed reserves:
Beginning of year 13,972 25,094 10,723 14,371 28,182 12,813 15,369
======= ======== ======== ======== ======== ======== ========
End of year 13,221 13,972 0 13,972 25,094 10,723 14,371
======= ======== ======== ======== ======== ======== ========
NATURAL GAS
(MILLIONS OF CUBIC FEET)
Proved developed and undeveloped reserves:
Beginning of year 276,343 361,194 80,464 280,730 388,842 93,732 295,110
Revisions of previous estimates 2,198 1,026 732 294 (3,704) (6,333) 2,629
Sales of reserves (3,660) (71,429) (71,342) (87) (10,625) (4,150) (6,475)
Purchase of minerals in place 4,405 1,617 -- 1,617 -- -- --
Extensions, discoveries and other
additions 19,094 7,239 1,335 5,904 16,226 9,726 6,500
Production (20,969) (23,304) (6,671) (16,633) (29,545) (12,511) (17,034)
------- ------- ------- ------- ------- ------- -------
End of year 277,411 276,343 4,518 271,825 361,194 80,464 280,730
======== ======== ======== ======== ======== ======== ========
Proved developed reserves:
Beginning of year 263,305 341,353 73,962 267,391 366,640 84,608 282,032
======== ======== ======== ======== ======== ======== ========
End of year 263,070 263,305 4,518 258,787 341,353 73,962 267,391
======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
* Proved oil and gas reserve quantities for all three years presented were
estimated by the Company's engineers. The reserve quantities for 1993, 1992
and 1991 were reviewed and determined to be reasonable by Ryder Scott
Company Petroleum Engineers, independent petroleum engineers, in accordance
with Securities and Exchange Commission guidelines.
(1) U.S. reserve information has been combined with Canada for 1993 due to the
immateriality of the U.S. reserves in relation to the total Company
reserves.
43
<PAGE> 44
DEKALB ENERGY COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED
DECEMBER 31, 1993, 1992, AND 1991 ($ IN MILLIONS*) TOTAL
------
<S> <C>
1993(5)
Future cash inflows $672.0(4)
Future production costs 134.8
Future development costs 20.4
------
Future net cash flows before income taxes 516.8
Discount at 10% per annum 249.8
------
Present value of future net cash flows before income taxes 267.0(4)
Present value of future income taxes** 64.6
------
Standardized measure of discounted future net cash flows $202.4
======
</TABLE>
<TABLE>
<CAPTION>
UNITED
STATES CANADA TOTAL
------ ------ ------
<S> <C> <C> <C>
1992
Future cash inflows $ 8.9 $648.1(4) $657.0
Future production costs 2.0 172.1 174.1
Future development costs 0.4 22.2 22.6
------ ------ ------
Future net cash flows before income taxes 6.5 453.8 460.3
Discount at 10% per annum 1.3 248.6 249.9
------ ------ ------
Present value of future net cash flows before income taxes 5.2 205.2(4) 210.4
Present value of future income taxes** -- 44.7 44.7
------ ------ ------
Standardized measure of discounted future net cash flows $ 5.2 $160.5 $165.7
====== ====== ======
1991
Future cash inflows $335.8 $646.2(4) $982.0
Future production costs 124.0 194.0 318.0
Future development costs 9.2 17.8 27.0
------ ------ ------
Future net cash flows before income taxes 202.6 434.4 637.0
Discount at 10% per annum 75.9 235.6 311.5
------ ------ ------
Present value of future net cash flows before income taxes 126.7 198.8(4) 325.5
Present value of future income taxes** 12.4 37.8 50.2
------ ------ ------
Standardized measure of discounted future net cash flows $114.3 $161.0 $275.3
====== ====== ======
</TABLE>
- ---------------
* As prescribed in the statement of Financial Accounting Standards No. 69 and
developed by using the following conventions:
(1) Estimates are made of quantities of proved reserves at fiscal year-end and
for future periods during which these reserves are expected to be produced,
based on year-end economic conditions.
(2) Pricing of future production of proved reserves is based on the prices in
effect at fiscal year-end. Estimated future production and development
costs reflect current economic conditions.
(3) The provision for income taxes has been computed by applying future
statutory tax rates under the present law to the future taxable income to
be generated from producing proved reserves giving effect to applicable
permanent differences.
(4) Included in future cash inflows is approximately $39.4 million, $45.6
million and $50.6 million ($12.0 million, $14.1 million and $16.0 million
after discount at 10% per annum) for 1993, 1992 and 1991 respectively of
Canadian tax credits expected to be realized beyond the scheduled
expiration date of legislation.
(5) U.S. net cash flows have been included with Canada for 1993 due to their
immateriality in relation to the total net cash flows for the Company as a
whole.
** U.S. undiscounted future income taxes in 1991 were $18.6 million. Canadian
undiscounted future income taxes in 1993, 1992, and 1991 were $135.3
million, $119.8 million and $103.2 million, respectively.
44
<PAGE> 45
DEKALB ENERGY COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the changes in the Standardized Measure of
Discounted Future Cash Flow relating to Proved Oil and Gas Reserves ($ IN
MILLIONS)
<TABLE>
<CAPTION>
AS OF OR REVISION PURCHASES
FOR THE CURRENT CHANGES OF DISCOVERIES OF SALES OF ACCRETION
YEARS ENDED BEGINNING YEAR IN PRICES ESTIMATED AND MINERALS MINERALS OF INCOME END OF
DECEMBER 31, OF YEAR SALES AND COSTS QUANTITIES EXTENSIONS IN PLACE* IN PLACE DISCOUNT TAXES OTHER YEAR
- ------------ --------- ------- --------- --------- ----------- --------- -------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993(1)
Total $ 165.7 $ (31.8) $ 54.1 $ 2.6 $ 20.3 $ 4.8 $ (4.2) $ 18.3 $ (19.9) $ (7.5) $ 202.4
======= ====== ======== ======= ========= ======== ======== ========= ======= ======= =======
1992
U.S. $ 114.3 $ (15.0) $ (1.3) -- $ 2.1 -- $ (95.3) $ 0.4 -- -- $ 5.2
Canada 161.0 (27.4) 22.5 2.4 5.8 3.3 -- 16.6 6.9 (16.8) 160.5
-------- ------- --------- -------- --------- -------- -------- --------- ------- ------- -------
Total $ 275.3 $ (42.4) $ 21.2 $ 2.4 $ 7.9 $ 3.3 $ (95.3) $ 17.0 $ (6.9) $ (16.8) $ 165.7
======= ====== ======== ======= ========= ======== ======== ========= ======= ======= =======
1991
U.S. $ 186.4 $ (35.7) $ (78.6) $ (8.3) $ 14.3 -- $ (13.3) $ 14.6 $ 34.9 -- $ 114.3
Canada 202.3 (25.4) (75.9) 0.3 6.4 -- (2.7) 25.3 29.9 0.8 161.0
-------- ------- --------- -------- --------- -------- -------- --------- ------- ------- -------
Total $ 388.7 $ (61.1) $ (154.5) $ (8.0) $ 20.7 -- $ (16.0) $ 39.9 $ 64.8 $ 0.8 $ 275.3
======= ====== ======== ======= ========= ======== ======== ========= ======= ======= =======
</TABLE>
- ---------------
* Includes any unevaluated costs associated with acquired properties.
(1) U.S. data has been included with Canada for 1993 due to its immateriality in
relation to the total data for the Company as a whole.
CAPITALIZED COSTS RELATED TO OIL AND GAS PROPERTIES ($ IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1993(2) 1992
--------- ----------------------------------
TOTAL U.S. CANADA
--------- -------- ---------
<S> <C> <C> <C> <C>
Evaluated Properties $ 298,235 $ 313,122 $ 29,337 $ 283,785
Unevaluated Properties(1) 9,048 15,729 -- 15,729
--------- --------- -------- ---------
Total properties 307,283 328,851 29,337 299,514
Less reserves for accumulated depreciation,
depletion and amortization 130,079 147,564 24,899 122,665
--------- --------- -------- ---------
End of year $ 177,204 $ 181,287 $ 4,438 $ 176,849
========= ========= ======== =========
</TABLE>
- ---------------
(1) Unevaluated costs represent acquisition and exploration costs which are
excluded from the current amortization base as described in Note M.
(2) U.S. costs have been included with Canada for 1993 due to their
immateriality in relation to the total costs for the Company as a whole.
45
<PAGE> 46
DEKALB ENERGY COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
COSTS INCURRED IN PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES(1) ($ IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1993(2) 1992 1991
-------- ----------------------------- ------------------------------
TOTAL U.S. CANADA TOTAL U.S. CANADA
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Leasehold costs $ 2,686 $ 906 -- $ 906 $ 3,949 $ 2,437 $ 1,512
Purchases of minerals in
place 2,075 1,912 -- 1,912 -- -- --
Exploration 8,168 7,709 2,649 5,060 13,590 6,355 7,235
Development 6,532 6,504 3,361 3,143 16,618 12,743 3,875
-------- -------- ------- -------- -------- -------- --------
Total $ 19,461 $ 17,031 $ 6,010 $ 11,021 $ 34,157 $ 21,535 $ 12,622
======== ======== ====== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Costs do not include capitalized interest
(2) U.S. costs for 1993 have been combined with Canada due to the immateriality
of the U.S. costs in relation to the total Company costs as a whole.
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES ($ IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1993(5) 1992 1991
-------- -------------------------------- --------------------------------
TOTAL U.S. CANADA TOTAL U.S. CANADA
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues(4) $ 45,903 $ 60,733 $ 22,773 $ 37,960 $ 94,692 $ 54,313 $ 40,379
Lease operations and
other direct
charges(1) 12,467 18,833 7,218 11,615 29,802 17,463 12,339
Depreciation,
depletion and
amortization 15,142 22,522 9,683 12,839 40,865 26,238 14,627
Provision for
impairment of oil
and gas properties -- 53,320 24,728 28,592 94,241 94,241 --
Income tax expense
(benefit)(2) 8,164 (13,756) (7,067) (6,689) (25,461) (31,341) 5,880
-------- --------- --------- -------- --------- --------- --------
Results of Operations
for oil and gas
producing activities $ 10,130 $ (20,186) $ (11,789) $ (8,397) $ (44,755) $ (52,288) $ 7,533
======== ========= ========= ======== ========= ========= ========
"Full Cost"
Amortization Rate(3) $ 3.37 $ 5.16 $ 3.31 $ 6.66 $ 3.79
======== ========= ======== ========= ========
</TABLE>
- ---------------
(1) Excludes general and administrative and interest costs.
(2) This provision is not an indication of the total corporate income tax
provision and is provided at statutory tax rates.
(3) Dollars per equivalent barrel (gas converted to oil at 6,000 cubic feet per
barrel).
(4) Included in 1992 and 1991 Canadian operating revenues were $1.6 million and
$10.5 million, respectively, of sales of natural gas from Canada to the
U.S. which were recorded at fair market value. The resale of such gas to
outside parties was eliminated from U.S. sales. Excluded from 1991 Canadian
operating revenues were $1.2 million of natural gas sales to the U.S. which
were still in inventory at December 31, 1991.
(5) U.S. results of operations for 1993 have been combined with Canada due to
the immateriality of the U.S. results in relation to the total Company
results as a whole.
46
<PAGE> 47
DEKALB ENERGY COMPANY
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED THE LAST DAY OF
MARCH JUNE SEPTEMBER DECEMBER
-------- -------- --------- --------
$ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Operating revenues $ 11,827 $ 11,949 $ 10,245 $ 11,882
Operating expenses 7,443 8,514 6,902 7,705
Earnings from continuing operations 1,413 1,336 1,074 1,849
Net earnings 6,747 1,336 1,074 1,849
========= ========= ========= =========
Earnings per common share:
Earnings from continuing operations $ 0.15 $ 0.14 $ 0.11 $ 0.19
Net earnings $ 0.70 $ 0.14 $ 0.11 $ 0.19
========= ========= ========= =========
Year ended December 31, 1992
Operating revenues $ 19,268 $ 19,437 $ 9,041 $ 12,987
Operating expenses 70,904 47,843 9,462 7,849
Earnings (loss) from continuing
operations (41,727) (26,145) (3,778) 2,397
Net earnings (loss) (41,727) (26,145) (4,828) 2,397
========= ========= ========= =========
Earnings per common share:
Earnings (loss) from continuing
operations $ (4.34) $ (2.71) $ (0.39) $ 0.25
Net earnings (loss) $ (4.34) $ (2.71) $ (0.50) $ 0.25
========= ========= ========= =========
</TABLE>
The Following Quarterly Items Are All Pre-tax Amounts:
The quarters ended March 31 and June 30, 1993 included Canadian and
California operations. The quarters ended September 30 and December 31,
1993 included Canadian operations and the remaining California well
subsequent to the sale of the California gas assets effective July 1,
1993. A pre-tax and after-tax gain of $0.5 million was recognized in
income in the third quarter of 1993 in connection with the sale. The
first quarter of 1993 also included a one time benefit adjustment of
$5.3 million as a result of the Company's adoption of Financial
Accounting Standard No. 109 "Accounting for Income Taxes" as of January
1, 1993.
The quarter ended March 31, 1992 included $24.7 million (U.S. operations)
and $28.6 million (Canadian operations) of expenses related to the
writedowns of oil and gas properties. The quarter ended June 30, 1992
included $33.1 million related to the loss on the disposal of U.S.
assets. The quarter ended September 30, 1992 included an additional $1.8
million related to the loss on disposal of U.S. assets and a recognition
of $1.1 million on legal accruals for discontinued operations. The
quarters ended September 30 and December 31, 1992 included only Canadian
and California operations.
For further discussion, see Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note L to the Consolidated
Financial Statements.
47
<PAGE> 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company will file with the Securities and Exchange Commission a
definitive Proxy Statement not later than 120 days after the close of its fiscal
year ended December 31, 1993. The information required by this Item is
incorporated by reference from the Proxy Statement.
Information about Executive Officers is shown on Page 8 and 9 of this
filing.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Proxy Statement.
48
<PAGE> 49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements of DEKALB Energy Company are included in
part II, Item 8:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants(8) 21
Consolidated Statements of Operations for the years ended December 31,
1993, 1992, and 1991 23
Consolidated Balance Sheets as of December 31, 1993 and 1992 24
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1992, and 1991 25
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1992, and 1991 26
Notes to Consolidated Financial Statements 27-42
Unaudited Supplementary Financial Information 43-47
(a)(2) Financial Statement Schedules
Report of Independent Accountants (8) 53
Schedule II -- Amounts Receivable from Related parties and Underwriters,
Promoters, and Employees other than Related Parties 54
Schedule V -- Property, Plant, and Equipment 55
Schedule VI -- Accumulated Depreciation and Amortization of Property,
Plant, and Equipment 56
Schedule VIII -- Valuation and Qualifying Account 57
Schedule IX -- Short-Term Borrowings 58
Schedule X -- Supplementary Income Statement Information 59
</TABLE>
Financial statements and schedules other than those listed are omitted for
the reason that they are not required, are not applicable, or that equivalent
information has been included in the financial statements or notes thereto.
49
<PAGE> 50
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(3) Exhibits
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the registrant(2)
3.2 Restated By-laws of the registrant(1)
4.1 Indenture dated as of April 1, 1988, between the registrant and
Continental Illinois Bank and Trust Company of Chicago as Trustee
relating to $50 million long-term notes at 10% and $75 million of
long-term notes at 9.875%(3)
4.2 Extendible Revolving Term Credit Agreement between DEKALB Energy
Canada Ltd. and the Royal Bank of Canada.(7)
10.1 Stock Option Plan(1)*
10.2 Form of Stock Option Agreement(1)*
10.3 Letter Agreement between DEKALB Energy Company and Vincent J.
Tkachyk(7)*
10.4 Deferred Management Compensation Plan(2)*
10.5 Employment Agreement between DEKALB Energy Company and Bruce P.
Bickner(5)*
10.6 Employment Agreement between DEKALB Energy Company and John H. Witmer,
Jr.(5)*
10.7 Long-Term Incentive Plan(4)*
10.8 Employment Agreement between DEKALB Energy Company and Michael E.
Finnegan(7)*
10.9 Firm Transportation Service Agreement between the registrant and
Pacific Gas Transmission Company(7)
10.10 Asset purchase and Sale Agreement (U.S. properties) between the
registrant and Louis Dreyfus Gas Holdings Inc.(6)
10.11 DEKALB Energy Company Profit Based Thrift Plan(7)
11 Statement re computation of per share earnings 60
21 Subsidiaries of Registrant 61
24.1 Consent of Independent Accountants(8) 62
24.2 Consent of Independent Petroleum Engineers(8)
28 Report of Independent Petroleum Engineers(8)
</TABLE>
50
<PAGE> 51
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K --
(a)(3) Exhibits (CONTINUED)
Footnotes:
- ----------
(1) Incorporated by reference to Exhibit to Amendment No. 1 to Form 10-K for the
fiscal year ended August 31, 1986, dated May 19, 1987.
(2) Incorporated by reference to Exhibit to Form 10-K for the fiscal year ended
December 31, 1988, dated March 13, 1989.
(3) Incorporated by reference to Exhibit 4 A to Registration Statement on Form
S-3 (Registration No. 33-12534).
(4) Incorporated by reference to Exhibit to Form 10-Q for the quarter ended
March 31, 1990, dated May 11, 1990.
(5) Incorporated by reference to Exhibit to Form 10-K for the fiscal year ended
December 31, 1991, dated March 11, 1992.
(6) Incorporated by reference to Exhibit to Form 8-K dated October 16, 1992.
(7) Incorporated by reference to Exhibit to Form 10-K for the fiscal year ended
December 31,1992 dated March 12, 1993.
(8) Filed in paper format under Form SE.
* Indicates management contracts, compensatory plans or arrangements.
(b) Reports on Form 8-K.
No Form 8-K was filed in 1993.
51
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DEKALB Energy Company
Date: March 4, 1994
By: /s/ VINCENT J. TKACHYK
--------------------------------
Vincent J. Tkachyk
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on this 4th day of March, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>
/s/ MICHAEL E. FINNEGAN Vice President, Finance and Treasurer
-------------------------------------------
Michael E. Finnegan
/s/ EDDY Y. TSE Chief Accounting Officer
-------------------------------------------
Eddy Y. Tse
DIRECTORS
/s/ BRUCE P. BICKNER /s/ THOMAS H. ROBERTS, JR.
------------------------------------------- ---------------------------------------
Bruce P. Bickner Thomas H. Roberts, Jr.
/s/ DONALD McMORLAND /s/ H. BLAIR WHITE
------------------------------------------- ---------------------------------------
Donald McMorland H. Blair White
/s/ CHARLES C. ROBERTS /s/ WILLIAM J. WOOTEN
------------------------------------------- ---------------------------------------
Charles C. Roberts William J. Wooten
</TABLE>
52
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of DEKALB Energy Company:
Our report on the consolidated financial statements of DEKALB Energy
Company is included on page 21 of this Form 10-K. In connection with our audits
of such financial statements, we have also audited the related financial
statement schedules listed on page 49 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Calgary, Alberta
February 18, 1994 COOPERS & LYBRAND
53
<PAGE> 54
DEKALB ENERGY COMPANY
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------------- ---------- -------- -------------------- ------------------
Deductions Balance At
-------------------- End of Period
Balance At Amounts ------------------
Beginning Amounts Written Not
Name Of Debtor Of Period Additions Collected Off Current Current
- ---------------------------------- ---------- -------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
$ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======= ====== ======
Year ended December 31, 1992:
Vincent Tkachyk(a) $167 $ -- $ 167 $ -- $ -- $ --
Edward Aabak(b) 182 -- 182 -- -- --
Terry Sherban(c) 208 -- 208 -- -- --
-------- -------- -------- ------- ------ ------
TOTAL $557 $ -- $ 557 $ -- $ -- $ --
======== ======== ======== ======= ====== ======
Year ended December 31, 1991:
Vincent Tkachyk(a) $224 $ -- $ 57 $ -- $ 167 $ --
Edward Aabak(b) 183 -- 1 -- 182 --
Terry Sherban(c) 209 -- 1 -- 208 --
---------- -------- -------- ------- ------ ------
TOTAL $616 $ -- $ 59 $ -- $ 557 $ --
======== ======== ======== ======= ====== ======
</TABLE>
- ---------------
Notes:
All of the above loans were made in conjunction with employee relocations.
(a) Loan was paid in full in 1992. Interest accrued at 10%. Collateralized in
whole by security agreements on certain real property.
(b) Loan was paid in full in 1992. $46 of principal was non-interest bearing,
with the remainder accruing interest at 10%.
(c) Loan was paid in full in 1992. $52 of the principal was non-interest
bearing, with the remainder accruing interest at 10%.
54
<PAGE> 55
DEKALB ENERGY COMPANY
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT (C)
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
---------------------------------- ---------- -------- ----------- ------------------------- ----------
Balance At Other Charges Balance At
Beginning Additions ------------------------- End Of
Classification Of Period At Cost Retirements Additions Deductions Period
---------------------------------- ---------- -------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land $ 43 $ -- $ -- $ -- $ 1 $ 42
Equipment 2,455 303 290 -- 97 2,371
Oil and gas properties and
equipment 328,851 21,252 31,301(e) -- 11,519 307,283
Other 348 70 -- -- 14 404
---------- -------- ----------- --------- ---------- ----------
$331,697 $21,625 $ 31,591 $ -- $ 11,631(d) $310,100
========= ======== ========= ======== ========= =========
Year ended December 31, 1992:
Land $ 53 $ -- $ 6 $ -- $ 4 $ 43
Equipment 6,522 415 4,240 -- 242 2,455
Oil and gas properties and
equipment 820,435 18,923 483,085(e) -- 27,422 328,851
Other 2,018 92 1,735 -- 27 348
---------- -------- ----------- --------- ---------- ----------
$829,028 $19,430 $ 489,066 $ -- $ 27,695(d) $331,697
========= ======== ========= ======== ========= =========
Year ended December 31, 1991:
Land $ 99 $ -- $ 83 $ 39 $ 2 $ 53
Equipment 11,009 867 5,364 10 -- 6,522
Oil and gas properties and
equipment 818,137 42,512 41,279 1,126 61 820,435
Other 1,878 133 -- 22 15 2,018
---------- -------- ----------- --------- ---------- ----------
$831,123 $43,512 $ 46,726 $ 1,197(a,b) $ 78(a) $829,028
========= ======== ========= ======== ========= =========
</TABLE>
- ---------------
Notes:
(a) Includes transfers between property classes.
(b) Includes $1,120 resulting from foreign currency translation of foreign
assets for the year ended December 31, 1991.
(c) Accounting methods for oil and gas property, plant and equipment can be
found under the captions "Oil and Gas Properties" and "Other Property, Plant
and Equipment" in Part II, Item 8, Note A of the Consolidated Financial
Statements.
(d) Represents foreign currency translation of foreign assets for the year.
(e) Majority related to disposal of U.S. assets; see Part II, Item 8, Note B of
the Consolidated Financial Statements.
55
<PAGE> 56
DEKALB ENERGY COMPANY
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (E)
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
----------------------------- ----------- ----------- ----------- -------------------------- ----------
Balance At Other Charges Balance At
Beginning Additions -------------------------- End Of
Classification Of Period At Cost Retirements Additions Deductions Period
----------------------------- ---------- --------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Equipment $ 1,769 $ 390 $ 260 $ -- $ 97 $ 1,802
Oil and gas properties and
equipment 147,564 13,894 21,788(f) -- 9,591 130,079
Other 235 79 -- -- 10 304
---------- --------- ----------- --------- ---------- ----------
$149,568 $ 14,363 $ 22,048 $ -- $ 9,698(d) $132,185
========= ========= ========= ======== ========= =========
Year ended December 31, 1992:
Equipment $ 4,238 $ 689 $ 2,985 $ -- $ 173 $ 1,769
Oil and gas properties and
equipment 440,026 73,254(c) 355,386(f) -- 10,330 147,564
Other 1,402 113 1,261 -- 19 235
---------- --------- ----------- --------- ---------- ----------
$445,666 $ 74,056 $ 359,632 $ -- $ 10,522(d) $149,568
========= ========= ========= ======== ========= =========
Year ended December 31, 1991:
Equipment $ 5,203 $ 1,071 $ 2,025 $ 3 $ 14 $ 4,238
Oil and gas properties and
equipment 323,817 122,100(c) 6,079 188 -- 440,026
Other 1,255 133 -- 14 -- 1,402
---------- --------- ----------- --------- ---------- ----------
$330,275 $ 123,304 $ 8,104 $ 205(a,b) $ 14(a) $445,666
========= ========= ========= ======== ========= =========
</TABLE>
- ---------------
Notes:
(a) Includes transfers between property classes.
(b) Includes $191 resulting from foreign currency translation of foreign assets
for the year ended December 31, 1991.
(c) Includes Canadian and U.S. writedowns of $53,320 in 1992, and U.S. writedown
of $94,241 in 1991.
(d) Represents foreign currency translation of foreign assets for the year.
(e) Accounting methods for depreciation, depletion and amortization of property,
plant and equipment can be found under the captions "Oil and Gas Properties"
and "Other Property, Plant and Equipment" in Part II, Item 8, Note A of the
Consolidated Financial Statements.
(f) Majority related to the disposal of U.S. assets; see Part II, Item 8, Note B
of the Consolidated Financial Statements.
56
<PAGE> 57
DEKALB ENERGY COMPANY
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNT
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------------- ---------- ----------------------- ---------- ----------
Additions
-----------------------
Balance At Charged To Charged To Balance At
Beginning Costs And Other End Of
Description Of Period Expenses Accounts Deductions Period
- --------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Deducted in the balance sheet from the
assets to which they apply:
Allowance for doubtful accounts and
notes receivable $ 679 $ 30 $ -- $ -- $ 709
======== ========= ========= ========= ========
Allowance for assets of discontinued
businesses $3,637 $ -- $840 $ (98)(b) $4,379
======== ========= ========= ========= ========
Year ended December 31, 1992:
Deducted in the balance sheet from the
assets to which they apply:
Allowance for doubtful accounts and
notes receivable $ 385 $630 $ -- $ (336)(a) $ 679
======== ========= ========= ========= ========
Allowance for assets of discontinued
businesses $3,507 $ -- $761 $ (631)(b) $3,637
======== ========= ========= ========= ========
Year ended December 31, 1991:
Deducted in the balance sheet from the
assets to which they apply:
Allowance for doubtful accounts and
notes receivable $ 259 $265 $ -- $ (139)(a) $ 385
======== ========= ========= ========= ========
Allowance for assets of discontinued
businesses $4,184 $ -- $165 $ (842)(b) $3,507
======== ========= ========= ========= ========
</TABLE>
- ---------------
Notes:
(a) Uncollectible items written off, less recoveries of items previously written
off.
(b) Realized losses charged to the reserve.
57
<PAGE> 58
DEKALB ENERGY COMPANY
SCHEDULE IX -- SHORT-TERM BORROWINGS
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
($ IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- ----------------------------------- -------- -------- ----------- ----------- -----------
AVERAGE MAXIMUM AVERAGE WEIGHTED
INTEREST AMOUNT AMOUNT AVERAGE
BALANCE RATE AT OUTSTANDING OUTSTANDING INTEREST
CATEGORY OF AGGREGATE AT END END OF DURING DURING RATE DURING
SHORT-TERM BORROWINGS OF YEAR YEAR(A) THE YEAR THE YEAR(B) THE YEAR(A)
- ----------------------------------- -------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Non-U.S. Debt $ 5,663 $ 5.50% $ 5,663 $ 472 5.50%
Year ended December 31, 1992:
Non-U.S. Debt $ -- $ N/A $ 3,323 $ 1,159 7.54%
Year ended December 31, 1991:
Non-U.S. Debt $ 1,731 $ 8.00% $ 1,939 $ 575 10.06%
</TABLE>
- ---------------
Notes:
(a) Non-U.S. debt is an operating line with the Royal Bank of Canada accruing
interest at the Royal Bank prime rate.
(b) The average amount of borrowings outstanding was based on a simple average
of month end balances outstanding.
58
<PAGE> 59
DEKALB ENERGY COMPANY
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
($ IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B
- --------------------------------------------------------------- -------------------------------
DESCRIPTION CHARGED TO COSTS AND EXPENSES
- --------------------------------------------------------------- -------------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
1. Maintenance and repairs $ 2,282 $ 3,326 $ 3,723
====== ====== ======
3. Taxes, other than payroll and income taxes:
Real estate and personal property 520 1,073 1,826
Production tax -- 1,429 3,315
Franchise tax 49 73 214
Other 142 167 231
------- ------- -------
$ 711 $ 2,742 $ 5,586
====== ====== ======
</TABLE>
- ---------------
Note:
Items 2, 4 & 5 have been omitted as the amount did not exceed one percent of
total sales and revenues.
59
<PAGE> 60
EXHIBIT 11
DEKALB ENERGY COMPANY
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AVERAGE SHARES OUTSTANDING 1993 1992 1991
- ----------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1. Average shares outstanding 9,605,900 9,629,754 9,618,209
2. Net additional shares outstanding assuming all stock
options exercised and proceeds used to purchase
treasury stock (a) 69,250 -- --
----------- ----------- -----------
3. Average number of shares outstanding 9,675,150 9,629,754 9,618,209
========== ========== ==========
4. Fully diluted number of shares 9,678,131 9,671,130 9,711,937
========== ========== ==========
5. Net earnings (loss) per share computation:
Earnings (loss) from continuing operations $ 5,672 $ (69,253) $ (62,586)
Loss from discontinued operations -- (1,050) --
Earnings on cumulative effect of change in
accounting principle 5,334 -- --
----------- ----------- -----------
Net earnings (loss) $ 11,006 $ (70,303) $ (62,586)
========== ========== ==========
6. Net earnings (loss) per average share outstanding as
reported in summary of operations:
Earnings (loss) from continuing operations $ 0.59 $ (7.19) $ (6.51)
Loss from discontinued operations -- (0.11) --
Earnings on cumulative effect of change in
accounting principle 0.55 -- --
----------- ----------- -----------
Net earnings (loss) per share $ 1.14 $ (7.30) $ (6.51)
========== ========== ==========
7. Net earnings (loss) per fully diluted average share:
Earnings (loss) from continuing operations $ 0.59 $ (7.16) $ (6.44)
Loss from discontinued operations -- (0.11) --
Earnings on cumulative effect of change in
accounting principle 0.55 -- --
----------- ----------- -----------
Net earnings (loss) per share $ 1.14 $ (7.27) $ (6.44)
========== ========== ==========
</TABLE>
- ---------------
Notes:
(a) the 1991 and 1992 computations of average number of shares outstanding
exclude anti-dilutive shares.
60
<PAGE> 61
EXHIBIT 21
SUBSIDIARIES OF DEKALB ENERGY COMPANY
The following table sets forth principal subsidiaries of the registrant and
indicates as to each such subsidiary the state or other jurisdiction under the
laws of which it was organized and the percentage of voting securities thereof
owned by the registrant.
<TABLE>
<CAPTION>
PERCENTAGE OF
JURISDICTION OF VOTING SECURITIES
INCORPORATION OWNED BY THE REGISTRANT
--------------- -----------------------
<S> <C> <C>
DEKALB Energy Canada Ltd. Alberta 100%
DEKALB Energy Texas Inc. Delaware 100%
</TABLE>
61
<PAGE> 62
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of DEKALB Energy Company on Form S-8, File Nos. 2-63440 (Post-Effective
Amendment No. 6), No. 2-58358 (Post-Effective Amendment No. 1), No. 2-71978
(Post-Effective Amendment No. 1), and No. 33-36642 and Registration Statement
No. 33-12534 (Amendment No. 3) on Form S-3 of our report dated February 18,
1994, on our audits of the consolidated financial statements and financial
statement schedules of DEKALB Energy Company as of December 31, 1993 and 1992
and for each of the three years in the period ended December 31, 1993, which
report is included in this Annual Report on Form 10-K.
Calgary, Alberta COOPERS & LYBRAND
March 4, 1994
62
<PAGE> 63
APPENDIX
DOCUMENTS FILED IN PAPER FORMAT UNDER FORM SE:
ITEM 8. REPORT OF INDEPENDENT ACCOUNTANTS
ITEM 14.(A)(1) REPORT OF INDEPENDENT ACCOUNTANTS
ITEM 14.(A)(3)
<TABLE>
<S> <C>
Exhibit 24.1 Consent of Independent Accountants
Exhibit 24.2 Consent of Independent Petroleum Engineers
Exhibit 28 Report of Independent Petroleum Engineers
</TABLE>
63
<PAGE> 1
Ex-13.2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
__x__ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1994
_____ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission file number: 0-2886
DEKALB Energy Company
(Exact name of registrant as specified in its charter)
Delaware 36-0987809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700-9th Avenue S.W. T2P 3V4
Calgary, Alberta Canada (Postal Code)
(Address of principal executive offices)
(403) 261-1200
(Registrant's telephone number, including area code)
Indicate whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes__X__ No_____
Outstanding as of
Title of Class September 30, 1994
Class A Stock, no par value 2,310,233
Class B (nonvoting) Stock, no par value 7,075,992
Exhibit index is located on page 16
Total number of pages is 20
1
<PAGE> 2
DEKALB Energy Company
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Consolidated Statements of Operations for the nine
months ended September 30, 1994 and 1993 (Unaudited) 3
Consolidated Statements of Operations for the three
months ended September 30, 1994 and 1993 (Unaudited) 4
Consolidated Balance Sheets at September 30, 1994
(Unaudited) and December 31, 1993 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1994 and 1993 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-9
Report of Independent Accountants 10
Management's Discussion and Analysis of Results of
Operations and Financial Position 11-15
Part II - Other Information 16
EXHIBIT 11 - Computation of Net Earnings per Share 17
EXHIBIT 15 - Letter Re Unaudited Interim Financial
Information 18
Signatures 19
Appendix - Documents Filed in Paper Format Under Form SE 20
</TABLE>
2
<PAGE> 3
DEKALB Energy Company
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1994 1993
------------- -------------
<S> <C> <C>
Operating revenues (Note 8)
Oil and liquids sales $ 10,067 $ 10,971
Natural gas sales 24,289 22,020
Other 1,087 1,030
- --------------------------------------------------------------------------------------------------------------------------
Total operating revenues 35,443 34,021
Operating expenses
Lease operations and other direct charges 8,150 9,296
Depreciation, depletion and amortization 10,503 11,395
General and administrative 2,308 2,681
(Gain) loss on disposal of U.S. assets - (513)
- --------------------------------------------------------------------------------------------------------------------------
Operating Income 14,482 11,162
Interest expense, net of interest income and capitalized interest (Note 3) 3,027 3,159
Other (income) expense, net (66) 51
- --------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income and other taxes 11,521 7,952
Income and other taxes (Note 5) 5,465 4,129
- --------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 6,056 3,823
Cumulative effect of change in accounting principle (Note 5) - 5,334
- --------------------------------------------------------------------------------------------------------------------------
Net earnings $ 6,056 $ 9,157
==========================================================================================================================
Earnings per share (Note 4):
Earnings from continuing operations $ 0.63 $ 0.40
Cumulative effect of change in accounting principle - 0.55
- --------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 0.63 $ 0.95
==========================================================================================================================
Weighted average shares outstanding (in thousands) 9,610 9,671
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE> 4
DEKALB Energy Company
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months
ended September 30,
1994 1993
------------ ------------
<S> <C> <C>
Operating revenues (Note 8)
Oil and liquids sales $ 3,786 $ 3,505
Natural gas sales 8,064 6,382
Other 356 358
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 12,206 10,245
Operating expenses
Lease operations and other direct charges 3,124 3,362
Depreciation, depletion and amortization 3,941 3,419
General and administrative 746 634
(Gain) loss on disposal of U.S. assets - (513)
- -------------------------------------------------------------------------------------------------------------------
Operating Income 4,395 3,343
Interest expense, net of interest income and capitalized interest (Note 3) 1,048 903
Other (income) expense, net (144) 38
- -------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income and other taxes 3,491 2,402
Income and other taxes (Note 5) 1,601 1,328
- -------------------------------------------------------------------------------------------------------------------
Net Earnings 1,890 1,074
===================================================================================================================
Earnings per share (Note 4):
Net earnings per share $ 0.20 $ 0.11
===================================================================================================================
Weighted average shares outstanding (in thousands) 9,526 9,699
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE> 5
DEKALB Energy Company
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
As of
September 30,
1994 December 31,
(Unaudited) 1993
----------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 6) $ 15,898 $ 22,664
Accounts receivable 9,407 7,874
Other current assets 647 781
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 25,952 31,319
Other assets 806 855
Property, plant and equipment (Note 7):
Oil and gas assets, full cost method
Proved properties, being amortized 322,170 298,235
Unproved properties and properties under development,
not being amortized 14,922 9,048
Other property and equipment 3,072 2,817
Less accumulated depreciation, depletion and amortization (142,523) (132,185)
- -----------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 197,641 177,915
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 224,399 $ 210,089
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 18,286 $ 5,663
Accounts payable 11,334 13,868
Other current liabilities 4,119 5,177
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 33,739 24,708
Other liabilities 10,132 10,612
Deferred income taxes (Note 5) 27,668 22,845
Long-term debt (Note 6) 51,325 51,325
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 122,864 109,490
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 2)
Shareholders' equity:
Capital stock:
Class A; $.625 stated value; 6,000,000 shares
authorized; 2,390,025 shares issued at September 30, 1994;
2,418,000 shares issued at December 31 ,1993; 1,494 1,511
Class B (nonvoting); $.625 stated value; 13,000,000 shares
authorized; 11,288,458 shares issued at September 30, 1994;
11,260,483 shares issued at December 31 ,1993 7,055 7,038
Capital in excess of stated value 51,657 51,657
Retained earnings 148,610 142,554
Currency translation adjustments (13,876) (12,141)
- -----------------------------------------------------------------------------------------------------------------------
194,940 190,619
Treasury shares, at cost (4,292,258 shares at September 30, 1994 and
4,072,258 shares at December 31, 1993) (93,405) (90,020)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 101,535 100,599
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 224,399 $ 210,089
=======================================================================================================================
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
5
<PAGE> 6
DEKALB Energy Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1994 1993
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------
Net earnings $ 6,056 $ 9,157
Adjustments to reconcile net earnings to net
cash flows from operating activities:
Depreciation, depletion and amortization 10,503 11,395
Provision for deferred income taxes (Note 5) 5,011 3,600
Cumulative effect of change in accounting principle (Note 5) - (5,334)
(Gain) loss on disposal of U.S. assets - (513)
Other 99 (35)
- ----------------------------------------------------------------------------------------------------------------------
21,669 18,270
Changes in assets and liabilities:
Accounts receivable and other current assets (1,494) 3,509
Accounts payable and other current liabilities (3,042) (8,178)
Other assets 49 -
Other liabilities (445) (1,252)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from continuing operations 16,737 12,349
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from discontinued operations - 840
- ----------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 16,737 13,189
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
- ------------------------------------
Purchases of property, plant and equipment (36,436) (12,665)
Proceeds from sale of property, plant and equipment (Note 7) 4,494 620
Proceeds from sale of U.S. assets - 6,175
Increase (decrease) in short-term payables for purchases of property,
plant and equipment (446) 803
- ----------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (32,388) (5,067)
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
- ------------------------------------
Purchases of stock (3,385) (79)
Proceeds from exercise of stock options - 1
Net short-term borrowings 12,515 (360)
Payments made on long-term debt - (17,400)
- ----------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities 9,130 (17,838)
- ----------------------------------------------------------------------------------------------------------------------
Net effect of exchange rates on cash (245) 117
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (6,766) (9,599)
Cash and cash equivalents, at December 31 22,664 18,872
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, at September 30 $ 15,898 $ 9,273
======================================================================================================================
<FN>
Note: Cash paid during the period for:
Income taxes 386 597
Interest 4,390 4,138
Capitalized interest (Note 3) 845 1,173
The accompanying notes are an integral part of the financial statements.
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. General
The consolidated financial statements included herein are
presented in accordance with the requirements of Form 10-Q and
consequently do not include all of the disclosures normally
made in the registrant's annual Form 10-K filing. These
financial statements should be read in conjunction with the
financial statements and notes thereto included in DEKALB
Energy Company's (the "Company") latest annual report on Form
10-K.
In the opinion of management, the unaudited consolidated
financial statements reflect all adjustments of a normal
recurring nature necessary to fairly represent the financial
position, results of operations, and cash flows for the
respective interim periods.
2. Commitments and Contingencies
The Company and its subsidiaries are defendants in various
legal actions arising in the course of their current and
discontinued business activities. Management is of the
opinion there are no pending legal proceedings that would have
a material effect on the consolidated financial position or
results of operations of the Company.
3. Interest Expense, Capitalized Interest and Interest Income ($ in
thousands)
<TABLE>
<CAPTION>
Interest Capitalized Interest Net Interest
1994 Expense Interest Income Expense
---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1st Qtr. $ 1,333 $ (238) $ (126) $ 969
2nd Qtr. 1,436 (275) (151) 1,010
3rd Qtr. 1,542 (332) (162) 1,048
----------- ----------- ----------- -----------
$ 4,311 $ (845) $ (439) $ 3,027
=========== =========== =========== ===========
1993
----
1st Qtr. $ 1,681 $ (391) $ (128) $ 1,162
2nd Qtr. 1,600 (383) (123) 1,094
3rd Qtr. 1,451 (399) (149) 903
----------- ----------- ----------- -----------
$ 4,732 $ (1,173) $ (400) $ 3,159
=========== =========== =========== ===========
</TABLE>
4. Earnings Per Share Calculation
Earnings per share is calculated by dividing the earnings by
the weighted average number of shares outstanding during the
period. The computation of weighted average shares
outstanding excludes anti-dilutive shares.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
5. Income and Other Taxes
Income and other taxes is comprised of the following
($ in thousands):
<TABLE>
<CAPTION>
Deferred Total
Income Capital Income Income and
1994 Taxes Taxes Taxes Other Taxes
---- -------- -------- -------- -----------
<S> <C> <C> <C> <C>
1st Qtr. $ 97 $ 87 $ 1,738 $ 1,922
2nd Qtr. 65 45 1,832 1,942
3rd Qtr. 80 80 1,441 1,601
-------- -------- -------- --------
$ 242 $ 212 $ 5,011 $ 5,465
======== ======== ======== ========
1993
----
1st Qtr. $ 0 $ 38 $ 1,713 $ 1,751
2nd Qtr. 160 155 735 1,050
3rd Qtr. 59 117 1,152 1,328
-------- -------- -------- ---------
$ 219 $ 310 $ 3,600 $ 4,129
======== ======== ======== =========
</TABLE>
Capital taxes relate to the Canadian Large Corporations Tax and
franchise taxes.
The year-to-date and third quarter tax provisions for 1994 and
1993 resulted in effective tax rates differing from that of
the statutory Canadian income tax rate of 44.34%,
principally due to the lack of tax benefits associated with
interest and other costs incurred in the U.S.
Effective January 1, 1993, the Company adopted the liability
method of accounting for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109. The adoption
of SFAS 109 resulted in a one-time benefit adjustment of $5.3
million in the first quarter of 1993.
6. Disclosures About Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates
the fair value due to the short term maturities of these
instruments. The fair value of the Company's long-term debt is
approximately $52.2 million, or $.9 million over stated book value,
based upon estimates provided to the Company by independent sources.
7. Disposition of Assets
During the third quarter of 1994, the Company sold its
interest in leasehold and tangible property in the Buick Creek
area of the Province of British Columbia, Canada for proceeds
of $.4 million. In March 1994, the Company reflected the
sale of its interest in leasehold and tangible property in the
Rigel area of the Province of British Columbia, Canada for
proceeds of $3.6 million. In accordance with the full cost
method of accounting, the proceeds received for the 1994
dispositions were credited to the full cost pool; therefore, no
gains or losses were recorded on the sales.
On August 5, 1993, the Company announced the sale of all its
California gas wells to Samedan Oil Corporation for $5.1
million, effective July 1, 1993. Consistent with the full
cost method of accounting on a cost center basis, the Company
recorded a $0.5 million pre-tax and after-tax gain on the
disposition of the California gas wells in the third quarter
of 1993. The Company also closed down its exploration office
in Bakersfield. The only U.S. assets retained by the Company
after this sale are a working interest in a single non-
operated oil well in California and acreage adjacent thereto.
Sales revenues and volumes, lease operating expenses, and
depreciation, depletion and amortization (DD&A) recorded for
the 1993 divested California properties to the effective date
of the sale were as follows:
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
7. Disposition of Assets (continued)
<TABLE>
<CAPTION>
Six Months Ended
($ in thousands) June 30, 1993
----------------
<S> <C> <C>
Revenues $ 1,551
Lease Operating Expenses $ 270
DD&A $ 964
Sales Volumes
-------------
Natural Gas (MMCF) 850
</TABLE>
8. Hedge Contracts
The Company enters into contracts to hedge a portion
of its oil and gas production against fluctuating prices.
Approximately 25% of the Company's average annual production
is hedged through various contracts with terms ranging to
October 1995. The results of these contracts are included in
revenues as the oil or gas is produced.
The fair value of the hedges exceed contract values based on
terms currently available to the Company.
9. Postemployment Benefits
In November 1992, the Financial Accounting Standards Board
Introduced Statement No. 112, "Employers' Accounting for
Postemployment Benefits" effective for fiscal years beginning
after December 15, 1993. No provision for any current or
future obligation has been made by the Company as the
estimated amounts are not material.
10. Financial Statement Presentation
Certain prior year figures have been reclassified to conform
to the current year financial statement presentation.
9
<PAGE> 10
Report of Independent Accountants
To the Shareholders and Board of Directors of DEKALB Energy Company:
We have reviewed the accompanying consolidated balance sheet of
DEKALB Energy Company as of September 30, 1994, and the
related consolidated statements of operations for the three month
and nine month periods ended September 30, 1994 and 1993,
and the consolidated statements of cash flows for the nine
month periods ended September 30, 1994 and 1993. These
financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical review procedures to financial data and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the consolidated financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
consolidated financial statements for them to be in conformity
with United States generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1993, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1993 (not represented herein);
and in our report dated February 18, 1994, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1993, is fairly
stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Coopers & Lybrand
Calgary, Alberta
November 7, 1994
10
<PAGE> 11
Management's Discussion and Analysis of
Results of Operations and Financial Position
SELECTED OPERATING STATISTICS (1)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
------------------------- --------------------------
9/30/94 9/30/93 9/30/94 9/30/93
------- ------- ------- -------
<S> <C> <C> <C> <C>
Average Prices
- --------------
Oil and condensate
($ per Bbl) $ 15.47 $ 16.54 $ 17.68 $ 14.88
Natural gas liquids
($ per Bbl) 8.51 9.96 9.25 9.12
Natural gas
($ per Mcf) 1.61 1.40 1.45 1.30
Sales Volumes
- -------------
Oil and condensate (Mbbls) 553 554 185 201
Natural gas liquids (Mbbls) 177 181 56 56
Natural gas (Mmcf) 15,041 15,721 5,544 4,906
Oil and condensate,
natural gas liquids and
natural gas equivalents
(Mbbls) (2) 3,237 3,355 1,165 1,074
<FN>
(1) U.S. operating data has been combined with Canada due to the
immateriality of the U.S. data in relation to the operating
results as a whole. 1993 includes six months of U.S.
operating data on the divested California properties.
(2) Gas converted to oil at 6,000 cubic feet per barrel.
</TABLE>
11
<PAGE> 12
Management's Discussion and Analysis of
Results of Operations and Financial Position (continued)
EARNINGS FROM CONTINUING OPERATIONS
Year-to-date earnings from continuing operations are 58.4%
higher compared with 1993. Earnings per share from continuing
operations for the first nine months of 1994 have risen to 63
cents per share in 1994 versus 40 cents per share in 1993.
For the third quarter, earnings and earnings per share from
continuing operations in 1994 increased by 76.0% and
81.8%, respectively, compared to 1993.
These higher year-to-date and third quarter results
are reflective of continuing higher gas prices, improved
oil prices in the third quarter, and the Company's ongoing emphasis
on its cost structure. Current year results also reflect the impact of the
lower Canadian dollar exchange rate, resulting in lower U.S.
dollar equivalent expenses.
DRILLING ACTIVITY
Consistent with its focus on long-term growth through exploration
and development, the Company participated in the drilling of 61
exploration and development wells (45.96 net wells) during the first
nine months of 1994, with a success rate of 75% (80% on a net well
basis). Fifty gas targets and eleven oil targets were drilled,
primarily in the Nevis, Kaybob and Claresholm areas of Alberta
and in northeast British Columbia. Of particular significance
was a successful 100% Company-owned and operated well drilled in
the first quarter on the Hunter prospect in northeast British
Columbia, where 24 feet of gas pay in the Halfway zone was
encountered, with an established drill stem test rate of 4.5
MMCFD before royalties. The well is expected to be tied in
during the first half of 1995. The Company participated
in the drilling of 22 wells (13 net wells) in the 1993
comparative period.
During the third quarter of 1994, the Company participated
in the drilling of 14 exploration and development wells (9.34
net wells) with 79% (79% on a net well basis) of the wells being
successful.
OPERATING REVENUES
Year-to-date operating revenues of $35.4 million increased from prior
year revenues of $34.0 million, primarily due to higher gas prices,
partially offset by lower oil and natural gas liquids prices and lower
gas production during the first half of 1994. Higher gas volumes
and increased prices for all products contributed to a 19.1%
increase in operating revenues in the 1994 third quarter.
The Company's year-to-date oil and condensate prices were 6.5% lower
compared to 1993. During the first six months of 1994, the Company
received an average of $14.36 per barrel versus $17.49 in 1993. These
prices followed changes in the WTI oil price, which averaged $16.28 per
barrel during the first half of 1994 compared with $19.83 per
barrel in the 1993 comparative period. A significant recovery
was seen in the third quarter of 1994, however, with the
Company's oil and condensate prices and the WTI oil price
averaging $17.68 and $18.48 per barrel, respectively. Natural
gas prices similarly followed those of oil and condensate
with the Company receiving an average price of $2.18 per barrel less in
the first half of 1994 versus 1993, but a 13 cent higher price in the third
quarter of 1994 versus 1993. Combined year-to-date oil, condensate and
natural gas liquids volumes decreased slightly from the prior year.
12
<PAGE> 13
Management's Discussion and Analysis of
Results of Operations and Financial Position (continued)
Gas revenues for the first nine months of 1994 increased to $24.3
million from $22.0 million in 1993. This was due to improved gas
prices which rose to an average of $1.61 per thousand cubic feet
(MCF) from $1.40 during the same period last year. System gas
prices were 17.8% higher and sales volumes were 23.9% lower
compared to the first nine months of 1993. Direct sales (short-
term and spot) prices and volumes were up by 8.5% and 26.4%,
respectively, compared to 1993. System and direct gas sales
accounted for approximately 42% and 58%, respectively, of total
Company year-to-date gas sales volumes. Overall Company gas
prices received were 11.5% higher in the 1994 third quarter
compared to 1993.
Gas sales volumes were down 4.3% during the first nine months of 1994.
This decline was principally due to the disposition of the Company's
California properties in the third quarter of 1993 (see Note 7,
"Disposition of Assets," in the Notes to the Financial Statements).
In addition, a unitization adjustment was recorded in the second
quarter of 1993, resulting in additional gas volumes relating to prior
periods of approximately 220 MMCF. General field declines,
compressor installations and repairs, and several plant
turnarounds also resulted in some curtailment of production
during the first halfhalf of 1994. Gas volumes for the third
quarter were 13.0% higher in 1994 versus 1993.
Year-to-date, the Company tied in approximately 12.2 MMCFD of
gas production. Thirty-four gas wells in the Province of Alberta and
seven oil wells in the Province of British Columbia were
brought onto production during the first nine months of 1994.
To protect against oil and natural gas price fluctuations, the Company
has entered into various hedge contracts for a portion of its oil and
gas (See Note 8, "Hedge Contracts," in the Notes to the Financial
Statements). A net gain of $1.0 million was recognized as a
component of operating revenues in the first nine months of
1994 as a result of these hedge contracts. The effect of the
gain on average prices was 31 cents per BOE based on total
Company volumes.
OPERATING EXPENSES
Year-to-date lease operating expenses and other direct charges
were down 12.3% compared to the prior year, primarily as a
result of the disposition of the Company's California properties
in the third quarter of 1993 (see Note 7, "Disposition of Assets"
in the Notes to the Consolidated Financial Statements),
processing rate adjustments relating to current and prior years'
production from two of the Company's non-operated fields, and
a lower Canadian dollar exchange rate. In addition, a third
party gas processing fee adjustment for 1991 and 1992 of $.6
million was recorded in the second quarter of 1993.
For the third quarter, lease operating expenses and other
direct charges fell from $3.12/BOE in 1993 to $2.68/BOE in
1994. This decline was again mainly due to the processing rate
adjustments recorded in 1994 and the lower Canadian dollar.
Year-to-date depreciation, depletion and amortization (DD&A)
expense fell $0.9 million compared to 1993, primarily due to
the lower Canadian dollar exchange rate in 1994 and the disposal
of the Company's higher cost California properties in 1993.
DD&A expense in the third quarter of 1994 was up by $0.5 million
due to a higher DD&A rate and increased production, partially offset
by the impact of the lower Canadian dollar exchange rate.
Year-to-date general and administrative expenses were 13.9%
below the same period last year. The decline reflects a decrease
in professional fees and other general office costs as well as
increased overhead chargeouts. Third quarter general and administrative
expenses were up by 17.7% in 1994 compared to 1993, reflecting increased
staff levels.
13
<PAGE> 14
Management's Discussion and Analysis of
Results of Operations and Financial Position (continued)
NON-OPERATING ITEMS
Year-to-date interest expense, net of interest income and
capitalized interest, decreased by $0.1 million, mainly due to
lower interest costs as a result of the repurchase of a portion
of the Company's public notes during the 1993 comparative period.
These lower interest costs were partially
offset by interest charges on the Company's operating line of
credit during 1994 and a decrease in the amount of interest
capitalized. For the third quarter of 1994, interest charges on the
Canadian operating line and lower capitalized interest were partially
offset by the impact of the lower exchange rate.
The weighted average long-term debt outstanding was $51.3 million
versus $63.4 million for the first nine months of 1994 and 1993,
respectively.
INCOME TAXES
The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes" as of
January 1, 1993. A one-time benefit adjustment of $5.3 million
was recognized in the first quarter of 1993.
The year-to-date and second quarter tax provisions reflect a
different effective tax rate from the statutory Canadian income
tax rate of 44.34%, principally due to the lack of tax benefits
associated with interest costs incurred in the U.S.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operating activities before changes in assets and
liabilities were $21.7 million in the first nine months
of 1994, up 18.6% compared with 1993. The increase is mainly
due to higher operating revenues and lower operating expenses.
Cash flows from continuing operations increased to $16.7 million
in 1994 from $12.3 million in 1993.
Taxes paid in 1994 and 1993 related to the Canadian Large
Corporations Tax, withholding taxes and franchise taxes.
CASH FLOWS FROM INVESTING ACTIVITIES
Year-to-date cash outflows from investing activities were
$32.4 million compared to $5.1 million for the same period
last year, reflecting a $23.8 million increase in capital
spending related to exploration and development in 1994.
During the first nine months of 1994, the Company
reflected the disposals of its interest in leasehold and
tangible property in the Rigel and Buick Creek areas of the
Province of British Columbia, Canada for total proceeds of $4.0
million. In accordance with the full cost method of accounting, the
proceeds were credited to the full cost pool, therefore, no
gains or losses were recorded on the sales.
In 1993 proceeds were received from the sale of the Company's
California assets (see Note 7, "Disposition of Assets," in the
Notes to the Financial Statements). Additional proceeds of $1.1
million from the 1992 disposition of U.S. assets were received in
the first quarter of 1993.
14
<PAGE> 15
Management's Discussion and Analysis of
Results of Operations and Financial Position (continued)
CASH FLOWS FROM FINANCING ACTIVITIES
The Company repaid $1.8 million on its line of credit during the
first quarter of 1994 and drew down $14.3 million in the second and
third quarters to fund increased capital spending and repurchases
of stock.
On July 27, 1994, the Board passed a resolution to authorize the
repurchase from time to time, of up to one million shares of
Class A and/or Class B (nonvoting) Stock. This resolution will
replace and is in lieu of any authority to repurchase stock
previously granted in any prior resolution. A total of 220,000
shares were purchased during the second and third quarters of
1994 at an average price of $15.39.
In the first nine months of 1993, the Company repurchased
$17.4 million of its public notes ($1.9 million of its 9 7/8%
notes and $15.5 million of its 10% notes) and 7,191 shares of
its common stock.
LIQUIDITY
The Company plans to fund its capital expenditures, working
capital needs and interest payments through its operating cash
flow, and a combination of long-term debt and the revolving
line of credit. At September 30, 1994, the Company had
$15.9 million in cash and short-term investments, and $4.0
million available under its Canadian line of credit. The current
term of the credit facility expires on June 30, 1995, at which
time the Company expects a twelve month extension.
PROSPECTIVE AND OTHER INFORMATION
Given its current successful drilling program and projected
capital spending for 1994, the Company expects to more than
replace this year's expected production of about 4,500 MBOE's.
Approximately 11 MMCFD of gas is expected to be tied in during
the last quarter of 1994. Deliverability is forecasted to
approach 70 million cubic feet per day net working interest
after royalty by year end compared to 57 million cubic feet per
day at December 31, 1993. As a result of increased
opportunities, 1994 capital expenditures net of divestitures will
be higher than prior estimates of $28 million.
The Company also announced in November 1994 its intention to
repurchase $22.1 million of its 10% public notes in the second
quarter of 1995, at which time they will be callable at par. The
repurchase will be funded through the Company's operating cash
flow and cash reserves.
On April 12, 1994 the Company's Class B (nonvoting) Stock began
trading on The Toronto Stock Exchange in addition to the
NASDAQ/NMS. The additional listing is in recognition of
the Company's focus on its Canadian asset base, and is
intended to increase the Company's profile among Canadian
analysts and attract additional Canadian investors.
15
<PAGE> 16
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Management is of the opinion there are no pending legal
proceedings that would have a material effect on the
consolidated financial position of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Net Earnings per Share.
Exhibit 15 - Letter Re Unaudited Interim Financial Information.
(b) Reports on Form 8-K:
On September 21, 1994, the Company filed a Form 8-K to
announce the death of Michael E. Finnegan, Executive Vice
President and Chief Financial Officer of the Company.
16
<PAGE> 17
EXHIBIT 11
DEKALB Energy Company
COMPUTATION OF NET EARNINGS PER SHARE
(Unaudited)
For the nine months
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1994 1993
-------------- ---------------
<S> <C> <C>
1. Average Shares Outstanding 9,538,725 9,605,803
2. Net additional shares outstanding assuming all stock
options exercised and proceeds used to purchase
treasury stock 71,339 65,185
-------------- ---------------
3. Average number of shares outstanding for primary
earnings per share 9,610,064 9,670,988
============== ===============
4. Average number of shares outstanding for fully diluted
earnings per share 9,615,610 9,674,863
============== ===============
5. Net earnings for per share computation:
Earnings from continuing operations $ 6,056,000 $ 3,823,000
Cumulative effect of change in accounting principle - 5,334,000
-------------- ---------------
Net earnings $ 6,056,000 $ 9,157,000
============== ===============
6. Net earnings per average share outstanding as reported
in the financial statements:
Earnings from continuing operations $ 0.63 $ 0.40
Cumulative effect of change in accounting principle - 0.55
-------------- ---------------
Net earnings per share $ 0.63 $ 0.95
============== ===============
7. Net earnings per fully diluted share:
Earnings from continuing operations $ 0.63 $ 0.40
Cumulative effect of change in accounting principle - 0.55
-------------- ---------------
Net earnings per share $ 0.63 $ 0.95
============== ===============
</TABLE>
17
<PAGE> 18
EXHIBIT 15
Securities & Exchange Commission
Washington, D.C. 20549
We are aware that our report dated November 7, 1994 on
our review of the interim financial information of DEKALB Energy
Company for the periods ended September 30, 1994 and 1993
included in the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1994 is incorporated by reference
into Registration Statement No. 2-63440 (Post Effective Amendment
No. 6), No. 2-58358 (Post Effective Amendment No. 1), No. 2-71978
(Post Effective Amendment No. 1), and No. 33-36642 on Form S-8
and Registration Statement No. 33-12534 (Amendment No. 3) on Form
S-3. Pursuant to Rule 436(c) under the Securities Act of 1933,
this report should not be considered a part of the registration
statements prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
Coopers & Lybrand
Calgary, Alberta
November 7, 1994
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DEKALB Energy Company
DONALD MCMORLAND
--------------------------------
Donald McMorland
Vice Chairman of the Board
and President
EDDY Y. TSE
--------------------------------
Eddy Y. Tse
Chief Accounting Officer
November 9, 1994
19
<PAGE> 20
APPENDIX
Documents Filed in Paper Format Under Form SE:
Part I Report of Independent Accountants
Part II, Item 6, Exhibit 15 Letter Re Unaudited Interim Financial Information
20
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-4 of our report dated
February 8, 1994 included in Apache Corporation's Form 10-K/A for the year ended
December 31, 1993, and to all references to our firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
January 16, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF COOPERS & LYBRAND
The Board of Directors of DEKALB Energy Company:
We consent to the incorporation by reference in this registration statement
of Apache Corporation on Form S-4 of our report dated February 18, 1994 on our
audits of the consolidated financial statements of DEKALB Energy Company as of
December 31, 1993 and 1992 and for the years ended December 31, 1993, 1992 and
1991 and our report dated February 18, 1994 on our audits of the associated
financial statement schedules of DEKALB Energy Company, which reports are
incorporated by reference herein. We also consent to all references to our firm
included in this registration statement of Apache Corporation on Form S-4.
Calgary, Alberta, Canada
January 16, 1995 COOPERS & LYBRAND
<PAGE> 1
EXHIBIT 99.1
- --------------------------------------------------------------------------------
PROXY
DEKALB ENERGY COMPANY
PROXY FOR SPECIAL MEETING OF DEKALB CLASS A STOCKHOLDERS
TO BE HELD ON , 1995
The undersigned hereby appoints Bruce P. Bickner, Charles C. Roberts
and Thomas H. Roberts, Jr., and each of them proxies (to act by majority
decision if more than one shall act), with full power of substitution,
to vote all shares of stock of DEKALB Energy Company which the
undersigned would be entitled to vote if personally present at the
Special Meeting of the holders of DEKALB Class A Stock to be held at the
offices of DEKALB on the 10th floor, 700-9th Avenue S.W., Calgary,
Alberta Canada T2P 3V4, on , , 1995, at 9:00 a.m., local
time, and at any adjournments thereof, upon the matters described in the
accompanying Proxy Statement/Prospectus and upon such other business
that may be properly come before the meeting or any adjournments
thereof. Said proxies are directed to vote as instructed on the matters
set forth below and otherwise at their discretion. Receipt of a copy of
the Notice of said meeting and Proxy Statement/Prospectus is hereby
acknowledged. The Board of Directors recommends a vote "FOR" the
proposal to approve and adopt the Merger Agreement.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE. SEE REVERSE SIDE.
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
(REVERSE SIDE)
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN THE ABSENCE OF
DIRECTION, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL TO APPROVE AND
ADOPT THE MERGER AGREEMENT AND IN THE DISCRETION OF THE WITHIN NAMED
PROXIES WITH RESPECT TO OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENTS THEREOF.
1. Proposal to approve and adopt the agreement and Plan of Merger dated
as of December 21, 1994, among Apache Corporation, XPX Acquisitions,
Inc. and DEKALB Energy Company.
/ / FOR / / AGAINST / / ABSTAIN
Please sign exactly as name appears on this Proxy. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title of such. If a
corporation, please sign a full corporate name by president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
<TABLE>
<S> <C> <C> <C>
- --------------------------- ------------ --------------------------- ------------
Signature: Date: Signature: Date:
</TABLE>
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW / /
PLEASE SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.3
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Apache Corporation
Registration on Form S-4
We are aware that our reports dated May 6, 1994, July 26, 1994 and November
7, 1994 on our review of interim financial information of DEKALB Energy Company
for the periods ended March 31, 1994, June 30, 1994 and September 30, 1994
respectively and included in DEKALB Energy Company's quarterly report on Form
10-Q for the quarters then ended are incorporated by reference in this
registration statement of Apache Corporation on Form S-4. Pursuant to Rule
436(c) under the Securities Act of 1933, these reports should not be considered
a part of the registration statement of Apache Corporation.
Calgary, Alberta, Canada
January 16, 1995 COOPERS & LYBRAND
