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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO
SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
Filed by Registrant /X/
Filed by Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
MAXUS ENERGY CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $1.00 per share, of Maxus Energy
Corporation.
(2) Aggregate number of securities to which transaction applies:
135,600,384 shares.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$5.4375, pursuant to Rule 0-11(a)(4), which equals the average of
the high and the low trading prices on May 2, 1995, of Maxus
Energy Corporation common stock, par value $1.00 per share.
(4) Proposed maximum aggregate value of transaction:
$737,327,100.
(5) Total fee paid:
$0, fee offset entirely by fee below paid previously.
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $149,048
(2) Form, Schedule or Registration Statement No.: Schedule 14D-1
(3) Filing Party: YPF Acquisition Corp. and YPF Sociedad Anonima
(4) Date Filed: March 3, 1995
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MAXUS ENERGY CORPORATION
717 NORTH HARWOOD STREET
DALLAS, TEXAS 75201
TELEPHONE: (214) 953-2000
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 1995
------------------------
To the Stockholders of
MAXUS ENERGY CORPORATION:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Maxus Energy Corporation, a Delaware corporation (the "Company"),
will be held on Thursday, June 8, 1995, at 8:00 a.m., Houston time, at The
Doubletree Hotel (Houston Intercontinental Airport), 15747 John F. Kennedy
Blvd., Houston, Texas for the following purposes:
1. To consider and vote upon the adoption of the Agreement of Merger
dated as of February 28, 1995 (the "Merger Agreement") among YPF Sociedad
Anonima, a sociedad anonima organized under the laws of the Republic of
Argentina ("YPF"), YPF Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of YPF (the "Purchaser"), and the Company. The
Merger Agreement provides for the merger (the "Merger") of the Purchaser
with and into the Company, with the Company surviving the Merger. Effective
as of the Merger, all then outstanding shares of the Company's common
stock, par value $1.00 per share (the "Shares") (other than Shares held by
the Purchaser, YPF or any of their subsidiaries, or in the treasury of the
Company, all of which will be cancelled, and Shares held by stockholders
who perfect their appraisal rights under Section 262 of the Delaware
General Corporation Law), will be converted into the right to receive $5.50
per Share in cash, without interest. As a result of the Merger, YPF will
become the sole holder of all then outstanding Shares. All outstanding
shares of the Company's $4.00 Cumulative Convertible Preferred Stock, par
value $1.00 per share (the "$4.00 Preferred Stock"), $9.75 Cumulative
Convertible Preferred Stock, par value $1.00 per share (the "$9.75
Preferred Stock"), and $2.50 Cumulative Preferred Stock, par value $1.00
per share, will remain outstanding and have the identical powers,
preferences, rights, qualifications, limitations and restrictions as such
shares currently have, except as agreed to by the holder of the $9.75
Preferred Stock, as described in the attached Proxy Statement;
2. To consider and vote upon amendments to the Company's Restated
Certificate of Incorporation (the "Certificate") to (i) eliminate
supermajority stockholder voting requirements relating to the amendment of
certain By-Laws, (ii) eliminate the classified terms for the directors of
the Company and (iii) change the terms of directors from three years to one
year; and
3. To consider and vote upon amendments to the Company's By-Laws (the
"By-Laws") to (i) reduce the minimum size of the Board of Directors of the
Company (the "Board") and (ii) eliminate the classified terms for the
directors of the Company.
Information regarding the matters to be acted upon at the Special Meeting
is contained in the Proxy Statement attached to this notice.
The Board has fixed April 22, 1995 as the record date (the "Record Date")
for determining stockholders entitled to notice of and to vote at the Special
Meeting and any adjournment(s) thereof; however, only holders of record of the
Shares and the $4.00 Preferred Stock as of Record Date are entitled to vote at
such meeting or any adjournments thereof.
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When the proxies are returned and executed, the Shares and shares of $4.00
Preferred Stock represented thereby will be voted in accordance with the
indicated instructions either "for" or "against." If no instructions have been
specified on a returned proxy, the shares represented thereby will be counted
for determining whether a quorum is present and will have the effect of a vote
against each of the proposals. Abstentions and broker non-votes will also have
the effect of a vote against each of the proposals. Any stockholder giving a
proxy has the power to revoke it at any time before it is voted by filing with
the Secretary of the Company either an instrument revoking the proxy or a duly
executed proxy bearing a later date. Proxies also may be revoked by attending
the Special Meeting and voting in person.
THE PURCHASER BENEFICIALLY OWNS A SUFFICIENT NUMBER OF SHARES TO APPROVE
THE ADOPTION OF THE MERGER AGREEMENT AND THE AMENDMENTS TO THE CERTIFICATE AND
BY-LAWS NOTWITHSTANDING THE VOTE OF ANY OTHER STOCKHOLDER AND INTENDS TO VOTE
ITS SHARES IN FAVOR OF SUCH PROPOSALS.
You are cordially invited to attend the Special Meeting. Attendance at the
Special Meeting is limited to stockholders, their proxies and invited guests of
the Company.
WHETHER OR NOT YOU EXPECT TO ATTEND, PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY WITHOUT DELAY IN THE ENCLOSED POSTPAID ENVELOPE. THE
PROXY IS REVOCABLE AND WILL NOT BE USED IF YOU ARE PRESENT AND PREFER TO VOTE IN
PERSON.
By Order of the Board of Directors,
H. R. Smith
Secretary
Dallas, Texas
May 8, 1995
IMPORTANT: STOCKHOLDERS,
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR SHARES OF STOCK AT THIS TIME
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MAXUS ENERGY CORPORATION
717 NORTH HARWOOD STREET
DALLAS, TEXAS 75201
TELEPHONE: (214) 953-2000
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PROXY STATEMENT
------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 8, 1995
INTRODUCTION
GENERAL
This Proxy Statement is being furnished by Maxus Energy Corporation, a
Delaware corporation (the "Company"), in connection with a special meeting of
stockholders to be held on Thursday, June 8, 1995 at 8:00 a.m., Houston time, at
The Doubletree Hotel (Houston Intercontinental Airport), 15747 John F. Kennedy
Blvd., Houston, Texas, and any and all adjournments thereof (the "Special
Meeting").
In accordance with the Delaware General Corporation Law (the "DGCL"), this
Proxy Statement is being mailed to all stockholders of record of the Company as
of April 22, 1995 (the "Record Date") and is first being sent to such
stockholders on or about May 9, 1995. ONLY HOLDERS (THE "STOCKHOLDERS") OF THE
COMMON STOCK, PAR VALUE $1.00 PER SHARE (THE "SHARES"), OR OF THE $4.00
CUMULATIVE CONVERTIBLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE (THE "$4.00
PREFERRED STOCK" AND TOGETHER WITH THE SHARES, THE "VOTING SHARES"), OF RECORD
ON THE RECORD DATE ARE ENTITLED TO VOTE AT THE SPECIAL MEETING. If you hold only
shares of the Company's $2.50 Cumulative Preferred Stock, par value $1.00 per
share ("$2.50 Preferred Stock"), or $9.75 Cumulative Convertible Preferred
Stock, par value $1.00 per share ("$9.75 Preferred Stock"), you are not entitled
to vote with respect to the matters to be acted upon at the Special Meeting.
Accordingly, no proxy card accompanies this Proxy Statement if you hold only
$2.50 Preferred Stock or $9.75 Preferred Stock.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, Stockholders on the Record Date entitled to notice
of and to vote at the Special Meeting will be asked to consider and vote upon:
(i) the adoption of the Agreement of Merger dated February 28, 1995
(the "Merger Agreement") among YPF Sociedad Anonima, a sociedad anonima
organized under the laws of the Republic of Argentina ("YPF"), YPF
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
YPF (the "Purchaser"), and the Company. The Merger Agreement provides for
the merger (the "Merger") of the Purchaser with and into the Company, with
the Company surviving the Merger. Pursuant to the Merger Agreement, all
then outstanding Shares (other than Shares held by the Purchaser, YPF or
any of their subsidiaries, or in the treasury of the Company, all of which
will be cancelled, and Shares held by stockholders who perfect their
appraisal rights under Section 262 of the DGCL) will be converted into the
right to receive $5.50 per Share in cash, without interest. Effective as of
the Merger, YPF will become the sole holder of all then outstanding Shares.
All outstanding shares of the Company's $4.00 Preferred Stock, $9.75
Preferred Stock, and the $2.50 Preferred Stock (collectively, the
"Preferred Stock"), will remain outstanding after the Merger and have the
identical powers, preferences, rights, qualifications, limitations and
restrictions as such shares of Preferred Stock currently have, except as
agreed to by the holder of the $9.75 Preferred Stock as described in "The
Merger -- $9.75 Preferred Stock Arrangements" below;
(ii) the adoption of amendments (the "Certificate Amendments") to the
Company's Restated Certificate of Incorporation (the "Certificate") to (a)
eliminate supermajority stockholder voting
<PAGE> 5
requirements relating to the amendment of certain By-Laws, (b) eliminate
the classified terms for the directors of the Company and (c) change the
terms of directors from three years to one year; and
(iii) the adoption of amendments (the "By-Law Amendments") to the
Company's By-Laws (the "By-Laws") to (a) reduce the minimum size of the
Board of Directors of the Company (the "Board") and (b) eliminate the
classified terms for the directors of the Company.
THE PURCHASER BENEFICIALLY OWNS A SUFFICIENT NUMBER OF VOTING SHARES TO
APPROVE THE ADOPTION OF THE MERGER AGREEMENT, THE CERTIFICATE AMENDMENTS AND THE
BY-LAW AMENDMENTS NOTWITHSTANDING THE VOTE OF ANY OTHER STOCKHOLDER. THE
PURCHASER HAS INFORMED THE COMPANY THAT IT INTENDS TO VOTE IN FAVOR OF ADOPTION
OF THE MERGER AGREEMENT, THE CERTIFICATE AMENDMENTS AND THE BY-LAW AMENDMENTS.
VOTING AT THE SPECIAL MEETING
April 22, 1995 has been fixed as the Record Date for determining
stockholders of the Company entitled to notice of the Special Meeting. Only
holders of record of Voting Shares on the books of the Company on the Record
Date will be entitled to vote at the Special Meeting. On the Record Date, there
were 135,600,384 Shares outstanding, which were held of record by approximately
21,850 persons, and 4,356,958 shares of $4.00 Preferred Stock outstanding, which
were held of record by approximately 1,329 persons.
The Shares and the $4.00 Preferred Stock are the only classes of voting
securities of the Company outstanding entitled to vote on the matters to be
presented at the Special Meeting. Each holder of record of Voting Shares will be
entitled to one vote per Voting Share on each matter submitted to a vote of the
Stockholders at the Special Meeting or any and all adjournments thereof. Under
the DGCL and the Certificate, a majority of the Voting Shares entitled to vote,
represented in person or by proxy, will constitute a quorum at the Special
Meeting.
Under the DGCL and the Certificate, the affirmative vote of the holders of
a majority of the outstanding Voting Shares is required to approve the adoption
of the Merger Agreement. Under the Certificate and By-Laws, as currently in
effect, the affirmative vote of the holders of at least 80% of the outstanding
Voting Shares, voting together as a single class, is required to adopt the
Certificate Amendments and the By-Law Amendments. The Purchaser currently owns
approximately 85.7% of the outstanding Voting Shares. The Purchaser has informed
the Company that it intends to vote its Shares in favor of approval of the
adoption of the Merger Agreement, the Certificate Amendments and the By-Law
Amendments. Accordingly, the Purchaser owns a sufficient number of Shares to
adopt the Merger Agreement and to approve the Certificate Amendments and the
By-Law Amendments notwithstanding the vote of any other Stockholder.
Under the Certificate, the By-Laws and the DGCL, a proxy returned without
instructions will be counted for purposes of determining whether a quorum is
present at the Special Meeting and will have the effect of a vote against each
of the proposals. Abstentions and broker non-votes will also have the effect of
a vote against each of the proposals. Any proxy given may be revoked either by a
written notice duly signed and delivered to the Secretary of the Company prior
to the exercise of the proxy, by execution of a subsequent proxy or by voting in
person at the Special Meeting.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTRODUCTION.......................................................................... 1
General............................................................................. 1
Matters to be Considered at the Special Meeting..................................... 1
Voting at the Special Meeting....................................................... 2
SUMMARY............................................................................... 4
PROPOSAL 1
THE MERGER.......................................................................... 8
Principal Effects of the Merger.................................................. 8
Conversion of Shares............................................................. 10
Election of YPF Designees........................................................ 11
Certain Terms of the Merger Agreement............................................ 12
$9.75 Preferred Stock Arrangements............................................... 15
Background of the Merger......................................................... 15
Opinion of Financial Advisor..................................................... 21
Source and Amount of Funds....................................................... 22
Certain Federal Income Tax Consequences.......................................... 24
Accounting Treatment............................................................. 24
Certain Interests of Management.................................................. 25
Regulatory Matters............................................................... 26
Certain Litigation............................................................... 27
Appraisal Rights................................................................. 27
PRICE RANGE OF SHARES AND DIVIDENDS................................................. 30
BENEFICIAL OWNERSHIP OF SECURITIES.................................................. 31
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY................................. 34
BUSINESS OF THE COMPANY............................................................. 35
INFORMATION CONCERNING YPF AND THE PURCHASER........................................ 35
Selected Consolidated Financial Data For YPF And Controlled Companies............ 36
PRO FORMA CONSOLIDATED FINANCIAL DATA............................................... 38
COMPANY PROJECTIONS................................................................. 42
PROPOSAL 2
CERTIFICATE AMENDMENTS.............................................................. 43
PROPOSAL 3
BY-LAW AMENDMENTS................................................................... 44
INDEPENDENT ACCOUNTANTS............................................................... 44
AVAILABLE INFORMATION................................................................. 44
INCORPORATION OF DOCUMENTS BY REFERENCE............................................... 45
EXHIBITS.............................................................................. 45
EXHIBITS
EXHIBIT A: Agreement of Merger, dated as of February 28, 1995 by and among YPF, the
Purchaser and the Company........................................................ A-1
EXHIBIT B: Letter, dated February 28, 1995, from CS First Boston Corporation to the
Board of Directors of the Company................................................ B-1
EXHIBIT C: Section 262 of Delaware General Corporation Law.......................... C-1
EXHIBIT D: YPF Annual Report for the fiscal year ending December 31, 1994........... D-1
EXHIBIT E: Proposed Amendments to Maxus Energy Corporation's Restated Certificate of
Incorporation.................................................................... E-1
EXHIBIT F: Proposed Amendments to Maxus Energy Corporation's By-Laws................ F-1
</TABLE>
3
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and does not purport to be complete. All statements in the
following Summary are qualified by and are made subject to the more detailed
information contained elsewhere in this Proxy Statement and the Exhibits hereto.
The Exhibits attached to this Proxy Statement constitute a part of this Proxy
Statement and should be considered as such. Stockholders are urged to read this
Proxy Statement in its entirety. The full text of the Merger Agreement is
attached hereto as Exhibit A and should be read in its entirety.
THE SPECIAL MEETING
Date, Time and Place. The Special Meeting of the stockholders of the
Company, will be held on Thursday, June 8, 1995, at 8:00 a.m., Houston time, at
The Doubletree Hotel (Houston Intercontinental Airport), 15747 John F. Kennedy
Blvd., Houston, Texas. See "Introduction."
Record Date; Shares Entitled to Vote. Holders of Shares and $4.00
Preferred Stock on April 22, 1995 are entitled to notice of and to vote at the
Special Meeting. See "Introduction."
Purpose of Special Meeting. At the Special Meeting, Stockholders will be
asked to consider and vote upon:
(i) the adoption of the Merger Agreement among YPF, the Purchaser and
the Company. The Merger Agreement provides for the Merger of the Purchaser
with and into the Company, with the Company surviving the Merger. Effective
as of the Merger, all then-outstanding Shares (other than Shares held by
the Purchaser, YPF or any of their subsidiaries, or in the treasury of the
Company, all of which will be cancelled, and Shares held by Stockholders
who perfect their appraisal rights under Section 262 of the DGCL) will be
converted into the right to receive $5.50 per Share in cash, without
interest. As a result of the Merger, YPF will become the sole holder of the
then outstanding Shares. All outstanding shares of the Company's $4.00
Preferred Stock, $9.75 Preferred Stock and $2.50 Preferred Stock will
remain outstanding and have the identical powers, preferences, rights,
qualifications, limitations and restrictions as such shares currently have,
except as agreed to by the holder of the $9.75 Preferred Stock, as
described herein;
(ii) the adoption of the Certificate Amendments consisting of (a)
amendments to Article Fifth to eliminate supermajority stockholder voting
requirements relating to the amendment of certain By-Laws and (b)
amendments to Article Eighth to eliminate the classified terms for the
directors and to change the terms of directors from three years to one
year; and
(iii) the adoption of the By-Law Amendments to (a) reduce the minimum
size of the Board and (b) eliminate the classified terms for the directors
of the Company.
Voting Requirements. Under the DGCL and the Certificate, approval and
adoption of the Merger Agreement require the affirmative vote of the holders of
a majority of the outstanding Voting Shares and the approval of Certificate
Amendments and the By-Law Amendments require the affirmative vote of 80% of the
outstanding Voting Shares, voting together as a single class. Pursuant to the
Merger Agreement, the Purchaser has already completed a tender offer for all
Shares at $5.50 per Share in cash (the "Offer"). As a result, at the Record
Date, the Purchaser owned 120,000,613 Shares, representing approximately 88.5%
of the Shares and approximately 85.7% of the Voting Shares outstanding on such
date. The Purchaser has informed the Company that it intends to vote all its
Shares in favor of adoption of the Merger Agreement and approval of the
Certificate Amendments and the By-Law Amendments. Accordingly, the Purchaser
owns a sufficient number of Shares to adopt the Merger Agreement and to approve
the Certificate Amendments and the By-Law Amendments notwithstanding the vote of
any other Stockholder. Nevertheless, this solicitation for Stockholders' proxies
is made pursuant to the New York Stock Exchange (the "NYSE") requirement that
actively operating companies solicit proxies for all meetings of stockholders.
See "Introduction -- Voting at the Special Meeting."
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THE MERGER
Principal Effects of the Merger. As a result of the Merger, each
outstanding Share (other than Shares held by the Purchaser, YPF or any of their
subsidiaries, or in the treasury of the Company, all of which will be cancelled,
and Shares held by stockholders who perfect their appraisal rights under Section
262 of the DGCL) will be converted into the right to receive $5.50 per Share in
cash, without interest and YPF will become the sole holder of all
then-outstanding Shares. The Company and YPF anticipate that the Shares will be
delisted from the NYSE and the registration of the Shares under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), may be terminated. See
"Introduction -- Matters to Be Considered at the Special Meeting" and "The
Merger -- Principal Effects of the Merger."
Effective Time. The Merger will become effective (the "Effective Time") on
the date on which a certificate of merger is filed with the Secretary of State
of the State of Delaware. It is anticipated that, subject to the satisfaction or
waiver, if permissible, of the conditions set forth in the Merger Agreement,
such filing will be made promptly after the Merger Agreement has been approved
by the Stockholders. See "The Merger."
Opinion of Financial Advisor. The Company engaged CS First Boston
Corporation ("CSFB") to act as its financial advisor in connection with the
Offer and related matters. On February 28, 1995, CSFB delivered to the Board its
written opinion that the consideration of $5.50 per Share in cash to be received
by holders of Shares pursuant to the Offer and the Merger is fair to such
holders from a financial point of view. The opinion of CSFB will not be updated
and is limited to the facts and circumstances on February 28, 1995, the date on
which the opinion was delivered to the Board. See "The Merger -- Opinion of
Financial Advisor." The full text of the opinion of CSFB, which sets forth the
procedures followed, matters considered and assumptions made in connection with
rendering such opinion, as well as certain interests and relationships of CSFB
with both the Company and YPF, is attached as Exhibit B to this Proxy Statement
and should be read in its entirety.
Certain Federal Income Tax Consequences. The Stockholders' receipt of cash
for Shares pursuant to the Merger will be a taxable transaction for federal
income tax purposes and may also be a taxable transaction under applicable
state, local and other tax laws. For United States federal income tax purposes,
in general, a Stockholder who receives cash for Shares pursuant to the Merger
will recognize gain or loss equal to the difference between the Stockholder's
tax basis for the Shares converted into the right to receive cash in such
transaction and the amount of cash received in exchange therefor. Assuming that
the Shares constitute capital assets in the hands of the Stockholder, such gain
or loss will be long-term capital gain or loss if, as of the date of
disposition, such Shares have been held for more than one year. See "The
Merger -- Certain Federal Income Tax Consequences."
As none of the Preferred Stock will be exchanged for any security or other
consideration in the Merger but will remain outstanding, holders of such
securities will not recognize any gain or loss with respect to such securities
solely as a result of the Merger.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH HEREIN IS INCLUDED FOR GENERAL
INFORMATION ONLY. STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER (INCLUDING THE
EFFECTS OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS).
Dissenters' Rights. Stockholders may demand an appraisal by the Delaware
Court of Chancery of the "fair value" of their Shares under Section 262 of the
DGCL in lieu of accepting the payment to be made pursuant to the Merger. A
stockholder electing to demand an appraisal must deliver to the Company, before
the taking of the vote on the Merger, a written demand for appraisal of such
stockholder's Shares. A proxy or vote against the Merger or an abstention or
broker non-vote will not constitute such a demand. A vote in favor of the Merger
will have the effect of waiving the appraisal rights. Neither the holders of the
$4.00 Preferred Stock nor the holders of the $2.50 Preferred Stock are entitled
to demand an appraisal under Section 262 of the DGCL. The holder of the $9.75
Preferred Stock has waived its rights under Section 262. See "The
Merger -- Appraisal Rights."
5
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Certain Interests of Management. As of the Record Date, directors and
executive officers of the Company beneficially owned an aggregate of 1,148,625
Shares (including 38,424 restricted Shares and 1,105,009 Shares covered by
unexercised stock options). Pursuant to the Merger Agreement, the restrictions
on such restricted Shares will lapse at the Effective Time. The Company
directors and executive officers tendered substantially all of their Shares,
other than restricted Shares and Shares covered by unexercised Options, as
defined below, pursuant to the Offer and have received an aggregate of
approximately $1.3 million therefor. In addition, pursuant to the Merger
Agreement, all holders of outstanding employee and director stock options,
including any stock appreciation rights held in tandem therewith (collectively
"Options"), including directors and executive officers, have been offered the
opportunity to surrender all Options held by them in exchange for cash payments
in amounts set forth in a schedule to the Merger Agreement. Assuming all of the
directors and executive officers surrender their Options, they will receive
payments aggregating approximately $3.4 million. The Company is a party to
change-in-control agreements with 17 senior executives who have become entitled
to payments under the change-in-control agreements. Such payments are expected
to total approximately $14.7 million, including payments made in April, 1995
pursuant to such agreements. In addition, Charles L. Blackburn, the former
Chairman, President and Chief Executive Officer of the Company has become an
international consultant to YPF and remains a director of the Company. Under a
two-year contract, Mr. Blackburn will be available to render consulting services
for a minimum of 60 days per year and be paid a retainer of $180,000 per year.
Mr. Blackburn will be paid $3,000 per day for each day of consulting provided in
excess of 60 days per year. He will also be provided offices in Dallas and
Buenos Aires. Such payments will be in addition to payments to Mr. Blackburn
under his change-in-control agreement. Mr. Peter Gaffney has been appointed
interim Chief Executive Officer with compensation of $50,000 per month plus
certain benefits. The Merger Agreement also contains certain provisions relating
to indemnification and liability insurance for officers and directors, employee
agreements and benefits and other matters relating to the interests of
management. See "The Merger -- Certain Interests of Management" and "Beneficial
Ownership of Securities."
Sources and Amount of Funds. The total amount of funds required by the
Purchaser and its affiliates to acquire the entire common equity interest in the
Company, including the purchase of Shares pursuant to the Offer and the payment
for Shares to be converted into the right to receive cash pursuant to the
Merger, and to pay related fees and expenses, is expected to be approximately
$800 million. The Purchaser entered into a credit agreement dated as of April 5,
1995 (the "Credit Agreement") with The Chase Manhattan Bank (National
Association) ("Chase") as agent, and the lenders from time to time party to the
Credit Agreement, pursuant to which a $550 million credit facility was extended
to the Purchaser (the "Purchaser Facility"). On April 5, 1995, the Purchaser
borrowed $442.2 million under the Purchaser Facility and received a capital
contribution of $250 million from YPF. The Purchaser used such borrowings under
the Purchaser Facility and the funds contributed to it from YPF to purchase
120,000,613 Shares pursuant to the Offer. The Company has been advised by YPF
and the Purchaser that the payment for Shares converted into the right to
receive cash pursuant to the Merger will be made from additional borrowings by
the Purchaser under the Purchaser Facility and from additional capital
contributions from YPF. Chase has issued a commitment letter (the "Commitment
Letter") to YPF pursuant to which Chase agreed to provide the Purchaser Facility
and two additional credit facilities to certain subsidiaries of the Company, the
proceeds of which would be used to repay a portion of the borrowings under the
Purchaser Facility on or after the Effective Time. See "The Merger -- Source and
Amount of Funds."
STOCKHOLDER LITIGATION
Following the public announcement on February 28, 1995 of the proposed
Merger, a number of purported holders of Shares commenced a number of legal
actions alleging, among other things, that the directors and certain officers of
the Company breached their fiduciary duties in approving the Offer and the
Merger and in certain of the actions alleging that YPF aided and abetted the
alleged breach of duties. On March 28, 1995, the Company and YPF reached an
agreement in principle with the plaintiffs to settle such litigation. The
Company has also received communications in which other purported stockholders,
including purported holders of Preferred Stock, have threatened to commence, or
demanded that the Company commence, litigation. See "The Merger -- Certain
Litigation."
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TENDER OFFER; CHANGE OF CONTROL
The Purchaser owns 120,000,613 Shares, or approximately 88.5% of the
outstanding Shares or approximately 85.7% of the outstanding Voting Shares as of
the Record Date. All such Shares were purchased pursuant to the Offer. See "The
Merger -- Background of the Merger." Effective on April 21, 1995, ten directors
of the Company resigned and five designees of YPF were elected to the Board. As
a result of the death of one of the YPF designees, Mr. Jose A. Estenssoro, in
early May 1995, it is expected that Mr. Nells Leon will be appointed to fill the
vacancy as a new designee of YPF. Currently, four of the seven directors on the
Board are designees of YPF. See "The Merger -- Election of YPF Designees."
AMENDMENT OF THE CERTIFICATE
The Board has approved the Certificate Amendments, subject to Stockholder
approval, consisting of (i) amendments to Article Fifth to eliminate
supermajority stockholder voting requirements relating to amendments of certain
By-Laws and (ii) amendments to Article Eighth to (a) eliminate the classified
terms for the directors of the Company and (b) change the terms of directors
from three years to one year. The Certificate Amendments are being submitted to
the Stockholders for their approval. See "Proposal 2 -- Certificate Amendments."
AMENDMENT OF THE BY-LAWS
The Board has approved the By-Law Amendments, subject to Stockholder
approval, to (i) reduce the size of the Board and (ii) eliminate the classified
terms for the directors of the Company. The By-Law Amendments are being
submitted to the Stockholders for their approval. See "Proposal 3 -- By-Law
Amendments."
BUSINESS OF THE COMPANY
The Company is one of the largest independent oil and gas exploration and
development companies in the United States, with ongoing international activity
in Indonesia and a number of other countries, and domestic activity primarily in
the mid-continent region of the United States. See "Business of the Company."
BUSINESS OF YPF AND THE PURCHASER
YPF, a sociedad anonima organized under the laws of the Republic of
Argentina, and the largest Argentine company, is an integrated oil and gas
company engaged in the exploration, development and production of oil and
natural gas and in the refining, marketing, transportation and distribution of
oil and a wide range of petroleum products, petroleum derivatives,
petrochemicals and liquid petroleum gas. The Purchaser is a newly formed
Delaware corporation that has not conducted any business except in connection
with the transactions related to the Offer and the Merger. See "Information
Concerning YPF and the Purchaser."
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PROPOSAL 1
THE MERGER
The information contained in this Proxy Statement with respect to the
Merger is qualified in its entirety by reference to the complete text of the
Merger Agreement, which is attached to this Proxy Statement as Exhibit A. Except
as set forth herein with respect to certain terms the meaning of which is not
readily apparent, capitalized terms used and not otherwise defined herein have
the meanings given to such terms in the Merger Agreement.
PRINCIPAL EFFECTS OF THE MERGER
General. The Merger will become effective when a certificate of merger in
such form as required by, and executed in accordance with, the applicable
provisions of the DGCL is filed with the Secretary of State of the State of
Delaware. It is anticipated that, subject to the satisfaction or waiver, if
permissible, of the conditions set forth in the Merger Agreement, such filing
will be made promptly after the Merger Agreement has been adopted by the holders
of a majority of the outstanding Voting Shares. If the Merger is consummated,
YPF will become the sole holder of Shares (except to the extent that, following
the Effective Time, holders of outstanding options and warrants exercise such
options and warrants for Shares or holders of the $4.00 Preferred Stock exercise
their rights to convert shares of $4.00 Preferred Stock into Shares), and the
current holders of Shares, other than YPF, will no longer have an equity
interest in the Company and will not share in its future earnings or growth, if
any. Instead, each such Stockholder (other than those who perfect appraisal
rights under Section 262 of the DGCL) will have the right to receive $5.50 in
cash, without interest, for each Share held immediately prior to the Merger. All
outstanding shares of the Preferred Stock will remain outstanding and have the
identical powers, preferences, rights, qualifications, limitations and
restrictions as such shares of Preferred Stock currently have (including, in the
case of the $4.00 Preferred Stock, the right to convert such shares into
Shares), except for changes to the terms of the $9.75 Preferred Stock as agreed
to by the holder of the $9.75 Preferred Stock as described in "The
Merger -- $9.75 Preferred Stock Arrangements" below. The right of the holders of
$4.00 Preferred Stock to convert their $4.00 Preferred Stock into common stock
of the Company will continue after the Effective Time on the same terms and
conditions as currently provided in the Certificate. However, following the
Merger, the common stock of the Company will be delisted from the NYSE and it is
not expected that the common stock of the Company will be listed or quoted for
trading on any other organized trading market. As a result, it is expected that
any holder of $4.00 Preferred Stock who exercises the conversion right with
respect thereto will experience a lack of liquidity with respect to the common
stock of the Company received upon conversion. Any outstanding option or warrant
to acquire Shares that is not exercised prior to the Effective Time, or
surrendered in the case of employee or director stock options, will remain
outstanding and have the identical terms as such options and warrants currently
have.
As a result of the Merger, YPF will own all of the common stock of the
Company and approximately 97% of the outstanding voting stock; the $4.00
Preferred Stock will represent approximately 3% of the outstanding voting stock.
To the extent any future action by the Company requires approval of the holders
of the common stock of the Company or requires approval of no more than 97% of
the holders of the voting stock and does not require the separate class vote of
any class of Preferred Stock, YPF may approve or disapprove such action by
voting its common stock of the Company, notwithstanding the vote of the holders
of the $4.00 Preferred Stock. The $4.00 Preferred Stock and the $2.50 Preferred
Stock will continue to have the right to vote, as separate classes, on such
matters as are provided in the Certificate, including the right of each such
class to vote with respect to any amendment, alteration or repeal of any of the
provisions of the Certificate which would affect adversely any right,
preference, privilege or voting power of the shares of such class or shares of
any other series of Preferred Stock. On matters requiring the approval of the
$4.00 Preferred Stock or the $2.50 Preferred Stock, voting separately as a
class, YPF does not have the voting power to approve or disapprove such matters
as it does not currently own any shares of $4.00 Preferred Stock or $2.50
Preferred Stock.
Delisting; Exchange Act Deregistration. Following completion of the
Merger, the Shares will be delisted from the NYSE, and it is expected that the
Shares will be delisted from the Pacific Stock Exchange and any other securities
exchanges on which the Shares are listed. The Shares are currently registered
under the
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Exchange Act. Registration of the Shares under the Exchange Act may be
terminated upon application by the Company to the Securities and Exchange
Commission (the "Commission") if the Shares are not listed on a national
securities exchange and there are fewer than 300 record holders of the Shares.
However, termination of registration of the Shares under the Exchange Act will
not affect the registration of the $4.00 Preferred Stock and the $2.50 Preferred
Stock under the Exchange Act, the holders of which will continue to be entitled
to information required to be furnished to them thereunder. Termination of
registration of the Shares would reduce substantially the information required
to be furnished by the Company to holders of Shares and would make certain
provisions of the Exchange Act, including the requirement of furnishing a proxy
statement or information statement in connection with stockholders' meetings
pursuant to Section 14(a) and the requirements of Rule 13e-3 under the Exchange
Act with respect to "going private" transactions, no longer applicable to the
Shares. Furthermore, if the registration of the Shares under the Exchange Act
were to be terminated, the ability of "affiliates" of the Company and persons
holding "restricted securities" of the Company to dispose of such securities
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), may be impaired or eliminated. If registration of the Shares
under the Exchange Act were terminated, the Shares would no longer be "margin
securities" or be eligible for listing or National Association of Securities
Dealers Automated Quotation ("NASDAQ") reporting. YPF may seek or cause the
Company to make an application for termination of registration of the Shares.
In addition to the Shares, the Company's $4.00 Preferred Stock, the $2.50
Preferred Stock and the 8 1/2% Sinking Fund Debentures due April 1, 2008 (the
"8 1/2% Debentures") are registered under the Exchange Act and listed on the
NYSE. If registration of the Shares under the Exchange Act were terminated, and
registration under the Exchange Act of the $4.00 Preferred Stock, the $2.50
Preferred Stock, the 8 1/2% Debentures or other securities of the Company
continued, the Exchange Act requirement that the Company file periodic reports
would remain applicable. YPF and the Company have agreed to use their respective
reasonable efforts to continue the listing on the NYSE of the series of
Preferred Stock which are currently listed on such Exchange, or, if any such
series is delisted, to cause such series of the Preferred Stock to be listed on
another national securities exchange within the United States or admitted to
trading on the NASDAQ and on other organized securities markets in such foreign
jurisdictions in which such shares are presently traded. Notwithstanding
anything in the Merger Agreement to the contrary, the obligations of the Company
and YPF regarding continued listing of the Preferred Stock will survive the
Effective Time with respect to any series of Preferred Stock until such time as
the aggregate market value of all outstanding shares of such series is less than
$2 million or the number of outstanding shares of such series is less than
100,000. Under the policy of the NYSE, any class of equity securities
convertible into common stock is customarily delisted when the related common
stock is delisted. The NYSE has informed the Company that the $4.00 Preferred
Stock will be delisted from the NYSE when the Shares are delisted (which is
expected to occur promptly after the Effective Time). On April 7, 1995 the
Company received notice from the National Association of Securities Dealers that
the $4.00 Preferred Stock had been accepted for trading on NASDAQ National
Market. The Company presently expects the $4.00 Preferred Stock will begin
trading on NASDAQ National Market promptly following the Effective Time. The
Company does not expect the $2.50 Preferred Stock or the 8 1/2% Debentures,
neither of which is convertible into Shares, to be delisted from the NYSE.
The Exchange Act provides that registration of the $4.00 Preferred Stock,
the $2.50 Preferred Stock or the 8 1/2% Debentures may be terminated upon
application by the Company to the Commission if such class of securities is not
listed on a national securities exchange and there are fewer than 300 record
holders of such class of securities. Termination of registration of any such
class of securities would reduce substantially the information required to be
furnished by the Company to holders of such class of securities. Termination of
registration of the $4.00 Preferred Stock or the $2.50 Preferred Stock would
make certain provisions of the Exchange Act, including the requirement of
furnishing a proxy statement or information statement pursuant to Section 14(a)
in connection with stockholders' meetings and the requirements of Rule 13e-3
under the Exchange Act with respect to "going private" transactions, no longer
applicable to such class of securities. Furthermore, if the registration of any
such class of securities under the Exchange Act were to be terminated, the
ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of such securities pursuant to Rule 144
under the Securities Act may be impaired or eliminated. If
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registration of any such class of securities under the Exchange Act were to be
terminated, such class of securities would no longer be "margin securities" or
be eligible for listing on NASDAQ reporting.
CONVERSION OF SHARES
Prior to the Effective Time, the Purchaser will authorize Chase (or one or
more commercial banks organized under the laws of the United States or any state
thereof with capital, surplus and undivided profits of at least $100 million) to
act as Paying Agent with respect to the Merger (the "Paying Agent"). On or
before the Effective Time, the Purchaser will make available to the Paying Agent
sufficient funds to make all payments for Shares pursuant to the Merger
Agreement. Pending payment of such funds to the holders of Shares, such funds
shall be held and invested by the Paying Agent as the Purchaser or the Surviving
Corporation directs. Any net profit resulting from, or interest or income
produced by, such investments will be payable to the Purchaser or the Company as
the corporation surviving the Merger (as such, the "Surviving Corporation"). The
Surviving Corporation will promptly replace any monies lost through any
investment made pursuant to its direction.
INSTRUCTIONS WITH REGARD TO THE SURRENDER OF STOCK CERTIFICATES WHICH PRIOR
TO THE EFFECTIVE TIME REPRESENTED SHARES, TOGETHER WITH A LETTER OF TRANSMITTAL
TO BE USED FOR THIS PURPOSE, WILL BE FORWARDED TO HOLDERS OF SHARES AS PROMPTLY
AS PRACTICABLE FOLLOWING THE EFFECTIVE TIME. HOLDERS OF SHARES SHOULD SURRENDER
THEIR CERTIFICATES ONLY AFTER RECEIVING A LETTER OF TRANSMITTAL. HOLDERS OF
SHARES SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
Each holder (other than the Purchaser, YPF or any of their subsidiaries,
the Company and Stockholders who perfect their appraisal rights under Section
262 of the DGCL) of a certificate or certificates which prior to the Effective
Time represented Shares (a "Stock Certificate") will be entitled to receive,
upon surrender to the Paying Agent of any Stock Certificates for cancellation
and subject to any required withholding of taxes, the aggregate amount of cash
into which the Shares previously represented by such Stock Certificates were
converted in the Merger. Until surrendered to the Paying Agent, each Stock
Certificate (other than Shares owned by the Purchaser, YPF, or any of their
subsidiaries, or in the treasury of the Company and stockholders who perfect
their appraisal rights under Section 262 of the DGCL) will be deemed for all
purposes to evidence only the right to receive upon such surrender the aggregate
amount of cash into which the Shares represented thereby will have been
converted, subject to any required withholding taxes. No interest will be paid
on the cash payable upon the surrender of any Stock Certificate.
Any cash delivered or made available to the Paying Agent and not exchanged
for Stock Certificates within three months after the Effective Time will be
returned by the Paying Agent to the Company which thereafter will act as paying
agent, subject to the rights of holders of unsurrendered Stock Certificates
under the Merger Agreement, and any former holders of Shares who have not
theretofore complied with the instructions for exchanging their Stock
Certificates will thereafter look only to the Company for payment of their claim
for the consideration set forth in the Merger Agreement, without any interest
thereon, but will have no greater rights against the Company than may be
accorded to general creditors thereof under applicable law. Notwithstanding the
foregoing, none of the Paying Agent, YPF, the Purchaser or the Company will be
liable to a holder of Shares for any cash or interest thereon delivered to a
public official pursuant to applicable abandoned property laws.
Promptly after the Effective Time, the Paying Agent will mail to each
record holder of Stock Certificates a form of letter of transmittal (the
"Transmittal Letter") and instructions for use thereof in surrendering such
Stock Certificates which will specify that delivery will be effected and risk of
loss and title to the Stock Certificates will pass to the Paying Agent only upon
proper delivery of the Stock Certificates to the Paying Agent in accordance with
the terms of delivery specified in the Transmittal Letter and instructions for
use thereof in surrendering such Stock Certificates and receiving the
consideration for each Share previously represented by such Stock Certificates.
From and after the Effective Time, holders of Stock Certificates
immediately prior to the Effective Time will have no right to vote or to receive
any dividends or other distributions with respect to any Shares which were
theretofore represented by such Stock Certificates, other than any dividends or
other distributions payable to holders of record of Shares as of a date prior to
the Effective Time, and will have no other rights other than as provided in the
Merger Agreement or by law or as described herein.
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After the Effective Time, there will be no transfers on the stock books of
the Company of the Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Stock Certificates are presented
(with proper endorsements) to the Company, such Stock Certificates will be
cancelled, retired and exchanged for cash.
At the Effective Time, each outstanding share of common stock of the
Purchaser will be converted into and become one share of common stock of the
Company. At the Effective Time, the Purchaser will have such number of
outstanding shares of its common stock equal to the number of outstanding Shares
immediately prior to the Effective Time.
ELECTION OF YPF DESIGNEES
The Merger Agreement provides, among other things, that upon the
Purchaser's acquisition of a majority of the outstanding Voting Shares pursuant
to the Offer, and from time to time thereafter so long as YPF and/or any of its
direct or indirect wholly owned subsidiaries (including the Purchaser) own a
majority of the outstanding Voting Shares, YPF is entitled, subject to
compliance with applicable law and the Certificate, to designate at its option
up to that number of directors, rounded up to the nearest whole number, of the
Board as will make the percentage of the Company's directors designated by YPF
equal to the percentage of outstanding Voting Shares held by YPF and any of its
direct or indirect wholly owned subsidiaries (including the Purchaser),
including Shares accepted for payment pursuant to the Offer. The Company agreed
that it will, upon the request of YPF, promptly increase the size of its Board
and/or use its reasonable best efforts to secure the resignation of such number
of directors as is necessary to enable YPF's designees to be elected to the
Board and will use its reasonable best efforts to cause YPF's designees to be so
elected, subject to Section 14(f) of the Exchange Act; except that, prior to the
Effective Time, the Company will use its reasonable best efforts to assure that
the Board always has (at its election) at least three members who were directors
of the Company as of February 28, 1995. At such times, the Company will use its
reasonable best efforts, subject to any limitations imposed by applicable law or
rules of the NYSE, to cause persons designated by YPF to constitute the same
percentage as such persons represent on the Board of (i) each committee of the
Board, (ii) each board of directors or board of management of each subsidiary of
the Company, and (iii) each committee of each such board.
The Purchaser's ownership of approximately 88.5% of the outstanding Shares
or 85.7% of the outstanding Voting Shares entitles it to be represented on the
Board pursuant to the above-described provision. The Purchaser designated five
persons, Messrs. Jose A. Estenssoro, Cedric Bridger, Peter Gaffney, James R.
Lesch and P. Dexter Peacock (collectively, the "YPF Designees") to serve on the
Board. Effective April 21, 1995, all of the then directors of the Company except
Messrs. Charles L. Blackburn, George L. Jackson and R.A. Walker submitted their
resignations from the Board. Effective upon such resignations, the remaining
directors on the Board elected the YPF Designees to the Board to fill five of
the vacancies created thereby. As a result of the death of one of the YPF
designees, Mr. Estenssoro, in early May 1995, it is expected that Mr. Nells Leon
will be appointed to fill the vacancy as a new designee of YPF. Currently, the
Board consists of the four remaining YPF designees, and Messrs. Blackburn,
Jackson and Walker, with six vacancies.
Certain additional information relating to the election of the YPF
Designees is contained in the information statement filed with the Commission by
the Company pursuant to Rule 14f-1 under the Exchange Act (the "14f-1
Information Statement") and mailed on or about April 11, 1995 to Stockholders of
record as of April 4, 1995, copies of which are available for inspection (and
copies of which may be obtained) at the places and in the manner set forth in
the section captioned "Available Information" (except that such copies will not
be available at regional offices of the Commission).
Pursuant to the Merger Agreement, at the Effective Time, the directors of
the Purchaser immediately prior to the Effective Time will be the directors of
the Company and the officers of the Company immediately prior to the Effective
Time will be the officers of the Company, in each case until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Certificate and By-Laws and the
DGCL. YPF has informed the Company that, as of the Effective Time, it expects
the members of the Board of Directors of the Purchaser to be composed of the
same individuals as the Board of the Company immediately prior to the Effective
Time.
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CERTAIN TERMS OF THE MERGER AGREEMENT
The Merger. The Merger Agreement provides that, unless the Merger
Agreement is terminated or abandoned (see "Termination" below), as soon as
practicable following fulfillment or waiver, if permissible, of the conditions
described below under "Conditions to the Merger," at the Effective Time, the
Purchaser will be merged with and into the Company, whereupon the separate
existence of the Purchaser will cease and the Company will be the Surviving
Corporation. The Merger Agreement further provides that the Certificate and the
By-Laws of the Company as in effect at the Effective Time will be the
certificate and the by-laws of the Surviving Corporation.
Consideration to be Paid in the Merger. The Merger Agreement provides that
each Share outstanding immediately prior to the Effective Time (other than
Shares held in the treasury of the Company, Shares owned by YPF, the Purchaser,
and any other direct or indirect subsidiary of YPF, and other than Shares held
by Stockholders who perfect their appraisal rights under Section 262 of the
DGCL) will, at the Effective Time, be cancelled and retired and be converted
into a right to receive $5.50 per Share in cash, without interest, upon the
surrender of the Stock Certificates formerly representing such Shares, and each
Share held in the treasury of the Company, and each Share held by YPF, the
Purchaser or any other direct or indirect subsidiary of YPF immediately prior to
the Effective Time will, at the Effective Time, be cancelled and retired and no
payment will be made with respect thereto. Each share of common stock of the
Purchaser issued and outstanding immediately prior to the Effective Time will,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into and become one share of common stock of the Surviving
Corporation, and each outstanding share of Preferred Stock will remain
outstanding and have the identical powers, preferences, rights, qualifications,
limitations and restrictions as such share of Preferred Stock currently have,
except for such changes thereto as agreed to by the holder of the $9.75
Preferred Stock as described in "$9.75 Preferred Stock Arrangements" below. The
number of shares of outstanding common stock of the Purchaser immediately prior
to the Effective Time will be equal to the number of outstanding shares of
common stock of the Company at such time.
Company Options and Restricted Shares. The Merger Agreement provides that
the Company will cooperate with YPF and the Purchaser in an effort to obtain the
surrender of all Options in exchange for the payments in amounts set forth in
Schedule 2.6 of the Merger Agreement. If all the Options are surrendered, the
Company will pay an aggregate of $4.7 million to the holders of such Options. In
addition, immediately prior to the Effective Time, the restrictions on certain
restricted Shares, including Shares held by certain executive officers of the
Company, will lapse without further action.
Representations and Warranties. The Merger Agreement contains
representations and warranties by the Company, relating to, among other things,
(i) the organization of the Company and its subsidiaries and other corporate
matters, (ii) the capital structure of the Company, (iii) the authorization,
execution, delivery and consummation of the transactions contemplated by the
Merger Agreement, (iv) consents and approvals, (v) documents filed by the
Company with the Commission and the accuracy of the information contained
therein, (vi) the absence of certain changes and events, (vii) the accuracy of
the information contained in documents filed with the Commission in connection
with the Offer and the Merger, (viii) litigation, (ix) compliance with laws and
certain environmental matters, (x) tax, insurance and labor matters, and (xi)
matters relating to Title IV of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder. In
addition, the Merger Agreement contains representations and warranties by YPF
and the Purchaser related to, among other things, (i) the organization of YPF
and the Purchaser and other corporate matters, (ii) the authorization,
execution, delivery and consummation of the transactions contemplated by the
Merger Agreement, (iii) consents and approvals, and (iv) YPF's having no reason
to believe that, following the Merger, the borrowings under the Purchaser
Facility and the other financings contemplated by the Commitment Letter, the
Company will not be able to meet its obligations as they come due including,
solely for purposes of this representation and warranty, preferred stock
dividends and redemption requirements.
Redemption of Rights. Pursuant to the Merger Agreement, effective as of
March 22, 1995, the Company redeemed all of the outstanding rights (the
"Rights") issued pursuant to the Rights Agreement
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dated as of September 2, 1988 between the Company and AmeriTrust Company
National Association, as predecessor in interest to KeyCorp, as rights agent, so
that the Rights did not become exercisable as a result of the Offer.
Indemnification of Directors. Pursuant to the Merger Agreement, for a
period of seven years following the Effective Time, YPF has agreed to cause the
Surviving Corporation to indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
subsidiaries as described herein. See "Certain Interests of
Management -- Indemnification and D&O Insurance."
YPF's Undertaking. The Merger Agreement provides that whenever it requires
the Purchaser to take any action, such requirements will be deemed to include an
undertaking on the part of YPF to cause the Purchaser to take such action.
Listing of Preferred Stock. Pursuant to the Merger Agreement, the Company
will, and YPF will cause the Surviving Corporation to, subject to certain
limitations, use their respective reasonable efforts to continue the listing on
the NYSE of the shares of Preferred Stock which are currently listed on such
Exchange as more fully described elsewhere herein, and if any such series is
delisted, to cause such series of the Preferred Stock to be listed on another
national securities exchange within the United States or admitted to trading on
the NASDAQ and on other organized securities markets in such foreign
jurisdictions in which such shares are presently traded. Notwithstanding
anything in the Merger Agreement to the contrary, the obligations of the Company
and YPF regarding continued listing of such shares of Preferred Stock will
survive the Effective Time with respect to any such series of Preferred Stock
until such time as the aggregate market value of all outstanding shares of such
series is less than $2 million or the number of outstanding shares of such
series is less than 100,000. The NYSE has informed the Company that the $4.00
Preferred Stock will be delisted from the NYSE when the Shares are delisted
(which is expected to occur promptly after the Effective Time). On April 7, 1995
the Company received notice from the National Association of Securities Dealers
that the $4.00 Preferred Stock had been accepted for trading on NASDAQ National
Market. The Company presently expects the $4.00 Preferred Stock will begin
trading on NASDAQ National Market promptly following the Effective Time. The
Company does not expect the $2.50 Preferred Stock or the 8 1/2% Debentures,
neither of which is convertible into Shares, to be delisted from the NYSE. See
"Principal Effects of the Merger -- Delisting; Exchange Act Deregistration."
Certain Obligations of YPF. Pursuant to the Merger Agreement, in the event
that the Company is unable to meet its obligations as they come due, whether at
maturity or otherwise, including, solely for the purposes of this undertaking,
dividend and redemption payments with respect to the Preferred Stock, YPF has
agreed to capitalize the Company in an amount necessary to permit the Company to
meet such obligations; provided that YPF's aggregate obligation will be: (i)
limited to the amount of debt service obligations under the Purchaser Facility,
and to the extent the Purchaser Facility is replaced by the Midgard Facility
and/or the Subsidiaries Facility (as such terms are defined in "The
Merger -- Source and Amount of Funds" below), the amount of debt service
obligations under the Midgard Facility and/or the Subsidiaries Facility and (ii)
reduced by the amount, if any, of capital contributions received by the Company
after the Effective Time and the net proceeds of any sale by the Company of
common stock or non-redeemable preferred stock after the Effective Time. The
foregoing obligations of YPF (the "Keepwell Covenant") will survive until the
ninth anniversary of the Effective Time. In addition, on March 7, 1995, YPF
announced that its board of directors authorized YPF to guarantee the Company's
outstanding long-term debt as of the Effective Time, the principal amount of
which is approximately $977 million. The long-term debt to be covered by the YPF
guarantee is the Company's outstanding 11 1/4%, 11 1/2% and 8 1/2% Sinking Fund
Debentures, its outstanding 9 7/8%, 9 1/2% and 9 3/8% Notes, and its outstanding
medium-term notes.
Termination. The Merger Agreement provides that it may be terminated and
the Merger contemplated thereby may be abandoned at any time prior to the
Effective Time, whether before or after approval by the Stockholders of the
Company: (i) by the mutual consent of the boards of directors of YPF, the
Purchaser and the Company; (ii) by the Company if either YPF or the Purchaser
materially breaches, or by YPF and the Purchaser if the Company materially
breaches, any of the representations and warranties or covenants contained in
the Merger Agreement; (iii) by either YPF and the Purchaser or the Company, if
the Merger is
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not consummated prior to June 30, 1995; provided, however, that the right to
terminate the Merger Agreement pursuant to this provision will not be available
to any party whose failure to fulfill any obligation under the Merger Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date; (iv) by either YPF and the Purchaser, on the one
hand, or the Company, on the other hand, if either one (or any assignee
permitted under the Merger Agreement) is restrained, enjoined or otherwise
precluded by an order, decree, ruling or injunction (other than an order or
injunction issued on a temporary or preliminary basis) of a court of competent
jurisdiction, governmental authority or other regulatory or administrative
agency or commission, from consummating the Merger or making the acquisition or
holding by YPF or its subsidiaries of the Shares or shares of common stock of
the Surviving Corporation illegal and all means of appeal and all appeals from
such order, decree, ruling, injunction or other action have been finally
exhausted; (v) by the Company if the Board determines that it will not recommend
the approval of the Merger by the Company's Stockholders (or if such
recommendation is withdrawn) based upon the advice of outside counsel that such
action is necessary for the Board to comply with its fiduciary duties to
stockholders under applicable law; or (vi) by YPF and the Purchaser, if: (a) the
Board shall not have recommended or shall withdraw, modify or change its
recommendation relating to the Merger in a manner materially adverse to YPF or
shall have resolved to do any of the foregoing; or (b) the Board shall have
recommended to the stockholders of the Company that they accept or approve, or
the Company or any of its subsidiaries shall have agreed to engage in, a
Competing Transaction (as defined below). "Competing Transaction" is defined as
any of the following involving the Company or any of its subsidiaries: (i) any
merger, consolidation, share exchange, business combination or other similar
transaction except for such of the foregoing in which the only parties are the
Company or one or more subsidiaries of the Company; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of the assets of the
Company or any of its subsidiaries constituting 5% or more of the consolidated
assets of the Company or accounting for 5% or more of the consolidated revenues
of the Company in a single transaction or series of related transactions
involving any person other than the Company or one or more subsidiaries of the
Company; or (iii) any tender or exchange offer for 20% or more of the
outstanding Voting Shares or the filing of a registration statement under the
Securities Act in connection therewith.
In the event of any termination and abandonment pursuant to the Merger
Agreement, no party to the Merger Agreement (or any of its directors or
officers) will have any liability or further obligation to any other party to
the Merger Agreement, except for certain express obligations under the Merger
Agreement and except that no party will be relieved from liability for any
breach of the Merger Agreement. Any action by the Company to terminate the
Merger Agreement as described herein will require only the approval of a
majority of the directors of the Company then in office who were directors of
the Company on the date of the Merger Agreement, or persons nominated or elected
to succeed such directors by a majority of such directors.
In the event the Merger Agreement is terminated, (i) YPF and the Purchaser
will not, and will cause their subsidiaries and affiliates controlled by them
not to, acquire or offer to acquire or request permission to acquire or offer to
acquire (either directly or pursuant to a waiver of this or any other covenant
in the Merger Agreement) any additional Voting Shares otherwise than pursuant to
the Merger for a period of not less than 24 months after termination of the
Merger Agreement without prior written approval of the Board, and (ii) the
provisions of the confidentiality agreement previously entered into between the
Company and YPF (or one of its affiliates) will continue to apply.
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Offer, the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such costs and
expenses; provided, however, that (i) in the event of a termination of the
Merger Agreement by (a) the Company if the Board determines that it will not
recommend the approval of the Merger by the Company's Stockholders (or if such
recommendation is withdrawn) based upon the advice of outside counsel that such
action is necessary for the Board to comply with its fiduciary duties to
stockholders under applicable law and (b) YPF and the Purchaser if (1) the Board
shall withdraw, modify or change its recommendation relating to the Merger in a
manner materially adverse to YPF or shall have resolved to do any of the
foregoing or (2) the Board shall have recommended to the Stockholders that they
accept or approve, or the Company or any of its subsidiaries shall have agreed
to engage in, a Competing Transaction, the Company will be obligated
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<PAGE> 18
to promptly pay to the Purchaser $20 million in cash, and (ii) in the event of a
termination of the Merger Agreement by the Company or by YPF if at the date of
such termination any condition to the funding of remaining available credit
under the Purchaser Facility or the other loans contemplated by the Commitment
Letter has not been satisfied, provided that at such time no other condition to
YPF's obligation to consummate the Merger is unsatisfied (other than the failure
to meet the Minimum Share Condition as a result of the failure to obtain such
funding), YPF and the Purchaser, jointly and severally, will be obligated to
promptly pay to the Company $20 million in cash.
$9.75 PREFERRED STOCK ARRANGEMENTS
In accordance with the provisions of the Certificate, the holder of the
$9.75 Preferred Stock was required to approve the Merger Agreement in order for
the Merger to be consummated. To induce such holder to consent to the Merger
and, effective upon the Effective Time, to (i) waive certain rights, including
appraisal rights, conversion rights, rights under the Rights Agreement and the
right to increased dividends under certain circumstances, (ii) waive certain
covenants restricting the Company's ability to take certain actions and (iii)
terminate the registration rights associated with the $9.75 Preferred Stock, YPF
has agreed, effective as of the Effective Time, to guarantee the payment and
performance of each and every obligation of the Company to the registered owners
of the Company's $9.75 Preferred Stock, including the obligation to pay
quarterly dividend amounts and to redeem shares of the $9.75 Preferred Stock in
certain circumstances (the "Prudential Preferred Waiver Agreement"). In
addition, the Company has agreed, effective upon the Effective Time, to (i)
waive certain rights, including the right to redeem the $9.75 Preferred Stock at
its option and the right of first offer with respect to the transfer of the
shares of $9.75 Preferred Stock, (ii) waive certain transfer restrictions with
respect to the $9.75 Preferred Stock, and (iii) pay to The Prudential Insurance
Company of America ("Prudential"), which is the current holder of all of the
outstanding shares of the $9.75 Preferred Stock, a restructuring fee of $250,000
upon the Effective Time. YPF has agreed to reimburse Prudential for all of its
reasonable out-of-pocket expenses arising in connection with these agreements.
BACKGROUND OF THE MERGER
In light of, among other factors, the limitations on the Company's
financial flexibility resulting from, among other things, the pressures from
continuing depressed oil and gas prices and the Company's limited access to the
capital markets, balanced against the Company's obligations and the Company's
anticipated funding requirements ($571 million during the years 1995 through
1999) to execute its exploration, development and production program to maximize
the value of and/or replace the Company's oil and gas reserves, in mid-1994 the
Company began exploring financial alternatives available to it. The alternatives
considered involved a broad range of possible actions, including potential sales
of assets, subsidiaries or divisions, joint ventures, public debt and equity
offerings of securities of several of the Company's subsidiaries, private sales
of equity securities of such subsidiaries, and possible sales of a substantial
equity interest in the Company. Management of the Company decided to study all
reasonable alternatives available to the Company to increase the Company's
financial flexibility and maximize stockholder value. CSFB acted as the
Company's financial advisor with respect to this effort.
One of the alternatives given serious consideration was a combined public
offering of equity and debt securities by the Company's mid-continent gas
production and processing operations, later to be named "Midgard" (the "Midgard
Offering Alternative"). On December 20, 1994, Midgard filed with the Commission
a registration statement relating to the possible public offering of
approximately 37.5% of its common stock. This filing (the "Initial Filing")
assumed an overall enterprise valuation of Midgard of approximately $600
million. At the time of the Initial Filing, the Company and CSFB estimated that
the offering, together with an expected concurrent offering of $200 million of
debt securities, would result in net proceeds of approximately $340 million,
which would be used to retire indebtedness of Midgard to the Company. On January
9, 1995, Midgard filed with the Commission a registration statement relating to
the possible public offering of $200 million of debt securities of Midgard.
As an alternative to the possible public offerings of Midgard equity and
debt securities, the Company, with the assistance of CSFB, also solicited offers
for the private sale of a minority interest in Midgard,
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<PAGE> 19
commencing in the latter part of 1994. Approximately 70 possible financial and
strategic investors were contacted during this process, 14 of which visited the
Midgard data room in order to conduct due diligence investigations with respect
to Midgard.
Subsequent to the Initial Filing, the prices for natural gas, which
represent virtually all of Midgard's 1994 production and current reserves,
remained depressed, thus reducing the potential value to the Company of the
Midgard Offering Alternative. The Midgard Offering Alternative continued to be
pursued and, as discussed below, was considered by the Board in connection with
its consideration of other alternatives at the time the Offer and the Merger
Agreement were approved by the Board. However, in connection with and in light
of such approval (discussed below), the Company agreed to suspend its pursuit of
the Midgard Offering Alternative (or any other sale of equity securities or
substantial assets) pursuant to the Merger Agreement.
In November 1994, Amoco Corporation ("Amoco") contacted the Company and
indicated that it desired to initiate discussions relating to the possible
acquisition of the entire equity interest in the Company, which transaction
might involve a spin-off to the Company's stockholders of some portion of the
Company's South American assets. A confidentiality agreement with Amoco was
signed in November 1994. During November and December of 1994, the Company, with
the assistance of CSFB, furnished to Amoco extensive information relating to the
Company's business, financial condition, results of operations and prospects.
This extensive due diligence investigation included visits to the Company's
principal worldwide locations. Amoco, however, did not choose to engage in
substantive negotiations with respect to an acquisition of the entire equity
interest in the Company. Instead, on January 27, 1995, Amoco informed the
Company that it desired to pursue the possible acquisition of Midgard and/or the
Company's Indonesian subsidiaries.
In early December 1994, Mr. Blackburn met with YPF's Chief Executive
Officer. The principal focus of the discussions at this meeting was the
companies' respective operations and the possible purchase by YPF of a
substantial equity interest in the Company. The companies signed a
confidentiality agreement, and over the following three-month period YPF and its
representatives undertook an extensive due diligence investigation of the
Company.
In mid-January 1995, CSFB, on behalf of the Company, requested that 16
potential bidders submit proposals in respect of a range of possible
transactions, including the possible sale of a minority interest in Midgard, the
possible sale of a substantial equity interest in the Company and the possible
acquisition of the entire equity interest in the Company.
On January 24, 1995, an article appeared in Platt's Oilgram News, a leading
industry publication, reporting that the Company may be pursuing alternatives to
the Midgard Offering Alternative. On January 25, 1995, the Company publicly
announced that it was in discussions with various parties concerning a range of
possible transactions, including possible equity investments or other
transactions involving the Company or its subsidiaries.
At the meeting of the Board on January 30 and 31, 1995, CSFB reported that
none of the potential financial or strategic investors it had solicited had
expressed an interest in pursuing the acquisition of a minority interest in
Midgard. However, CSFB informed the Board that a number of proposals had been
received for the acquisition of the entire equity interest in, or substantially
all of the assets of, Midgard (the "Midgard Disposition Alternative"). These
proposals included an indication of interest from Amoco to acquire Midgard's
assets for an amount in excess of $605 million, as well as other proposals, one
of which was believed by CSFB and management of the Company to be generally
competitive with Amoco's indication of interest on an after-tax basis. In
addition, CSFB reported that Amoco had made an unsolicited offer to purchase the
Company's Indonesian properties for $585 million. Amoco's offer for the
Company's Indonesian properties was, however, substantially below the valuation
placed on such assets by management and CSFB.
At the meeting of the Board on January 30 and 31, 1995, the Board also
considered a proposal received on January 27, 1995 from YPF to acquire all of
the Shares at $5.00 per Share in cash, subject to a number of conditions,
including satisfactory completion of due diligence and obtaining financing. None
of the alternatives considered by the Board at the January 30 and 31, 1995
meeting was believed by management of the Company to be acceptable due to the
terms and conditional nature thereof.
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<PAGE> 20
Although no decision was made with respect to the course of action to be
taken, the Board instructed the Company's management at the January 30 and 31,
1995 meeting to continue to explore all reasonable alternatives, following which
CSFB, on behalf of the Company, requested the four parties who had submitted the
most attractive indications of interest in respect of the Midgard Disposition
Alternative, including Amoco, to submit final proposals by February 21, 1995. In
addition, CSFB requested that YPF consider increasing its prior proposal for the
possible acquisition of all of the Shares at $5.00 per Share in cash and also
consider a substantial equity investment in the Company.
On February 21, 1995, the Company received proposals in respect of the
Midgard Disposition Alternative from three potential purchasers, the most
favorable of which was from Amoco (the "Amoco Alternative"). The Amoco
Alternative contemplated a purchase of Midgard's assets and contained two
alternative purchase prices -- either $675 million in cash or $500 million in
cash and a volumetric-denominated production payment ("VPP") consisting of
approximately 60 million cubic feet of gas per day ("mmcfd") declining to 20
mmcfd over a ten-year period. The Amoco Alternative was subject to certain
conditions, including satisfactory completion of due diligence, negotiation of
definitive agreements, approval by Amoco's board of directors and the agreement
by the Company to negotiate exclusively with Amoco. In its February 21, 1995
proposal, Amoco also expressed an interest in pursuing a transaction which would
include both Midgard and the Company's Indonesian subsidiaries. Amoco
subsequently indicated a possible price for those assets which, in the opinion
of management and CSFB, would have made such a transaction substantially less
attractive than either the Amoco Alternative relating to only the Midgard assets
or the YPF Alternative (described below).
In addition, on February 25, 1995, the Company received a proposal from YPF
(the "YPF Alternative") to acquire all of the Shares for $5.50 per Share, which
proposal contemplated that holders of Rights would receive an additional $0.10
per Share (payable by the Company) in connection with the redemption of the
Rights. The YPF Alternative was subject to certain conditions, the most
significant of which were the receipt of financing, Prudential's approval of the
transaction and waiver of certain rights under the terms of the $9.75 Preferred
Stock held by it and certain related agreements, approval of YPF's board of
directors (which was obtained on February 27, 1995) and the redemption of the
Rights.
At a meeting of the Board held on February 26, 1995, the Board carefully
considered the Amoco Alternative, the Midgard Offering Alternative and the YPF
Alternative. Management expressed the opinion that the VPP proposed in the Amoco
Alternative had an estimated net present value of $200 million. Management and
CSFB also informed the Board that, in their opinion, the Amoco Alternative that
included the VPP was more attractive than Amoco's all-cash offer due to its tax
efficiency and would yield to the Company a net present value of approximately
$605 million on an after-tax basis. In addition, management and CSFB were of the
opinion that there was relatively low execution risk associated with the Amoco
Alternative and that the transaction could be completed expeditiously.
At the February 26, 1995 Board meeting, CSFB presented its estimates of
potential values of Midgard to a third-party purchaser using four cases: a
discounted cash flow ("DCF") going concern case, a break-up case, a comparable
acquisitions case and a public companies case. Depending on pricing assumptions
(discussed below) and based upon a range of discount rates applicable to the DCF
going concern case ranging between 8% and 10%, the value of Midgard was
estimated by CSFB to range from a low of $427 million to a high of $681 million.
Applying the comparable acquisitions case, CSFB informed the Board that the
estimated value of Midgard ranged from a low of $539 million to a high of $641
million. Under the break-up case, CSFB informed the Board that the estimated
value of Midgard ranged from a low of $529 million to a high of $660 million.
CSFB also informed the Board that the estimated value of Midgard as an entirety
in an initial public offering in the current market environment was in the range
of $475 million to $515 million. Management informed the Board at this meeting
of its belief that the Amoco Alternative was superior to the Midgard Offering
Alternative in terms of meeting the Company's anticipated funding requirements.
However, while the Amoco Alternative appeared to solve the Company's anticipated
funding requirements, management believed it would not be effective to reduce
the Company's financial leverage. It was also management's belief that the Amoco
Alternative, as compared to the YPF Alternative, would result in less financial
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<PAGE> 21
flexibility for the Company by making the Company smaller while essentially
retaining its present credit characteristics and relatively high cost of
capital.
At the February 26, 1995 Board meeting, management and CSFB also made
detailed presentations regarding the YPF Alternative, including the proposed
financing of up to $800 million to be provided to YPF by Chase. CSFB also
presented a review of YPF, including its operations and financial resources.
CSFB informed the Board, among other things, that YPF had very substantial
capital resources and that CSFB believed YPF could readily complete the YPF
Alternative. The Board was also informed as to the status of several unresolved
issues with respect to the YPF Alternative, including the break-up fee to be
paid in the event of a termination of the Offer or the Merger, the Keepwell
Covenant which the Company had requested from YPF and various issues relating to
the Company's outstanding Preferred Stock.
The price for the Shares under the YPF Alternative had been set, following
extensive negotiations between representatives of the Company and CSFB, on the
one hand, and YPF, on the other, at $5.50 per Share plus $0.10 (payable by the
Company) upon redemption of the Rights. It was the opinion of management and
CSFB that the financial terms of the YPF Alternative represented YPF's best
price. Accordingly, at the February 26, 1995 meeting, the Board also heard
presentations from CSFB and management of the Company regarding the range of
values for the Shares under the Amoco Alternative, the Midgard Offering
Alternative and also assuming that the Company elected to pursue none of the
alternatives (the "Status Quo Case"). It was the consensus of the Board, based
in part on the views expressed at the February 26, 1995 Board meeting by CSFB
and management, that the Status Quo Case was not a realistic alternative for the
Company in light of the Company's anticipated funding requirements and limited
access to the capital markets.
CSFB's valuation ranges for Shares discussed at the February 26, 1995 Board
meeting were determined through application of the DCF going concern analysis,
which CSFB informed the Board was its primary valuation method, and other
alternative techniques, including a comparable acquisition analysis, a
comparable company analysis, a break-up analysis and a simplified proved reserve
value analysis ("SPRV analysis"), a valuation technique developed by the Company
for internal planning purposes. In making its analyses, CSFB relied on certain
assumptions, including a weighted average cost of capital for the Company of 12%
to 12.5% and three different energy price assumptions based on CSFB's
determination of the forecasts of oil and gas prices (the "Base Price
Assumption"), existing prices in the futures markets (the "Strip Price
Assumption") and assuming significant increases over the Base Price Assumption
(the "Upside Price Assumption"). The Base Price Assumption assumed prices of
$18.50 per barrel ("bl") of oil and $1.70 per thousand cubic feet ("mcf") of
natural gas in 1995, increasing to $23.00 per bl of oil and $2.35 per mcf of
natural gas by 1999; the Strip Price Assumption assumed prices of $18.01 per bl
of oil and $1.58 mcf of natural gas in 1995, increasing to $19.16 per bl of oil
and $2.09 per mcf of natural gas by 1999; and the Upside Price Assumption
assumed prices of $20.00 per bl of oil and $1.80 per mcf of natural gas in 1995,
increasing to $26.00 per bl of oil and $2.50 per mcf of natural gas in 1999.
Under the DCF going concern analysis, CSFB valued the Amoco Alternative at
between $4.50 and $4.75 per Share; the other valuation techniques, taken
together, produced a valuation range from $3.50 to $5.625 per Share. The Midgard
Offering Alternative produced a valuation range under the DCF going concern
analysis of $3.00 to $3.50 per Share and a valuation range of $3.25 to $4.50 per
Share under the other valuation techniques, taken together. The Status Quo Case
produced a valuation range of $2.75 to $5.75 per Share under the DCF going
concern analysis and a valuation range of $0.375 to $5.75 per Share under the
other valuation techniques, taken together. However, CSFB advised the Board that
valuations using the DCF going concern analysis in excess of $5.00 per Share
could be obtained only based upon the Upside Price Assumption, and that this
assumption was believed to have a low probability of occurrence in the opinion
of CSFB. In addition, the Company's management presented the Board with
management's valuation analysis, based primarily on the SPRV analysis, which
showed an implied Share price of $3.35 to $6.17 per Share, with an expected
value of $4.94 per Share. Such analysis was based on management's assumptions in
the Company's business plan regarding oil prices and assumed implementation of
the Company's business plan.
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<PAGE> 22
At the February 26, 1995 meeting, the Board also received presentations
from management of the Company, CSFB and the Company's legal advisors in respect
of the status of the Midgard Offering Alternative, legal matters, the Company's
business and prospects, historical trading prices for Shares, YPF's business,
financial condition and prospects, and the potential effects of the various
alternatives then available on stockholder value and the Company's financial
position. The Board did not take any action in respect of any alternatives
available to the Company at the February 26, 1995 Board meeting. The Board did,
however, instruct management of the Company to engage in further negotiations
with YPF in an effort to resolve the various points (discussed below) arising
under the YPF Alternative.
At a meeting held on February 28, 1995, the Board again considered the
alternatives available to the Company. As to the material points still open in
the YPF Alternative at the time of the February 26, 1995 meeting, the Board was
informed that YPF had agreed to the Keepwell Covenant which would obligate YPF
to contribute assets to the Company (to the extent Company assets were utilized
in connection with the financing of the YPF Alternative) for the purpose of
enabling the Company to meet its obligations, including solely for this purpose
preferred stock dividends and redemption payments. The Board was also informed
that, although the Company's representatives had initially requested that the
Keepwell Covenant continue indefinitely, YPF had requested a time limit with
respect to this obligation. A nine-year period was believed by the Company's
management to be acceptable because most of the Company's outstanding debt and
preferred stock redemption requirements occurred within that period. The Board
was also informed that YPF had agreed to a break-up fee of $20 million, without
any expense reimbursement, in the event the Company elected to terminate the
Merger Agreement and had also agreed to pay the Company $20 million in the event
that the Offer or the Merger were not completed due to the failure of YPF to
obtain financing, subject to certain limitations. Further, the Board was
informed that YPF had agreed to a covenant under which YPF and the Company would
use their respective reasonable efforts to continue the listing of the $4.00
Preferred Stock and the $2.50 Preferred Stock on the NYSE or to obtain an
alternative listing therefor. YPF also had agreed to include preferred stock
dividend and redemption payments within the scope of the Keepwell Covenant and
had informed the Company's advisors that YPF did not anticipate making any
disclosure of any plans or proposals to change the Company's existing preferred
stock dividend policy. Finally, YPF had negotiated the Prudential Preferred
Waiver Agreement with Prudential.
At the February 28, 1995 meeting, management and CSFB also reviewed with
the Board the presentations made at the February 26, 1995 meeting relating to
the estimated Share valuation under the various alternatives. Management
informed the Board that the Company would lose approximately $75 million of
anticipated annual cash flow generated by the Midgard assets if the Amoco
Alternative were elected. In addition, in the opinion of management of the
Company, the Amoco Alternative was unlikely to produce value to the holders of
Shares in excess of the purchase price proposed by YPF. Further, it was
management's opinion that the Amoco Alternative would result in the Company
having materially diminished financial flexibility going forward.
CSFB reviewed with the Board its presentation of the range of values of the
Company on a per Share basis under various assumptions, reiterating that to
arrive at a value of $5.00 per Share or more under a DCF going concern analysis
required the use of the Upside Price Assumption and that, in the opinion of
CSFB, such assumption had a low probability of occurrence. While certain of the
above-discussed valuation methods produced higher or lower possible values, in
general, CSFB placed the per Share value of the Company in the range of $3.00 to
$5.00 per Share. At the February 28, 1995 meeting, CSFB also reviewed a draft of
its proposed fairness opinion, including the assumptions and limitations
thereon, the compensation due CSFB in the event that the Company were to pursue
the alternatives then under consideration and CSFB's interests and relationships
with respect to both the Company and YPF. CSFB then informed the Board that, if
the Board were to approve the YPF Alternative, CSFB would deliver a signed
fairness opinion at the time that the Merger Agreement was signed.
At the February 28, 1995 meeting, the Board also reviewed the potential
impact of the Offer and the Merger on the holders of the Company's $4.00
Preferred Stock and $2.50 Preferred Stock, including the possibility that, as a
result thereof, such shares would be delisted from trading on the NYSE. As to
this matter, CSFB informed the Board that an active market for these shares
presently exists and that it was
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<PAGE> 23
possible that such securities could be listed on another exchange. In addition,
CSFB stated that, in its opinion, there should be no material adverse effect on
the value of these securities even if they were traded only in the
over-the-counter market.
At the February 28, 1995 meeting, the Board also heard presentations from
management of the Company, CSFB and the Company's legal advisors as to various
other matters, including additional information relating to YPF's business,
financial condition and prospects, conditions in the bank finance and capital
markets generally and as affected by recent events in the Republic of Mexico and
other Latin and South American countries and the Company's capital requirements
and financial position.
Following further deliberation, the Board unanimously voted, with the
director elected by Prudential abstaining, to approve the YPF Alternative.
In making its determination and recommendations with respect to the Offer
and the Merger, the Board considered a number of factors, including without
limitation the matters referred to above and the following:
(i) The alternatives available to the Company and the consideration to
be received for the Shares pursuant to the Offer and Merger. In connection
with its analysis of this issue, among other factors, the Board considered
detailed presentations from CSFB and management of the Company at the
February 26 and 28, 1995 Board meetings as to the range of possible values
of Shares, based upon the various assumptions discussed above, including
without limitation assumptions as to oil and gas prices, the Company's
ability to execute its business plan and the alternatives available to the
Company. It was the consensus of the Board that the Company should elect
either the Amoco Alternative or the YPF Alternative (as modified in the
negotiations that took place between the February 26 and the February 28,
1995 Board meetings) and that the YPF Alternative (as so modified) was more
likely to create substantially greater value for holders of the Shares than
would the Amoco Alternative.
(ii) The opinion of CSFB to the effect that, as of February 28, 1995,
the consideration to be received by the holders of the Shares in the Offer
and the Merger was fair to such holders from a financial point of view. A
copy of such opinion is filed as Exhibit B hereto. Stockholders are urged
to read such opinion in its entirety for an understanding of the
assumptions and limitations thereon and CSFB's interests and relationships
with respect to both the Company and YPF.
(iii) The provisions of the Merger Agreement, including the provisions
which permit the Company to terminate the Merger Agreement, upon payment to
YPF of $20 million, if the Board determined to withdraw its recommendation
to holders of Shares to accept the Offer based upon the advice of outside
counsel that such action was necessary to comply with the fiduciary duties
of the directors under applicable law.
(iv) The fact that, under the YPF Alternative, YPF's and Purchaser's
obligations under the Offer were subject to financing. In this regard, the
Board considered, among other things, the terms of the commitment letter
YPF had obtained to provide financing, the financial condition of YPF and
the Company, conditions in the bank finance and capital markets as
described above, the Keepwell Covenant in the Merger Agreement which
provides for YPF's capital contribution obligations as described above
under "Certain Terms of the Merger Agreement -- Certain Obligations of YPF"
and the provision of the Merger Agreement that the Company would be
entitled to a $20 million termination fee, subject to certain limitations,
if such financing is not satisfied.
(v) YPF's direct investment in connection with the Offer and Merger,
as well as YPF's financial condition and ability to meet its obligations
under the Merger Agreement.
(vi) The fact that the Preferred Stock would not be redeemed or
otherwise monetized in connection with the Offer and the Merger. In this
regard, the Board considered, among other factors, (a) the terms of the
Preferred Stock; (b) the provisions of the Prudential Preferred Waiver
Agreement, which had been negotiated between representatives of YPF and
Prudential relating to the $9.75 Preferred Stock without substantial
participation by representatives of the Company; (c) the possibility that
the $4.00 Preferred Stock and the $2.50 Preferred Stock might be delisted
from trading on the NYSE and possibly other
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<PAGE> 24
securities exchanges on which the $4.00 Preferred Stock and the $2.50
Preferred Stock are now listed or admitted for trading as a result of the
Offer or the Merger, the covenant in the Merger Agreement to the effect
that the parties would use their reasonable efforts to maintain such
listings or provide for listing or admission for trading of such Preferred
Stock on another exchange or market, and advice of CSFB to the effect that
the failure to obtain such alternative listing or admission should not have
a material adverse effect on the value of such Preferred Stock; and (d) the
Keepwell Covenant and the representation of YPF in the Merger Agreement to
the effect that it had no reason to believe that, following the Merger and
financings in respect thereof, the Company would not be able to meet its
obligations as they become due, including for this purpose the obligation
to cause dividends and redemption payments on all series of Preferred Stock
to be paid in accordance with the terms thereof.
(vii) The provisions of the Merger Agreement and other matters
described herein, including the matters described in "The Merger -- Certain
Interests of Management" below.
In making its decision in respect of the Offer and the Merger Agreement, the
Board did not attempt to rank the relative importance of the various factors
discussed above. However, the Company generally believes that the factors listed
in this paragraph were the most significant factors pertaining to such decision.
On February 28, 1995, following approval by their respective boards of
directors, the Company, YPF and the Purchaser entered into the Merger Agreement.
A copy of the Merger Agreement is attached as Exhibit A hereto.
On March 3, 1995, the Purchaser commenced the Offer. At midnight on March
30, 1995, the Offer expired and the Purchaser thereafter purchased all
120,000,613 Shares which had been validly tendered.
OPINION OF FINANCIAL ADVISOR
As discussed above, on February 28, 1995 CSFB delivered an opinion to the
Board that the $5.50 per Share cash consideration to be received by holders of
Shares pursuant to the Merger Agreement is fair, from a financial point of view.
A copy of the written opinion of CSFB dated February 28, 1995 is attached as
Exhibit B hereto and is incorporated by reference herein. Stockholders are urged
to read the opinion in its entirety. The opinion of CSFB will not be updated and
is limited to the facts and circumstances on February 28, 1995, the date on
which the opinion was delivered to the Board.
The Company retained CSFB to act as exclusive financial advisor to the
Company with respect to the Offer and the Merger. Pursuant to the terms of the
engagement letter, dated January 23, 1995, the Company agreed to pay CSFB (i) in
the event of sale of all or substantially all of the Shares in connection with
the sale of the Company, 0.45% of the total enterprise value of the Company, as
determined pursuant to the engagement letter or (ii) in the event of any other
sale of an equity interest in the Company other than a sale of the Company, an
amount equal to 1.9% to 2.15% of the aggregate consideration received. If the
Offer and Merger are consummated in accordance with the terms thereof, it is
estimated that CSFB will be entitled to receive approximately $8 million. Under
the January 23, 1995 engagement letter, the Company will also reimburse CSFB for
its reasonable out-of-pocket expenses, including all fees and disbursements of
counsel and other advisors retained by CSFB. In addition, the Company has agreed
to indemnify CSFB and certain related persons against certain liabilities in
connection with CSFB's engagement.
Pursuant to an engagement letter dated January 23, 1995, the Company agreed
(i) to pay to CSFB, in the event of the sale of all, substantially all, or a
minority interest in Midgard, an amount equal to 1.75% to 2.50% of the aggregate
consideration received in a private sale up to a maximum of $5 million, or (ii)
to give CSFB, in the event of the sale of equity or debt securities in the
public market, the right to act as lead manager and receive customary
underwriting fees.
CSFB has from time to time for a period of more than five years provided
financial advisory and investment banking services to the Company and has
received customary fees for the rendering of such services. CSFB has informed
the Company that an officer of CSFB is an alternate member of the board of
directors of YPF and has received compensation for such service on the same
basis as is provided to other alternate directors of YPF. It is not currently
anticipated that such officer will be named a YPF designee to the
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Company's Board. CSFB has from time to time provided investment banking services
to YPF for which it has received customary fees. In addition, CSFB has informed
the Company that in the ordinary course of CSFB's business, it and its
affiliates may actively trade in the debt and equity securities of the Company
and its affiliates for CSFB's own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
As of February 28, 1995, CSFB held 34,625 Shares in discretionary and
proprietary trading accounts.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained, or compensated any person to make solicitations
or recommendations to the Company's stockholders with respect to the Merger.
SOURCE AND AMOUNT OF FUNDS
General. The total amount of funds required by the Purchaser to acquire
the entire common equity interest in the Company, including the purchase of
Shares pursuant to the Offer and the payment for Shares converted into the right
to receive cash pursuant to the Merger, and to pay related fees and expenses, is
expected to be approximately $800 million. The Purchaser entered into the Credit
Agreement with Chase as agent for the commercial banks, financial institutions
and other investors (the "Lenders") that may from time to time be party to the
Credit Agreement pursuant to which a $550 million Purchaser Facility was
extended to the Purchaser. On April 5, 1995, the Purchaser borrowed $442.2
million under the Purchaser Facility and received a capital contribution of $250
million from YPF. The Purchaser used such borrowings under the Purchaser
Facility and the funds contributed to it from YPF to purchase 120,000,613 Shares
pursuant to the Offer. The Company has been advised by YPF and the Purchaser
that the payment for Shares converted into the right to receive cash pursuant to
the Merger will be made from an additional borrowing by the Purchaser under the
Purchaser Facility and, to the extent necessary, from additional capital
contributions from YPF.
Pursuant to the Commitment Letter, Chase has agreed to provide two
additional credit facilities aggregating up to $425 million: (i) a credit
facility of up to $250 million to be extended to Midgard Energy Company
("Midgard"), a wholly owned subsidiary of the Company (the "Midgard Facility"),
and (ii) a credit facility of up to $175 million to be extended to certain other
subsidiaries of the Company as described below (the "Subsidiaries Facility").
Revised term sheets for the Midgard Facility and the Subsidiaries Facility are
annexed to the Credit Agreement. The proceeds of the Midgard Facility and the
Subsidiaries Facility will be used to repay, in part, the Purchaser Facility.
Chase has confirmed that it is willing to provide the entire amount of these two
additional facilities. Chase also has advised YPF that it intends to arrange one
or more syndicates of commercial banks, financial institutions and other
investors to provide a portion of these facilities and that it proposes to act
as the agent for such lenders in connection with each of the facilities.
The following is a description of the principal terms of the Purchaser
Facility and a description of the proposed terms of the Midgard Facility and the
Subsidiaries Facility.
Purchaser Facility. The Purchaser Facility provides for loans in an
aggregate amount of up to $550 million (collectively, the "Purchaser Loan") and
will mature on the earlier of: (i) the Effective Time and (ii) June 12, 1995
(such earlier date being the "Purchaser Maturity Date"). The Purchaser borrowed
$442.2 million under the Purchaser Facility on April 5, 1995, and may obtain one
additional advance thereunder up to the remaining $107.8 million of credit
available thereunder. At the Purchaser's option, the interest rate applicable to
the Purchaser Loan is either: (i) the one-month London Interbank Offered Rate
plus a margin of 2 1/4% or (ii) the Base Rate (as defined in the credit
agreement relating to the Purchaser Facility) plus a margin of 1 1/4%. The
Purchaser Loan is guaranteed by YPF as described below. In addition, prior to
the Merger, the Purchaser has agreed not to dispose of any such Shares except
for cash at fair market value. The Lenders' obligation to fund the remaining
amount of credit available under the Purchaser Facility is subject to certain
conditions as described below. It is anticipated that up to $125 million of the
Purchaser Loan, plus accrued interest on the Purchaser Loan, will be repaid on
the Purchaser Maturity Date from cash held by the Company.
Midgard Facility. The Company currently anticipates that on the Purchaser
Maturity Date, up to $250 million of the Purchaser Loan will be repaid with
funds provided to the Company by Midgard. The
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Company anticipates that Midgard will provide the funds from the proceeds of a
loan of up to $250 million (the "Midgard Loan") pursuant to the Midgard
Facility. The Midgard Loan will be made in a single drawing, will mature on
December 31, 2003 and will be repaid in up to 28 consecutive quarterly
installments commencing on March 31, 1997, subject to semi-annual borrowing base
redeterminations. At Midgard's option, the interest rate applicable to the
Midgard Loan will be, until March 31, 1997, either (i) the one-, two-or
three-month London Interbank Offered Rate plus a margin of 1 3/4% or (ii) the
Base Rate (to be defined in the credit agreement relating to the Midgard
Facility) plus a margin of 3/4% and, thereafter, either (iii) the one-, two- or
three-month London Interbank Offered Rate plus a margin of 2 1/4% or (iv) the
Base Rate plus a margin of 1 1/4%. The Midgard Loan will not be secured but will
be guaranteed by YPF and the Company. The agreement evidencing the Midgard Loan
will contain, among other things, a negative pledge on all assets of Midgard,
subject to customary exceptions. The lenders' obligation to fund the Midgard
Loan will be subject to certain conditions as described below. It is anticipated
that the Midgard Loan will be repaid with funds generated by Midgard's business
operations.
Subsidiaries Facility. The Company currently anticipates that on the
Purchaser Maturity Date, up to $175 million of the Purchaser Loan will be repaid
with funds provided to the Company by Maxus Northwest Java, Inc. ("Java") and
Maxus Southeast Sumatra, Inc. ("Sumatra") (collectively, the "Designated
Subsidiaries"). The Company anticipates that the Designated Subsidiaries will
provide these funds from the proceeds of a loan of up to $175 million (the
"Subsidiaries Loan") made to them pursuant to the Subsidiaries Facility. The
Subsidiaries Loan will be made in a single drawing on the Purchaser Maturity
Date, will mature on December 31, 2002 and will be repaid in up to 24
consecutive quarterly installments commencing on March 31, 1997, subject to
semi-annual borrowing base redeterminations. At the option of the Designated
Subsidiaries, the interest rates applicable to the Subsidiaries Loan will be,
until March 31, 1997, either (i) the one-, two- or three-month London Interbank
Offered Rate plus a margin of 2 1/4% or (ii) the Base Rate (to be defined in the
credit agreement relating to the Subsidiaries Facility) plus a margin of 1 1/4%
and, thereafter, either (iii) the one-, two- or three-month London Interbank
Offered Rate plus a margin of 2 3/4% or (iv) the Base Rate plus a margin of
1 3/4%. The Subsidiaries Loan to Java and Sumatra will be secured by certain of
the assets of Java and Sumatra, will be guaranteed by the Company and a new
subsidiary formed to hold the stock of Java and Sumatra, and the guarantee by
that new holding company will be secured by the stock of Java and Sumatra. The
agreement evidencing the Subsidiaries Loan will contain a negative pledge on all
of the other assets of the Designated Subsidiaries, subject to customary
exceptions.
The lenders' obligation to fund the Subsidiaries Loan will be subject to
certain conditions as described below. It is anticipated that the Subsidiaries
Loan will be repaid with funds generated by the Designated Subsidiaries'
business operations.
Upon further review of the value of the assets of Midgard and the
Designated Subsidiaries, the terms of the Midgard Loan and the Subsidiaries Loan
may be modified to provide for intercompany guarantees or other arrangements
whereby Midgard and the Designated Subsidiaries provide support for each other's
loans.
Conditions to Funding. The obligation of the lenders to advance the
remaining amount of credit available under the Purchaser Facility is subject to
the fulfillment of certain conditions, including but not limited to, (i) the
absence of any material adverse change in the condition (financial or
otherwise), business operations, assets, nature of assets or liabilities of (a)
YPF and its subsidiaries (taken as a whole), (b) the Purchaser and (c) the
Company and its subsidiaries (taken as a whole) and (ii) that the Company will
have sufficient cash available to pay the accrued interest on the Purchaser
Facility plus the lesser of (a) $125 million and (b) the difference between (1)
the principal amount of the Purchaser Loan outstanding on the Purchaser Maturity
Date and (2) the lesser of $425 million or such other amount as is available
under the Midgard Loan and the Subsidiaries Loan as described above.
The obligation of the lenders to fund the Midgard Loan and the Subsidiaries
Loan will be subject to certain additional conditions, including without
limitation, (i) the effectiveness of the Merger, (ii) the absence of any
material adverse change in the condition (financial or otherwise), business,
operations, assets, nature of assets or liabilities of (a) YPF and it
subsidiaries (taken as a whole), (b) the Company and its subsidiaries (taken as
a whole), (c) in the case of the Midgard Loan, Midgard and its subsidiaries
taken as a
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whole, and (d) in the case of the Subsidiaries Loan, Java or Sumatra or their
holding company, (iii) the payment in full of the Purchaser Loan and (iv) all
indebtedness and other obligations of each of Midgard, Java and Sumatra to the
Company and its other subsidiaries shall have been paid in full or
satisfactorily subordinated to the repayment of the Midgard Loan and the
Subsidiaries Loan.
Prepayment. Each of the Purchaser Loan, the Midgard Loan and the
Subsidiaries Loan (collectively, the "Loans") may be prepaid in whole or in part
without premium or penalty, except for costs associated with the prepayment of
any portion of a Loan bearing interest at a rate determined by reference to the
London Interbank Offered Rate prior to the end of any applicable interest
period.
YPF Guarantee. YPF has guaranteed the repayment of the Purchaser Facility,
and will guarantee the repayment of the Midgard Facility and the Subsidiaries
Facility. The YPF guarantee of the Purchaser Facility is secured by a pledge of
the capital stock of the Purchaser. The guarantee contains certain covenants
including a limitation on YPF's debt level and a required level of tangible net
worth. The largest aggregate principal amount of the indebtedness that YPF may
become liable to repay, at any given time, under the guarantees of the Purchaser
Facility, the Midgard Facility and the Subsidiaries Facility is $550 million.
Certain Fees. YPF has agreed to pay to Chase customary fees in connection
with each of the facilities.
Covenant Regarding Financing. In the Merger Agreement, YPF and the
Purchaser agreed that they will use their reasonable best efforts to obtain the
financings contemplated by the Commitment Letter.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for Shares pursuant to the Merger will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. The tax
consequences of such receipt pursuant to the Merger may vary depending upon,
among other things, the particular circumstances of the Stockholder. In general,
a Stockholder who receives cash for Shares pursuant to the Merger will recognize
gain or loss for federal income tax purposes equal to the difference between the
amount of cash received in exchange for the Shares sold and such Stockholder's
adjusted tax basis in such Shares. Provided that the Shares constitute capital
assets in the hands of the Stockholder, such gain or loss will be capital gain
or loss, and will be long-term capital gain or loss if the holder has held the
Shares for more than one year at the time of sale. Gain or loss will be
calculated separately for each block of Shares converted pursuant to the Merger
Agreement.
As none of the $4.00 Preferred Stock, the $9.75 Preferred Stock or the
$2.50 Preferred Stock will be exchanged for any security or other consideration
in the Merger but will remain outstanding, holders of such securities will not
recognize any gain or loss with respect to such securities solely as a result of
the Merger.
The foregoing discussion may not be applicable to certain types of
Stockholders, including Stockholders who acquired Shares pursuant to the
exercise of employee stock options or otherwise as compensation, individuals who
are not citizens or residents of the United States, foreign corporations and
entities that are otherwise subject to special tax treatment under the Internal
Revenue Code of 1986, as amended, such as insurance companies, tax-exempt
entities and regulated investment companies.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM
TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting,
whereby the purchase price will be allocated based on fair values of the assets
and liabilities of the Company.
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CERTAIN INTERESTS OF MANAGEMENT
Interests in Shares and Stock Options. The Merger Agreement provides that
the Company will cooperate with YPF and the Purchaser in an effort to obtain the
surrender of all Options held by employees and directors of the Company in
exchange for the payments set forth in Schedule 2.6 to the Merger Agreement. If
all such Options are surrendered, the holders thereof, including certain
directors and executive officers of the Company, will receive an aggregate
amount of approximately $4.7 million. Of that amount, Charles L. Blackburn, the
Chairman, President and Chief Executive Officer of the Company, the four next
highest compensated executive officers of the Company (collectively with Mr.
Blackburn, the "Named Executives"), all executive officers of the Company as a
group (the "Executive Officer Group") and all directors of the Company as a
group would receive approximately the following amounts: Mr. Blackburn, $1.1
million; Michael C. Forrest, $385,000; Steven G. Crowell, $390,000; George W.
Pasley, $335,000; McCarter Middlebrook, $160,000; the Executive Officer Group,
$2.9 million; and all directors of the Company (other than Mr. Blackburn), as a
group, $545,000. In addition, the Merger Agreement provides that all
restrictions on restricted Shares, which include restricted Shares owned by
certain executive officers of the Company, will lapse at the Effective Time. The
aggregate value of all restricted Shares, based on a price of $5.50 per Share,
is approximately $5.2 million. Of that amount, the Named Executives and the
Executive Officer Group would receive the following amounts: Mr. Blackburn,
$104,588; Mr. Forrest, $0; Mr. Crowell, $34,430; Mr. Pasley, $20,658; Mr.
Middlebrook, $14,916; and the Executive Officer Group, $215,000. None of the
directors of the Company (other than Mr. Blackburn) owns any such restricted
shares.
Indemnification and D&O Insurance. Pursuant to the Merger Agreement, YPF
has agreed that, for seven years after the Effective Time, YPF will cause the
Company to indemnify and hold harmless each present and former officer,
director, employee and agent of the Company and its subsidiaries (an
"Indemnified Party") against all losses, claims, damages or liabilities arising
out of actions or omissions occurring on, prior to or after the Effective Time
(whether or not based in whole or in part on the sole or concurrent negligence
of the Indemnified Party or on the theory of strict products liability) to the
full extent provided under Delaware law, the Certificate and By-Laws of the
Company in effect on February 28, 1995 and under all agreements to which the
Company was a party as of February 28, 1995, including without limitation
provisions relating to advances of expenses incurred in the defense of any
action or suit (including without limitation attorneys' fees of counsel selected
by the Indemnified Party). YPF has agreed to cause the Company to maintain the
Company's existing officers' and directors' liability insurance as in effect on
February 28, 1995 ("D&O Insurance") in full force and effect without reduction
of coverage for a period of seven years after the Effective Time, provided,
however, that the Company will not be required to pay an annual premium therefor
in excess of 250% of the last annual premium paid prior to February 28, 1995
(the "Current Premium"), and, provided, further, that if the existing D&O
Insurance expires, is terminated or cancelled during such seven-year period, the
Company will use its best efforts to obtain as much D&O Insurance as can be
obtained for the remainder of such period for a premium on an annualized basis
not in excess of 250% of the Current Premium.
Employee Agreements and Benefit Plans. The Merger Agreement provides that,
except as may be expressly provided in a valid written waiver voluntarily signed
by an affected employee party thereto, the Company will honor and, on and after
the Effective Time, YPF will cause the Company to honor in accordance with the
terms thereof, without offset, deduction, counterclaim, interruption or
deferment (other than withholdings under applicable law), all employment,
change-in-control, severance, termination, consulting and unfunded retirement or
benefit agreements to which the Company or any of its subsidiaries was a party
as of February 28, 1995. The Company is presently a party to change-in-control
agreements with 17 senior executives of the Company, including each of the
executive officers of the Company, which agreements (or predecessors thereof)
were entered into in 1987 or, if later, the date that the executive first
attained the position of general manager or above. In the event that all of the
persons who are parties to change-in-control agreements terminate their
employment with the Company (or are terminated) under circumstances in which
they have rights to severance payments thereunder, the maximum aggregate amount
which the Company would be obligated to pay under all such agreements is
estimated to be $14.7 million. On April 7, 1995, all of the Company's executive
officers gave notice of their intent to resign under circumstances in which they
had the right to receive severance payments thereunder. In order to facilitate
the transition following such event,
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the Company and its eight executive officers agreed that the executive officers
would continue to work for the Company in their present positions at their
current level of compensation until June 30, 1995 or such date as otherwise
mutually agreed. The Company also agreed to pay the executive officers such
severance payments no later than April 15, 1995. Pursuant to said agreement and
the change-in-control agreements, the Named Executives and the Executive Officer
Group have received or are entitled to receive the following amounts: Mr.
Blackburn, $2.7 million; Mr. Forrest, $1.0 million; Mr. Crowell, $1.0 million;
Mr. Pasley, $0.9 million; Mr. Middlebrook, $0.8 million; and the Executive
Officer Group, $8.2 million.
The Merger Agreement also provides that the Company will, for a period of
12 months following the Effective Time, continue, without amendment or change,
except for changes that increase such compensation or benefits or as may be
required by law, the Benefit Plans and the other compensation and benefit
policies, practices, programs and arrangements (collectively, the "Plans") which
provide compensation or benefits to employees of the Company and its
subsidiaries, except that the Company may replace any of the Plans with another
plan or program that provides not less than a substantially equivalent level of
compensation or benefits and may amend or replace any stock-based award plan or
program with another plan which is determined in good faith by the Board to
provide comparable incentive compensation opportunities.
Consulting Agreement. Mr. Blackburn, formerly the Chairman, President and
Chief Executive Officer of the Company has become an international consultant to
YPF and remains a director of the Company. Under a two-year contract, Mr.
Blackburn will be available to render consulting services for a minimum of 60
days per year and will be paid a retainer of $180,000 per year. Mr. Blackburn
will be paid $3,000 per day for each day of consulting provided in excess of 60
days per year. He will also be provided offices in Dallas and Buenos Aires.
Interim Chief Executive Officer. In addition, on April 21, 1995, YPF
announced that Mr. Peter Gaffney, a founding partner of Gaffney, Cline &
Associates Inc. ("Gaffney, Cline"), and a reservoir engineer who is currently
also President-elect of the Society of Petroleum Engineers, had become a
Director, the interim Chief Executive Officer and the President of the Company.
Pursuant to a proposed agreement, Mr. Gaffney would serve for an initial period
of six months at a rate of $50,000 per month plus certain benefits including
reimbursement of housing, travel and relocation costs. Under a separate proposed
agreement, in consideration of Gaffney, Cline granting Mr. Gaffney a leave of
absence for such period, the Company would pay Gaffney, Cline $500,000 upon
execution of the agreement with Mr. Gaffney and an additional $500,000 if the
period of Mr. Gaffney's service is extended.
REGULATORY MATTERS
Antitrust Matters. Title II of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR Act") provides that certain acquisition
transactions may not be consummated until certain information has been furnished
to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the Federal Trade Commission (the "FTC") and the waiting period
under the HSR Act has been terminated. On March 13, 1995, the waiting period
under the HSR Act with respect to the Purchaser's acquisition of Shares pursuant
to the Offer and the Merger was terminated pursuant to a request for early
termination.
Transactions such as the Merger may be investigated by the Antitrust
Division or the FTC. Notwithstanding the termination of the waiting period
applicable to the Offer and Merger under the HSR Act, before or after the
consummation of any such transaction, the Antitrust Division or the FTC could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the transaction or seeking
divestiture of the Shares so acquired or divestiture of substantial assets of
YPF and/or the Company. Private parties may also bring legal action under
antitrust laws under certain circumstances.
Other Governmental Approvals. Other than the issuance of a certificate of
merger by the Secretary of State of Delaware, the Company is aware of no federal
or state regulatory requirements that must be complied with or approvals that
must be obtained prior to the consummation of the Merger.
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CERTAIN LITIGATION
Following the public announcement on February 28, 1995 of the proposed
Merger, a number of purported holders of Shares filed complaints in the Chancery
Court of the State of Delaware. On March 7, 1995, plaintiffs filed an Amended
Complaint. In the Amended Complaint, the plaintiffs sued individually and on
behalf of a putative class comprised of all stockholders of the Company (the
"Class Action"). The Amended Complaint named as defendants the Company, the
directors and certain officers of the Company, a former director of the Company,
YPF and the Purchaser, and alleged, among other things, that the defendant
directors and officers of the Company breached their fiduciary duties in
approving the Offer and the Merger, including their duties to obtain the best
transaction available and to disclose all material facts and that YPF and the
Purchaser aided and abetted the alleged breach of duties. Plaintiffs alleged,
among other things, that defendants failed to disclose material information
relating to the fairness opinion of CSFB, the proposals received by the Company
to acquire Midgard, including the proposals by Amoco, the proposals to acquire
the Company, including the proposals by YPF and Amoco, and the reasons for the
Board's selection of the proposed merger with YPF over the sale of Midgard to
Amoco. In the Amended Complaint, the plaintiffs sought, among other things,
orders enjoining the consummation of the Offer and the Merger requiring
supplemental disclosure and awarding damages to the alleged class, together with
attorneys' fees and other relief.
On March 20, 1995, the Company filed and disseminated Amendment No. 3 to
its Schedule 14D-9, which included additional information relating to subjects
identified in the disclosure claims of the Amended Complaint. On March 28, 1995,
the Company announced that it, the defendant directors and officers of the
Company, YPF and the Purchaser, had reached an agreement in principle to settle
the Class Action (the "Proposed Settlement"). In this connection, the plaintiffs
withdrew their motion for a preliminary injunction to enjoin the Offer and the
Merger, which motion had been scheduled to be heard on March 28, 1995 before the
Delaware Chancery Court. In exchange for plaintiffs' agreement to the Proposed
Settlement, the Company agreed to provide supplemental disclosures in addition
to the disclosures contained in an amendment to the Company's Schedule 14D-9
filed by the Company with the Commission. Such supplemental disclosures were
subject to review and comment by plaintiffs' counsel and included the issuance
of the Company's press release of March 29, 1995 and this Proxy Statement. The
press release of March 29, 1995 stated that CSFB assumed certain additions to
the Company's oil and gas reserves, and that the additional reserves described
in the Company's press releases of March 13, 1995 and March 15, 1995, were
within the range of additions assumed by CSFB.
The Proposed Settlement also provides that beneficial holders of Shares be
certified as a class for purposes of settlement only, that all claims that were
or could have been asserted in the Class Action by plaintiffs or any member of
the class will be released and that the Company will not oppose an application
for an award of attorneys' fees and expenses to plaintiffs' counsel up to a
specified amount. The Proposed Settlement, the class determination and any award
of attorneys' fees to plaintiffs' counsel are subject to approval by the
Delaware Chancery Court. The Company will cause to be mailed to stockholders a
Notice of Proposed Class Action, Proposed Settlement of Class Action, and
Settlement Hearing (the "Notice"). The date and time of the Settlement Hearing
will be set forth in such Notice.
The Company has also received communications in which purported holders of
Preferred Stock have threatened to commence or demanded that the Company
commence, litigation with respect to the Offer and the Merger. The absence of an
injunction, among other things, is a condition to the Purchaser's obligation to
consummate the Merger.
APPRAISAL RIGHTS
For the purposes of this "Appraisal Rights" section only, the term
"Stockholder" means only those holders of Shares and does not include holders of
$4.00 Preferred Stock. Pursuant to Section 262 of the DGCL ("Section 262"), a
Stockholder may demand an appraisal of the "fair value" of the Stockholder's
Shares in lieu of accepting the payment to be made pursuant to the Merger. Under
the DGCL, only holders of Shares and $9.75 Preferred Stock are entitled to
exercise rights under Section 262 of the DGCL. The holder of $9.75 Preferred
Stock has waived its rights under Section 262 pursuant to the Prudential
Preferred Waiver Agreement. See "The Merger -- $9.75 Preferred Stock
Arrangements." Holders of $4.00 Preferred Stock and
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$2.50 Preferred Stock are not entitled to appraisal rights under the applicable
provisions of Section 262 of the DGCL.
The following is a summary of Section 262 and the procedures that must be
followed to perfect appraisal rights thereunder. The complete text of Section
262 is set forth as Exhibit C to this Proxy Statement. Under Section 262, a
corporation, not less than 20 days prior to the meeting at which a proposed
merger is to be voted on, must notify each of its stockholders entitled to
appraisal rights as of the record date of the meeting that such appraisal rights
are available and include in such notice a copy of Section 262. THIS PROXY
STATEMENT CONSTITUTES SUCH NOTICE TO THE STOCKHOLDERS. Stockholders wishing to
exercise appraisal rights are urged to review carefully the complete text of
Section 262.
Stockholders should note that the term "stockholder," as used in Section
262, refers to the holder of record of the Shares as to which appraisal rights
are exercised, or a person duly authorized and expressly purporting to act on
behalf of the record holder; a person having a beneficial interest in Shares
that is held of record by another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the procedures described below
properly and in a timely manner to perfect any appraisal rights the beneficial
owner may have. In addition, if Shares are owned of record in a fiduciary
capacity, such as by a trustee or custodian, the demand for appraisal should be
made in that capacity, and if Shares are held of record by more than one person,
as in a joint tenancy, the demand should be executed by or on behalf of all
owners. An authorized agent may execute the demand on behalf of a holder of
record; however, the agent must identify the record owners and expressly
disclose that, in executing the demand, the agent is acting as authorized agent
for such owners. A record holder, such as a broker, who holds Shares as nominee
for one or more beneficial owners may exercise such owner's appraisal rights
with respect to all or a portion of such Shares. In that case, the demand should
specify the number of Shares covered thereby; where no such specification is
made, the demand will be presumed to cover all shares held of record by such
nominee.
Each Stockholder electing to demand an appraisal must deliver to the
Company, before the taking of the vote on the Merger, a written demand for
appraisal of such Stockholder's Shares. Such demand must inform the Company of
the identity of the Stockholder and the Stockholder's intent to demand the
appraisal of the Stockholder's Shares. A proxy or vote against the Merger, or an
abstention or broker non-vote, will not constitute such a demand; a Stockholder
electing to take such action must do so by a separate written demand. Such
demands should be mailed or delivered to Mr. H.R. Smith, Secretary, Maxus Energy
Corporation, 717 North Harwood Street, Dallas, Texas 75201. Within ten days
after the Effective Time, the Surviving Corporation will notify each Stockholder
who has made a proper written demand and who has not voted in favor of or
consented to the Merger as of the Effective Time. A vote in favor of the Merger
will have the effect of waiving the appraisal rights.
The right of appraisal may be lost if the procedural requirements of
Section 262 are not followed exactly. If the right of appraisal is lost, the
Stockholder will be entitled to receive $5.50 in cash, without interest, for
each Share owned at the Effective Time upon surrender of the Stock Certificates
representing such Shares.
Stockholders should also note that Section 262 provides for an appraisal of
the "fair value" of the Share "exclusive of any element of value arising from
the accomplishment or expectation" of the Merger. Accordingly, an appraisal
proceeding may result in a determination that the "fair value" of a Share is
greater than, equal to or less than $5.50. However, it is anticipated that no
more than $5.50 per Share, without interest, will be offered by the Company (or
YPF) to any Stockholder seeking to exercise appraisal rights.
Within 120 days after the Effective Time, the Company or any Stockholder
who has complied with the foregoing procedures may file a petition in the
Delaware Court of Chancery (the "Court") demanding a determination of the fair
value of the Shares of all Stockholders who have complied with such procedures.
However, since the Company has no obligation to file such a petition and does
not currently intend to do so if any Stockholders exercise appraisal rights, any
Stockholder who desires that such a petition be filed is advised to do so on a
timely basis. If neither the Company nor any such Stockholder files such a
petition within that 120-day period, all appraisal rights will terminate and any
such Stockholders will only be entitled to receive $5.50 in cash, without
interest, for each Share. Any Stockholder may withdraw the Stockholder's demand
for appraisal at any time within 60 days after the Effective Time (or thereafter
with the written consent of the
28
<PAGE> 32
Company) and receive, pursuant to the terms of the Merger, $5.50 in cash,
without interest, for each Share. Notwithstanding the foregoing, no appraisal
proceeding in the Court may 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.
Within 120 days after the Effective Time, any Stockholder who has complied
with the foregoing procedures may also deliver to the Company a written request
for a statement listing the aggregate number of Shares with respect to which
demands for appraisal have been received and the aggregate number of holders of
such Shares. Such a statement must be mailed to the Stockholder within ten days
after his written request therefor is received by the Company.
Upon the filing of any petition by a Stockholder demanding appraisal,
service of a copy thereof must be made upon the Company, which must, 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 appraisal for their Shares and with whom
agreement as to the value of such Shares has not been reached. If a petition is
filed by the Company, the petition must be accompanied by such a duly verified
list. The Register in Chancery, if so ordered by the Court, will give notice of
the time and place fixed for the hearing of such petition by registered or
certified mail to the Company and to the Stockholders shown on such list at the
addresses set forth therein, and such notice must also be given by publishing a
notice at least one week prior to the day of the hearing in a newspaper of
general circulation published in the City of Wilmington, Delaware or such other
publication as the Court deems advisable. The forms of the notices by mail and
by publication must be approved by the Court, and the costs thereof will be
borne by the Company.
After determining the Stockholders entitled to an appraisal under Section
262, the Court will appraise the Shares, determining their fair value, exclusive
of any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the "fair value." In determining such fair value, the
Court must take all relevant factors into account. The Delaware Supreme Court
has stated that such factors include "market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which were
known or which could be ascertained as of the date of merger which throw any
light on future prospects of the merged corporation." The Delaware Supreme Court
has also stated that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings.
The Court will direct the payment of the appraised value of the Shares,
together with interest, if any, by the Company to the Stockholders entitled
thereto upon surrender of the Stock Certificates representing such Shares. The
costs of the appraisal 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 attorneys' fees and the fees and expenses of experts) to
be charged pro rata against the value of all of the Shares entitled to an
appraisal.
After the Effective Time, no Stockholder who has demanded appraisal rights
will be entitled to vote Shares held by such Stockholder for any purpose or to
receive dividends or other distributions on his Shares (except dividends or
other distributions payable to Stockholders of record prior to the Effective
Time).
ANY STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS BUT WHO DOES NOT
FOLLOW THE PROCEDURES PROVIDED UNDER SECTION 262 IN A PROPER AND TIMELY MANNER
WILL BE UNABLE TO PERFECT APPRAISAL RIGHTS. IN THAT CASE, THE SHARES OWNED BY
SUCH STOCKHOLDER IMMEDIATELY PRIOR TO THE EFFECTIVE TIME WILL BE CONVERTED INTO
THE RIGHT TO RECEIVE $5.50 PER SHARE IN CASH, WITHOUT INTEREST, PURSUANT TO THE
MERGER.
29
<PAGE> 33
PRICE RANGE OF SHARES AND DIVIDENDS
Price Range of Shares; Dividends. The Shares are listed and principally
traded in the United States on the NYSE and the Pacific Stock Exchange under the
symbol "MXS." The following table sets forth, for the calendar quarters
indicated, the high and low sales price per Share on the NYSE Composite Tape.
The Company did not pay a dividend on the Shares in 1992, 1993 or 1994. On March
31, 1995 the Company paid the redemption price of $0.10 per Right to record
holders of Shares as of March 22, 1995 for the redemption of the Rights. See
"The Merger -- Redemption of Rights." The Company has paid all dividends on the
Preferred Stock in accordance with the terms thereof. All prices set forth below
are as reported in published financial sources.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1992
First Quarter..................................... 8 1/4 5 3/4
Second Quarter.................................... 7 1/4 5 5/8
Third Quarter..................................... 7 3/8 5 1/2
Fourth Quarter.................................... 7 1/2 6 1/4
1993
First Quarter..................................... 9 3/4 6 1/8
Second Quarter.................................... 10 3/8 8 3/8
Third Quarter..................................... 9 3/4 7 3/8
Fourth Quarter.................................... 7 3/8 4 1/2
1994
First Quarter..................................... 5 7/8 4 1/8
Second Quarter.................................... 5 1/4 4 1/8
Third Quarter..................................... 5 7/8 4 1/2
Fourth Quarter.................................... 4 3/4 3 1/4
1995
First Quarter..................................... 5 1/2 3
Second Quarter (through May 5th).................. 5 1/2 5 3/8
</TABLE>
On February 27, 1995, the last full trading day prior to the announcement
of the Merger Agreement, the reported closing sales price per Share on the NYSE
Composite Tape was $3 3/4. On March 2, 1995, the last full trading day prior to
commencement of the Offer, the reported closing sales price per Share on the
NYSE Composite Tape was $5 7/16. On May 5, 1995, the last full NYSE trading day
prior to the date of this Proxy Statement, the closing sales price of the Shares
on the NYSE Composite Tape was $5 1/2 per Share. STOCKHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
The Company has agreed in the Merger Agreement not to, and does not intend
to, pay cash dividends with respect to the Shares prior to the Effective Time.
30
<PAGE> 34
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth the beneficial ownership (as defined in the
rules of the Commission) as of April 24, 1995 of the Company's equity securities
of the directors, the Company's chief executive officer and its four most highly
compensated other executive officers and all directors and executive officers as
a group. At such date, all directors and executive officers as a group
beneficially owned less than 1% of the $4.00 Preferred Stock outstanding and
less than 1% of the Common Stock outstanding. None of the directors or executive
officers beneficially owned any $9.75 Preferred Stock or $2.50 Preferred Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF SECURITIES
BENEFICIALLY
NAME OF BENEFICIAL OWNER TITLE OF SECURITY OWNED
------------------------------------ ------------------------- -----------------
<S> <C> <C>
Charles L. Blackburn................ Common Stock............. 476,661(1)(2)
$4.00 Preferred Stock.... -0-
Cedric Bridger...................... Common Stock............. -0-(3)
$4.00 Preferred Stock.... -0-
Steven G. Crowell................... Common Stock............. 167,470(1)(2)
$4.00 Preferred Stock.... -0-
Michael C. Forrest.................. Common Stock............. 115,561(1)
$4.00 Preferred Stock.... -0-
Peter Gaffney....................... Common Stock............. -0-(3)
$4.00 Preferred Stock.... -0-
George L. Jackson................... Common Stock............. 20,000(1)
$4.00 Preferred Stock.... -0-
Mr. Nells Leon...................... Common Stock............. -0-(3)(4)
$4.00 Preferred Stock.... -0-
James R. Lesch...................... Common Stock............. -0-(3)
$4.00 Preferred Stock.... -0-
McCarter Middlebrook................ Common Stock............. 69,737(1)(2)
$4.00 Preferred Stock.... 133
George W. Pasley.................... Common Stock............. 112,793(1)(2)
$4.00 Preferred Stock.... -0-
P. Dexter Peacock................... Common Stock............. -0-(3)
$4.00 Preferred Stock.... -0-
R.A. Walker......................... Common Stock............. 11,236(1)(5)
$4.00 Preferred Stock.... -0-
Directors and executive officers as
a group........................... Common Stock............. 1,148,625(1)(2)(3)(5)
$4.00 Preferred Stock.... 133
</TABLE>
- ---------------
(1) These amounts include Shares covered by options exercisable within 60 days,
as follows: Mr. Blackburn, 456,933; Mr. Crowell, 160,214; Mr. Forrest,
115,000; Mr. Jackson, 20,000; Mr. Middlebrook, 66,583; Mr. Pasley, 108,608;
Mr. Walker, 10,000; and all directors and executive officers as a group,
1,105,009. See "The Merger -- Certain Interests of Management."
(2) These amounts include "restricted" Shares, i.e., Shares subject to
restriction for a period of years, as to which the holders have sole voting
power, but no investment power, during the restricted period, as
(Notes continued on following page)
31
<PAGE> 35
follows: Mr. Blackburn, 19,016; Mr. Crowell, 6,260; Mr. Pasley, 3,756; Mr.
Middlebrook, 2,712; and all directors and executive officers as a group, 38,424.
See "The Merger -- Certain Interests of Management."
(3) Does not include Shares beneficially owned by YPF, as to which each of
Messrs. Bridger, Gaffney, Leon, Lesch and Peacock disclaims beneficial
ownership. Messrs. Bridger, Gaffney, Leon, Lesch and Peacock deny having or
sharing dispositive or voting power with respect to the Shares beneficially
owned by YPF.
(4) Mr. Leon, a designee of YPF, is expected to be appointed as a director of
the Company. See "The Merger -- Election of YPF Designees."
(5) Does not include Shares owned by Prudential, as to which Mr. Walker
disclaims beneficial ownership. Mr. Walker denies having or sharing
dispositive or voting power with respect to the Shares beneficially owned by
Prudential.
To the knowledge of the Company, as of April 24, 1995, no person
beneficially owned more than 5% of any class of the Company's voting securities
except as set forth below:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS OWNED CLASS
- ---------------------------------------- ---------------------- ---------------- ----------
<S> <C> <C> <C>
YPF Acquisition Corp. .................. Common Stock 120,000,613(1) 88.5%
Avenida Pte. Roque
Saenz Pena 777
1364 Buenos Aires
Argentina
YPF Sociedad Anonima.................... Common Stock 120,000,613(2) 88.5%
Avenida Pte. Roque
Saenz Pena 777
1364 Buenos Aires
Argentina
The Prudential Insurance Company of
America............................... Common Stock 8,039,242(3) 5.6%
Prudential Plaza $9.75 Preferred Stock 1,250,000(4) 100.0%
Newark, New Jersey 07102-3777
Kidder, Peabody Group Inc............... Common Stock 8,000,000(5) 5.6%
10 Hanover Square
New York, New York 10005
</TABLE>
- ---------------
(1) Consists of Shares held of record by the Purchaser.
(2) Consists of Shares held of record by the Purchaser, which may be deemed to
be beneficially owned by YPF by reason of YPF's direct beneficial ownership
of 100% of the capital stock of the Purchaser.
(3) Prudential reported on Amendment No. 6 to Schedule 13G, dated January 31,
1995, in connection with beneficial ownership at December 31, 1994, that it
had sole dispositive and voting power with respect to 59,837 Shares
indicated above as beneficially owned by it, shared voting power with
respect to 66,305 of such Shares and shared dispositive power with respect
to 69,405 of such Shares. Prudential indicated that it may have direct or
indirect voting and/or investment discretion over 129,242 of such Shares
which were held for the benefit of its clients by its separate accounts,
externally managed accounts, registered investment companies and/or other
affiliates. It also indicated that the remainder of Shares reported by it
resulted from the assumed conversion of Shares of $9.75 Preferred Stock.
Except as provided in Footnote 4 below, the information herein assumes that
Prudential's ownership has not changed as of April 24, 1995, and is included
in reliance on such Amendment No. 6.
(Notes continued on following page)
32
<PAGE> 36
(4) On February 28, 1995, the Company and Prudential entered into the Prudential
Preferred Waiver Agreement pursuant to which Prudential has waived certain
rights, including conversion rights and registration rights, subject to
consummation of the Merger. See "The Merger -- $9.75 Preferred Stock
Arrangements."
(5) Kidder, Peabody Group Inc. ("Kidder") reported on Schedule 13D, dated
October 10, 1992, that it owns 8,000,000 warrants, each representing the
right to purchase from the Company at any time prior to 5:00 p.m. on October
10, 1997, one Share at a price of $13.00 per Share. The 8,000,000 Shares
reported as beneficially owned by Kidder result from the assumed exercise of
all 8,000,000 of such warrants. According to said Schedule 13D, General
Electric Company is the indirect parent of Kidder. The information herein
regarding such Shares assumes that Kidder's beneficial ownership thereof had
not changed as of April 24, 1995, and is included herein in reliance on such
filing, except that the percent of class is based upon the Company's
calculations made in reliance upon the information regarding such Shares
contained in such filing.
33
<PAGE> 37
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following selected consolidated financial data relating to the Company
and its subsidiaries have been taken or derived from the financial statements
and other records of the Company. Such selected consolidated financial data are
qualified in their entirety by, and should be read in conjunction with, the
consolidated financial statements of the Company and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1994
(the "Company 10-K") and other reports and documents filed by the Company with
the Commission. See "Additional Information."
<TABLE>
<CAPTION>
1994* 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS
Sales and operating revenues........... $ 682.1 $ 786.7 $ 718.4 $ 790.8 $ 685.4
Net income (loss) before extraordinary
item and cumulative effect of change
in accounting principle.............. (22.7) (37.9) 74.2 (11.2) 7.3
Extraordinary item..................... (7.1)
Cumulative effect of change in
accounting principle................. (4.4)
-------- -------- -------- -------- --------
Net income (loss)...................... $ (22.7) $ (49.4) $ 74.2 $ (11.2) $ 7.3
FINANCIAL POSITION
Current assets......................... $ 413.6 $ 404.7 $ 391.2 $ 205.7 $ 232.9
Current liabilities.................... 171.0 263.4 327.9 249.3 260.4
Properties and equipment, less
accumulated depreciation, depletion
and amortization..................... 1,088.4 1,305.6 1,138.3 1,075.2 1,077.1
Total assets........................... 1,706.7 1,987.4 1,811.6 1,451.5 1,470.2
Long-term debt, including portion
payable within one year.............. 975.6 1,055.1 829.4 788.9 766.5
Deferred income taxes.................. 199.3 198.3 152.9 142.9 145.6
Redeemable preferred stock............. 125.0 250.0 250.0 250.0 250.0
Stockholders' equity (deficit)......... 91.1 147.9 171.6 (55.9) (23.1)
OTHER DATA
Expenditures for properties and
equipment -- including dry hole
costs................................ $ 166.2 $ 340.0 $ 261.1 $ 272.3 $ 272.9
Total exploration and development
expenditures (whether capitalized or
expensed)............................ 194.2 373.8 253.7 300.0 309.2
Preferred dividends paid............... 43.6 41.7 41.7 41.7 44.0
Depreciation, depletion and
amortization......................... 140.2 153.6 174.4 203.6 190.5
PER SHARE OF COMMON STOCK
Net income (loss) before extraordinary
item, and cumulative effect of change
in accounting principle.............. $ (.49) $ (.60) $ .27 $ (.52) $ (.38)
Extraordinary item..................... (.05)
Cumulative effect of change in
accounting principle................. (.03)
-------- -------- -------- -------- --------
Net income (loss)...................... $ (.49) $ (.68) $ .27 $ (.52) $ (.38)
</TABLE>
- ---------------
* The 1994 results reflect a $100.9 million restructuring charge which included
a $69.8 million write-off associated with undeveloped Alaska coal leases, the
development of which does not fit within the Company's revised strategy to
commit funds only to oil and gas exploration and production. After attempts to
sell the investment in the Alaskan coal leases were unsuccessful because no
buyer could be found, the Company relinquished its rights to the lease by
assigning its interest to its partners. The restructuring charge also included
costs associated with staff reduction ($15.9 million) and the write-off of
non-producing assets outside the Company's core areas ($15.2 million).
34
<PAGE> 38
BUSINESS OF THE COMPANY
The Company is a Delaware corporation with its principal executive offices
located at 717 North Harwood Street, Dallas, Texas 75201. The Company was
incorporated to hold the stock of various corporations, the oldest of which was
founded in 1910. The Company, together with its subsidiaries, is one of the
largest independent oil and gas exploration and production companies in the
United States, with ongoing international activity in Indonesia and a number of
other countries, and domestic activity primarily in the mid-continent region of
the United States.
Additional information regarding the business and properties of the Company
is contained in the Company 10-K, which report is incorporated by reference in
this Proxy Statement. See "Incorporation of Documents by Reference."
INFORMATION CONCERNING YPF AND THE PURCHASER
The following information has been provided by YPF.
The principal executive offices of YPF and the Purchaser are located at
Avenida Pte. Roque Saenz Pena 777, (1364) Buenos Aires, Argentina, and the
telephone number from the United States is 011 (541) 329-2000. YPF, a sociedad
anonima organized under the laws of the Republic of Argentina, and the largest
Argentine company, is an integrated oil and gas company engaged in the
exploration, development and production of oil and natural gas and in the
refining, marketing, transportation and distribution of oil and a wide range of
petroleum products, petroleum derivatives, petrochemicals and liquid petroleum
gas. YPF's shares are listed and traded on the Buenos Aires Stock Exchange and
American Depositary Receipts representing its American Depositary Shares ("ADS")
are traded on the NYSE under the symbol "YPF." The Purchaser is a newly formed
Delaware corporation that has not conducted any business except in connection
with the transactions related to the Offer and the Merger. Additional
information regarding the business and properties of YPF is contained in YPF's
1994 Annual Report which report is included with this Proxy Statement as Exhibit
D.
YPF is subject to the informational filing requirements of the Exchange Act
and is required to file reports and other information with the Commission under
the Exchange Act relating to its business, financial condition and other
matters. However, YPF is exempt from the rules under the Exchange Act
prescribing the furnishing and content of proxy statements and its officers,
directors and principal stockholders are exempt from the reporting and the
"short-swing" profit recovery provisions contained in Section 16 of the Exchange
Act. Reports and other information relating to YPF may be inspected and copies
may be obtained from the offices of the Commission. See "Available Information."
The following selected consolidated financial data relating to YPF and its
subsidiaries have been taken or derived from the audited financial statements
contained in YPF's 1994 Annual Report which is included with this Proxy
Statement as Exhibit D and from financial information contained in YPF's Report
on Form 20-F for the year ended December 31, 1994. The financial information
that follows is qualified in its entirety by reference to such reports and the
financial information and notes contained therein. The financial statements
included in such reports were prepared in conformity with generally accepted
accounting principles in Argentina ("Argentine GAAP"). Argentine GAAP differs in
certain significant respects from generally accepted accounting principles in
the United States ("U.S. GAAP"). Pursuant to Argentine GAAP, the consolidated
financial statements included in such reports, and the selected financial data
set forth below, have been restated for general price level changes, based on
changes in the Argentine general level whole price index. Accordingly, the
financial statements of YPF have been restated to constant Argentina pesos
("Pesos") as of December 31, 1994.
35
<PAGE> 39
Argentine law currently obligates Banco Central de la Republica Argentina
(the "Central Bank") to sell U.S. dollars ("Dollars") at the rate of one
Argentine Peso per Dollar. At February 28, 1995, the exchange rate between
Argentine Pesos (Ps.) and Dollars was Ps.1.00 to US$1.00.
YPF AND CONTROLLED COMPANIES
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1994 1993 1992 1991 1990 (1)
----- ----- ----- ----- -------------
(IN MILLIONS OF CONSTANT PESOS, EXCEPT FOR
PER SHARE AND PER ADS DATA) (2)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA
Amounts in accordance with Argentine GAAP
Net sales(3)................................ 4,201 4,190 4,094 4,403 4,812
Gross profit................................ 1,360 1,310 1,080 864 44
Administrative expenses.................. (148) (125) (254) (282) (224)
Selling expenses......................... (321) (321) (199) (196) (349)
Exploration expenses..................... (174) (110) (73) (108) (217)
Operating income (loss).................. 717 754 554 278 (746)
Income on long-term investments.......... 22 8 4 (55) 48
Other expenses, net...................... (142) (122) (48) (170) (40)
Financial income (expense) and holding
gains (losses), net.................... (39) (43) (77) 343 1,386
Income from renegotiation of long-term
contracts and sales of areas........... 1 224 -- -- --
Income before unusual and extraordinary
gains (losses)......................... 559 821 433 396 648
Unusual and extraordinary gains (losses),
net.................................... -- (45) (162) (128) (1,165)
Income and assets tax.................... (12) (30) -- -- (86)
Minority interest........................ (9) 1 -- -- --
Net Income (loss)........................ 538 747 271 268 (603)
Income before unusual and extraordinary
items per share and per ADS (4)(5)..... 1.58 2.33 1.23 -- --
Actual and pro forma earnings per share
and per ADS (4)(5)..................... 1.52 2.12 0.77 -- --
Dividends per share and per ADS (4)(5)... 2.01 0.72 0.72 -- --
Approximate amounts in accordance with U.S.
GAAP
Operating income (loss)..................... 574 627 408 183 (968)
Income before extraordinary items........... 659 726 293 407 565
Net income (loss)........................... 527 759 179 294 (601)
Income before extraordinary items per share
and per ADS (4)(5)....................... 1.87 2.06 0.83 -- --
Actual and pro forma earnings per share and
per ADS (4)(5)........................... 1.49 2.15 0.51 -- --
CONSOLIDATED BALANCE SHEET DATA
Amounts in accordance with Argentine GAAP
Cash........................................ 58 82 79 105 147
Total assets................................ 7,725 7,784 7,780 8,517 10,076
Total debt (6).............................. 1,245 802 842 807 404
Stockholders' equity (6).................... 5,086 5,257 4,762 4,744 4,476
</TABLE>
36
<PAGE> 40
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1994 1993 1992 1991 1990 (1)
----- ----- ----- ----- -------------
<S> <C> <C> <C> <C> <C>
(PREDECESSOR)
Approximate amounts in accordance with U.S.
GAAP
Total assets................................ 7,854 7,685 7,670 8,519 10,068
Total debt (6).............................. 1,295 1,080 2,818 2,645 2,201
Stockholders' equity (6).................... 5,165 4,480 2,676 2,909 2,678
OTHER CONSOLIDATED FINANCIAL DATA
Amounts in accordance with Argentine GAAP
Depreciation and amortization............... 699 571 665 706 635
Cash used in fixed asset acquisition........ 1,367 1,011 774 847 1,150
</TABLE>
- ---------------
(1) Financial information for the year ended December 31, 1990, when the Company
was a sociedad del estado (state corporation) and operated under a
significantly different legal and regulatory regime, is not comparable to
financial information for subsequent periods.
(2) Under Argentine law, the Central Bank is obligated to sell Dollars to any
person who so requires at a rate of one Peso per Dollar.
(3) Net sales are net to YPF after payment of a fuel transfer tax and turnover
tax. Royalties are accounted for as a cost of production and are not
deducted in determining net sales.
(4) The pro forma earnings per share and per ADS and dividends per share and per
ADS data are presented assuming that 353,000,000 shares were outstanding
during each of the periods for which pro forma information is presented.
(5) Each ADS represents one Class D Share of YPF.
(6) Ps.208 million and Ps.1,827 million of the difference in stockholders'
equity at December 31, 1993 and 1992, respectively, between U.S. GAAP and
Argentine GAAP result from the difference in treatment with regard to
certain private sector foreign debt subject to the Argentine Brady Plan. See
Note 18 of Notes to Financial Statements included in the YPF Annual Report
for the year ended December 31, 1994 included as Exhibit D to this Proxy
Statement.
37
<PAGE> 41
PRO FORMA CONSOLIDATED FINANCIAL DATA
The pro forma financial statements of the Company are based on the
historical consolidated financial statements of the Company as of December 31,
1994 and the years then ended, as adjusted to give pro forma effect to the
Merger and related transactions, including the financing transactions described
under "Proposal 1 -- The Merger -- Source and Amount of Funds." The Purchaser
was formed in February 1995 and, therefore, the Purchaser does not have any
financial statements as of December 31, 1994 or for the year then ended. The pro
forma statement of operations was prepared as if the Merger and related
transactions had occurred as of January 1, 1994. The pro forma statement of
financial position was prepared as if the Merger and related transactions had
occurred on December 31, 1994. All such data are unaudited.
The pro forma financial statements should be read in conjunction with the
Notes to the Unaudited Pro Forma Financial Statements and with the Consolidated
Financial Statements of the Company contained in the Company 10-K and the notes
thereto. The pro forma information has been prepared based on assumptions deemed
appropriate by the management of the Company.
This information is prepared for informational purposes only and is not
necessarily indicative of the actual results or financial condition that would
have been achieved had the Offer, the Merger and related transactions
(collectively, the "Transactions") occurred at this date or of future results.
MAXUS ENERGY CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS(1)
COMPANY ------------------- PRO
HISTORICAL DEBIT CREDIT FORMA
---------- ------- ------ -------
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues..................... $ 682.1 $ 682.1
Other revenues, net.............................. 9.0 $ 7.0(a) 2.0
---------- ------- -------
691.1 7.0 684.1
COSTS AND EXPENSES
Operating expenses............................... 232.7 232.7
Gas purchase costs............................... 116.9 116.9
Exploration, including exploratory dry holes..... 32.6 32.6
Depreciation, depletion and amortization......... 140.2 126.8(b) 267.0
General and administrative expenses.............. 35.4 $ 3.1(c) 32.3
Taxes other than income taxes.................... 12.9 12.9
Interest and debt expenses....................... 96.7 43.4(d) 140.1
Environmental studies and remediation............ 60.5 60.5
Restructuring:
Gain on sale of assets........................ (201.9) (201.9)
Restructuring costs........................... 100.9 7.3(c) 93.6
---------- ------- ------ -------
626.9 170.2 10.4 786.7
---------- ------- ------ -------
INCOME BEFORE INCOME TAXES......................... 64.2 (177.2) 10.4 (102.6)
Income Taxes..................................... 86.9 33.1(e) 53.8
---------- ------- ------ -------
NET LOSS........................................... (22.7) $(177.2) $ 43.5 (156.4)
======= =====
Dividend requirement on Preferred Stock.......... (43.6) (43.6)
---------- -------
LOSS APPLICABLE TO COMMON SHARES................... $ (66.3) $(200.0)
======= =======
NET LOSS PER COMMON SHARE.......................... $ (0.49) $ (1.48)
======= =======
Average Common Shares Outstanding.................. 134.7 134.7
</TABLE>
See Notes to the Unaudited Pro Forma Financial Statements.
38
<PAGE> 42
MAXUS ENERGY CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMPANY PURCHASE PRICE
HISTORICAL PURCHASER 2(A) ADJUSTMENTS 2(B) ELIMINATIONS 2(C) PRO FORMA
--------- ------------ ---------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............ $ 40.6 $ 15.8 $ (56.4)(1) $ --
Short-term investments............... 103.8 (96.0)(1) 7.8
Receivables, less doubtful
receivables........................ 152.4 152.4
Taxes receivable..................... 23.8 23.8
Inventories.......................... 27.9 27.9
Restricted cash...................... 46.4 46.4
Prepaids and other current assets.... 18.7 18.7
--------- ------------ -------- --------------- ---------
Total Current Assets................. 413.6 15.8 (152.4) -- 277.0
Properties and Equipment, less
accumulated depreciation, depletion
and amortization..................... 1,088.4 1,135.7 (2) 2,224.1
Investments and Long-Term
Receivables.......................... 40.2 771.7 (4.4)(3) $(771.7) 35.8
Restricted Cash........................ 94.2 (4.1)(4) 90.1
Intangible Assets, less accumulated
amortization......................... 35.8 (35.8)(5) --
Deferred Income Taxes.................. 9.4 (9.4)(8) --
Deferred Charges....................... 25.1 12.5 (21.6)(6) 16.0
--------- ------------ -------- --------------- ---------
$ 1,706.7 $ 800.0 $ 908.0 $(771.7) $2,643.0
========= ============ =============== ============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Long-term debt....................... $ 4.7 $ 125.0 $ (125.0)(1) $ 4.7
Accounts payable..................... 65.1 65.1
Accrued liabilities.................. 101.2 14.7 (12) 115.9
--------- ------------ -------- --------------- ---------
Total Current Liabilities............ 171.0 125.0 (110.3) -- 185.7
Long-Term Debt......................... 970.9 425.0 (154.7)(7) 1,241.2
Deferred Income Taxes.................. 199.3 350.6 (8) 549.9
Other Liabilities and Deferred
Credits.............................. 149.4 37.4 (9) 186.8
$9.75 Preferred Stock, $1.00 par value
Authorized and issued
shares -- 1,250,000................ 125.0 125.0
Stockholders' Equity
$2.50 Preferred stock, $1.00 par
value
Authorized shares -- 5,000,000
Issued shares -- 3,500,000......... 3.5 71.8 (10) 75.3
$4.00 Preferred Stock, $1.00 par
value
Authorized shares -- 5,915,017
Issued shares -- 4,358,658......... 4.4 24.7 (10) 29.1
Common stock, $1.00 par value
Authorized shares -- 300,000,000
Issued shares -- 135,694,722....... 135.7 1.4 (1.7)(10) or (11) 135.4
Paid-in capital...................... 988.1 248.6 (350.4)(11) (771.7) 114.6
Accumulated deficit.................. (1,016.0) 1,016.4 (11) --
Minimum pension liability............ (18.3) 18.3 (9) --
Valuation reserve on marketable
securities......................... (2.4) 2.4 (3) --
Common Treasury Stock, at cost --
295,995 shares..................... (3.5) 3.5(11) --
--------- ------------ -------- --------------- ---------
91.1 250.0 785.0 (771.7) 354.4
--------- ------------ -------- --------------- ---------
$ 1,706.7 $ 800.0 $ 908.0 $(771.7) $2,643.0
========= ============ =============== ============== ==========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
39
<PAGE> 43
MAXUS ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1 -- The accompanying pro forma statement of operations reflects the
adjustments necessary to effect the Transactions as well as the corresponding
purchase price adjustments as follows:
(a) Reduction to interest income of $7.5 million due to decrease in
cash, cash equivalents and temporary investments to repay $125.0 million
under the Purchaser Facility. Additional interest income of $0.5 million
from the accretion of discount on an existing three-year non-interest
bearing note.
(b) Additional depreciation, depletion and amortization resulting from
the write-up of assets to fair market value, partially offset by the
reduction of goodwill amortization of $1.3 million due to the write-off of
goodwill pertaining to a prior acquisition.
(c) Decrease to pension expense of $0.9 million due to the net
reversal of the amortization of the transition asset and recognition of
prior service costs and unrecognized gains and losses as a result of
recognizing the unfunded status of the pension plans. Reversal of $9.5
million for the amortization of the transition obligation for other
postretirement benefits, of which $7.3 million was recorded in
restructuring costs.
(d) Additional interest expense of $34.9 million on the Midgard
Facility and Subsidiaries Facility ($250.0 million at 8% and $175.0 million
at 8.5%, respectively) and $10.2 million due to the accretion of discount
on long-term debt recorded at fair market value. Reversal of unamortized
issuance costs of $1.7 million.
(e) Reduction to income tax expense of $33.1 million due to
recognition of deferred tax benefit associated with depreciation of
stepped-up property basis.
In connection with the Transactions, the Company will incur approximately
$25.0 million of non-recurring transaction expenses.
NOTE 2 -- The accompanying pro forma balance sheet reflects the adjustments
necessary to effect the Merger as well as the corresponding purchase price
adjustments as follows:
(a) Reflects (i) the infusion of capital into Purchaser prior to the
Merger consisting of net proceeds of $537.5 million from the Purchaser
Facility and a $250.0 million capital contribution from YPF, (ii) the
acquisition of 135,694,722 shares by YPF pursuant to the Transactions and
(iii) the payment of expenses relating to the Transactions.
(b) (1) Reduce cash, cash equivalents and short-term investments to
repay $125.0 million under the Purchaser Facility and to pay for the
redemption of the rights and other costs related to the Transactions.
(2) Adjust properties and equipment to fair market value as a result
of purchase price adjustments. Of the resultant $2,224 million pro forma
net properties and equipment balance, $1,109 million represents proved oil
and gas properties net of related deferred income taxes. This amount is
$486 million less than the $1,595 million of future net cash flows
presented in the Form 10-K and is also well below the recalculated future
net cash flows utilizing March 31, 1995 price levels. The remaining
property balance represents non-oil and gas producing properties such as
the gas plant and gathering systems, unproved oil and gas properties plus
the gross-up for deferred taxes not included in the ceiling test.
(3) Write down certain investments and long-term receivables to fair
market value.
(4) Write down U.S. treasury notes to fair market value.
(5) Write off goodwill associated with a prior acquisition.
(6) Write off deferred expenses primarily consisting of unamortized
debt issuance costs and unrealized loss on interest rate swap agreement.
40
<PAGE> 44
(7) Adjust long-term debt to fair market value.
(8) Increase deferred taxes resulting from revaluation of assets and
liabilities to fair market value.
(9) Adjust pension liabilities to reflect unfunded status of plans,
accrue other postemployment benefits liability, and accrue additional
estimated liabilities for discontinued coal subsidiary.
(10) Reclassification of paid-in capital associated with Preferred
Stock.
(11) Reflects the elimination of historical equity balances resulting
from the change in control of the Company effected by the Transactions.
(12) Accrue merger costs associated with change-in-control agreements.
(c) Elimination of Purchaser's investment in the common stock of the
Company.
41
<PAGE> 45
COMPANY PROJECTIONS
Prior to entering into the Merger Agreement, YPF and the Company engaged in
preliminary discussions concerning a variety of possible transactions and
transaction structures involving a possible alignment of the businesses of both
the Company and YPF. In connection with such discussions, YPF conducted a
financial due diligence investigation, and the Company and its representatives
discussed with YPF and its representatives certain matters regarding the
business and financial condition of the Company. Further, the Company provided
YPF with projected financial information of the Company for the fiscal year
ending December 31, 1995. None of such projected financial information provided
by the Company to YPF was then publicly available. Such information was prepared
by the Company for internal purposes. None of this information was prepared for
publication or with a view to complying with the published guidelines of the
Commission regarding projections or with the AICPA Guide for Prospective
Financial Statements, and it is being included in this Proxy Statement solely
because it was furnished to YPF. The information necessarily reflects numerous
assumptions with respect to the oil and gas exploration and production business,
general business and economic conditions and other matters, many of which are
inherently uncertain or beyond the Company's control, and does not take into
account any change in ownership of the Company or any changes to Company
operations or capital structure which may result therefrom. It is not possible
to predict whether the assumptions made in preparing the projected financial
information will be valid, and actual results may prove to be materially higher
or lower than those contained in the projections. The inclusion of this
information should not be regarded as an indication that YPF, the Purchaser, the
Company or anyone who received this information considered it a reliable
predictor of future events, and this information should not be relied upon as
such. Neither YPF nor the Purchaser assumes any responsibility for the validity,
reasonableness, accuracy or completeness of the projected financial information,
and the Company has made no representation to YPF or the Purchaser regarding
such information.
Set forth below is a summary of selected income statement, cash flow and
balance sheet information which was provided by the Company to YPF as described
above.
SELECTED PROJECTED INCOME STATEMENT AND CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDING
DECEMBER 31, 1995
-------------------
(DOLLARS IN
MILLIONS)
<S> <C>
Revenues................................................... $ 694.3
Cash operating and exploration expenses.................... 389.4
Depreciation, depletion and amortization................... 135.6
Interest, administration and other expenses................ 136.8
Income taxes............................................... 72.2
Net income................................................. (39.7)
Discretionary cash flow(1)................................. 107.6
Expenditures for property, plant and equipment............. 174.0
</TABLE>
- ---------------
(1) Net income adjusted for depreciation, depletion, amortization, deferred
taxes, other non-cash items and exploration expense, less preferred stock
dividends.
SELECTED PROJECTED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995
--------------------
(DOLLARS IN
MILLIONS)
<S> <C>
Current assets.............................................. $ 372.7
Total assets................................................ 1,604.6
Current liabilities......................................... 195.1
Total debt.................................................. 969.8
Stockholders' equity........................................ 34.2
</TABLE>
42
<PAGE> 46
PROPOSAL 2
CERTIFICATE AMENDMENTS
Introduction. On April 21, 1995, the Board (which, at such date, consisted
of five YPF Designees and three persons who were directors prior to the
consummation of the Offer) approved the Certificate Amendments and voted to
recommend that the Stockholders consider and approve the Certificate Amendments.
The Certificate Amendments, if approved, will (i) eliminate supermajority
stockholder voting requirements relating to the amendment of certain provisions
of the By-Laws, (ii) reduce the size of the Board and (iii) eliminate the
classification of the Board.
The Certificate Amendments are permitted under the DGCL and are consistent
with the rules of the NYSE. The Certificate Amendments and their general effect
are discussed below. The Certificate Amendments are submitted for approval at
the Special Meeting because the Company believes that the Certificate Amendments
will allow more efficient and convenient operation of the Company and that
consideration thereof now may avoid the costs associated with an additional
special meeting to approve such matters. A copy of the proposed Certificate
Amendments is attached as Exhibit E hereto, and the description of the
Certificate Amendments herein is qualified in its entirety by reference to
Exhibit E.
The Certificate currently provides that the affirmative vote of the holders
of at least 80% of the outstanding Voting Shares, voting together as a single
class, is required to adopt the Certificate Amendments. By virtue of its
ownership of approximately 85.7% of the outstanding Voting Shares, the Purchaser
can approve the Certificate Amendments notwithstanding the vote of any other
Stockholders. The Purchaser has informed the Company that it intends to vote its
Shares in favor of the Certificate Amendments.
Article Fifth -- Amendment of By-Laws. Under the DGCL, an amendment to the
By-Laws of a Delaware corporation requires the approval of the holders of a
majority of the outstanding stock entitled to vote on the amendment unless the
certificate of incorporation and/or by-laws require a greater than majority
vote. The DGCL also provides that a corporation's by-laws may be amended by the
board of directors if permitted by the certificate of incorporation. Article
Fifth of the Certificate currently requires the affirmative vote of the holders
of at least 80% of the Voting Shares, voting together as a single class, to
amend By-Laws 6, 12, 15 and 49. By-Law 6 relates to notice of stockholder
business to be brought before a meeting. By-Law 12 relates to notice of
nominations to the Board. By-Law 15 concerns the structure of the Board and
cumulative voting. By-Law 49 governs amendment of the By-Laws. As permitted by
the DGCL, the proposed Article Fifth would eliminate the supermajority
stockholder voting requirement with respect to the amendment of By-Laws 6, 12,
15 and 49 and would allow amendment of any provision of the By-Laws by the Board
or by the majority of the Voting Shares, voting together as a single class. The
Company believes that such supermajority voting requirement no longer serves any
meaningful purpose as the Purchaser owns a sufficient number of Voting Shares to
satisfy the supermajority voting requirement with respect to the amendment of
these provisions of the By-Laws without obtaining the vote of any other
stockholder. The elimination of such supermajority voting requirement will also
allow the Board (of which five of the eight directors are expected to be YPF
designees) to amend these provisions of the By-Laws without the delay and cost
associated with obtaining a stockholder vote at a meeting of the Company's
stockholders. As a result, the YPF designees will be able to amend By-Laws 6,
12, 15 and 49 in the future without stockholder action.
Article Eighth -- Elimination of Classification of Board. Article Eighth,
Section 1 of the Certificate currently provides for classification of the
directors into three classes, each with three-year terms. The Certificate
Amendments (i) eliminate the provisions of Article Eighth, Section 1 relating to
the election of directors on a classified basis and (ii) provide that each
director will be elected for a one-year term that expires upon the election and
qualification of such director's successor at the next succeeding annual meeting
of stockholders. The classification of the Board was originally adopted to
ensure a certain continuity and stability in the Board's leadership and
policies. The Company believes that such provisions no longer serve any
meaningful purpose in view of the Purchaser's ownership of a sufficient number
of Voting Shares to ensure the election of each director (except for the
director as to which the holder of the $9.75 Preferred Stock has the right to
elect, which director is not otherwise subject to the provisions of the
Certificate related to a classified Board). The Company believes that the
ability of the Purchaser to elect all directors of the Company (other
43
<PAGE> 47
than the director that may be elected by the holder of the $9.75 Preferred
Stock) will result in sufficient continuity of the directors on the Board.
PROPOSAL 3
BY-LAW AMENDMENTS
On April 21, 1995, the Board (which, at such date, consisted of five YPF
Designees and three persons who were directors prior to the consummation of the
Offer) approved the By-Law Amendments and voted to recommend that the
Stockholders consider and approve the By-Law Amendments. The By-Law Amendments
would reduce the size of the Board and eliminate the classification of the
Board.
The By-Law Amendments are permitted under the DGCL and are consistent with
the rules of the NYSE. The By-Law Amendments are submitted for approval at the
Special Meeting because the Company believes that the By-Law Amendments will
allow more efficient and convenient operation of the Company and that
consideration thereof now may avoid the costs associated with an additional
special meeting to approve such matters. A copy of the proposed By-Law
Amendments is attached as Exhibit F hereto, and the description of the By-Law
Amendments is qualified in its entirety by reference to Exhibit F.
The Certificate requires the affirmative vote of the holders of at least
80% of the outstanding Voting Shares, voting together as a single class, to
adopt the By-Law Amendments. By virtue of its ownership of approximately 85.7%
of the outstanding Voting Shares, the Purchaser can approve the By-Law
Amendments without the vote of any other Stockholder. The Purchaser has informed
the Company that it intends to vote its Shares in favor of the By-Law
Amendments.
The DGCL allows the number of directors of the Company to be set at one or
more. By-Law 15 currently allows the Board to fix the number of directors at no
less than 12 nor more than 16. The By-Law Amendments would set the number of
directors of the Company at eight unless otherwise fixed from time to time by
the Board, but the By-Law Amendments would not allow the number to be fixed at
less than three nor more than 15.
By-Law 15 also currently requires that the Board be divided into three
classes, each class serving a three-year term. The By-Law Amendments (i)
eliminate the provisions of By-Law 15 relating to classified terms for the
directors and (ii) provide that each director will be elected for a one-year
term that expires upon the election and qualification of such director's
successor at the next succeeding annual meeting of Stockholders. The Company
believes that such provisions no longer serve any meaningful purpose in view of
the Purchaser's ownership of a sufficient number of Voting Shares to ensure the
election of each director (except for the director as to which the holder of the
$9.75 Preferred Stock has the right to elect, which director is not otherwise
subject to the provisions of the Certificate and By-Laws related to a classified
Board). The Company believes that the ability of the Purchaser to elect all
directors of the Company (other than the director that may be elected by the
holder of the $9.75 Preferred Stock) will result in sufficient continuity of the
directors on the Board.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, the Company's independent accountants for the year
ended December 31, 1994, will have a representative at the Special Meeting who
will have the opportunity to make a statement, if the representative desires to
do so, and will be available to respond to appropriate questions.
AVAILABLE INFORMATION
Each of the Company and YPF is subject to the informational filing or
submission requirements of the Exchange Act and in accordance therewith are
required to file or submit periodic reports and other information with the
Commission under the Exchange Act relating to their business, financial
condition and other matters. Such reports, proxy statements and other
information may be inspected, without charge, and copies may be obtained at
prescribed rates, at the Commission's public reference facility at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located in Citicorp Center, 500
44
<PAGE> 48
West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies may be obtained on payment
of the Commission's customary fees by writing to its principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. Such material should also be
available for inspection at the library of the NYSE, 20 Broad Street, New York,
New York 10005 and the Pacific Stock Exchange at 233 South Beaudry Avenue, Los
Angeles, California 90012.
Certain additional information relating to the Offer, the Merger Agreement,
the acquisition by YPF of a controlling equity interest in the Company and the
financing thereof, and related matters are contained in the Offer to Purchase,
the 14f-1 Information Statement, the Schedule 14D-1 and the amendments thereto,
filed by YPF and the Purchaser with the Commission, and the
Solicitation/Recommendation Statement on Schedule 14D-9 and the amendments
thereto, filed by the Company with the Commission, copies of which are available
for inspection (and copies of which may be obtained) at the places and in the
manner set forth above (except that such copies will not be available at the
regional offices of the Commission).
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Proxy Statement the
following documents previously filed with the Commission pursuant to the
Exchange Act:
1. Company's Annual Report on Form 10-K for the year ended December 31,
1994;
2. Company's Current Reports on Form 8-K dated April 5, 1995 and April 21,
1995.
In addition, all reports and other documents filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to 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 reports
and documents. Any statement contained 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 to the extent that a statement contained
herein, or in any other subsequently filed document that also is incorporated or
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. A copy of any document incorporated by reference herein (including
any exhibit incorporated by reference in any such document) may be obtained
without charge by any person receiving this Proxy Statement by contacting
Investor Relations, Maxus Energy Corporation, 717 North Harwood Street, Dallas,
Texas 75201; telephone (214) 953-2000. Such copy will be provided by first class
mail or other equally prompt means within one business day after receipt of such
request.
EXHIBITS
EACH OF THE FOLLOWING EXHIBITS CONSTITUTES A PART OF THIS PROXY STATEMENT
AND SHOULD BE CONSIDERED AS SUCH.
45
<PAGE> 49
EXHIBIT A
AGREEMENT OF MERGER, DATED AS OF FEBRUARY 28, 1995
BY AND AMONG YPF, THE PURCHASER AND THE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT OF MERGER
AMONG
YPF SOCIEDAD ANONIMA
YPF ACQUISITION CORP.
AND
MAXUS ENERGY CORPORATION
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 50
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
I. THE TENDER OFFER..................................................................... A-1
1.1. The Offer..................................................................... A-1
1.2. Company Action................................................................ A-2
1.3. Stockholder Lists............................................................. A-2
1.4. Board of Directors of the Company............................................. A-2
II. THE MERGER........................................................................... A-3
2.1.1. Merger................................................................ A-3
2.1.2. Effective Time........................................................ A-3
2.1.3. Effect of Merger...................................................... A-3
2.1.4. Conversion of Shares of Common Stock.................................. A-3
2.2. Stockholders' Meeting of the Company.......................................... A-4
2.3. Consummation of the Merger.................................................... A-4
2.4. Payment for Shares of Common Stock............................................ A-4
2.5. Closing of the Company's Transfer Books....................................... A-5
2.6. The Company Stock Options and Related Matters................................. A-5
III. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER............................... A-5
3.1. Corporate Organization........................................................ A-5
3.2. Authority..................................................................... A-5
3.3. Offer Documents............................................................... A-6
3.4. Proxy Statement............................................................... A-6
3.5. Fees.......................................................................... A-6
3.6. Consents and Approvals; No Violation.......................................... A-6
3.7. Financing..................................................................... A-6
3.8. Operations of the Company Following the Merger................................ A-7
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................ A-7
4.1. Corporate Organization........................................................ A-7
4.2. Capitalization................................................................ A-7
4.3. Authority..................................................................... A-7
4.4. Consents and Approvals; No Violation.......................................... A-8
4.5. Commission Filings............................................................ A-8
4.6. Absence of Certain Changes.................................................... A-8
4.7. Litigation.................................................................... A-9
4.8. Compliance with Applicable Laws............................................... A-9
4.9. Fees.......................................................................... A-9
4.10. Offer Documents............................................................... A-9
4.11. Schedule 14D-9................................................................ A-9
4.12. Proxy Statement............................................................... A-10
4.13. Rights........................................................................ A-10
4.14. Certain Actions............................................................... A-10
4.15. Subsidiaries.................................................................. A-10
4.16. No Default.................................................................... A-10
4.17. Taxes......................................................................... A-11
4.18. Insurance..................................................................... A-12
4.19. Benefit Plans................................................................. A-12
</TABLE>
A-(i)
<PAGE> 51
TABLE OF CONTENTS -- (Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
4.20. Labor Matters................................................................. A-13
4.21. Certain Environmental Matters................................................. A-13
V. COVENANTS............................................................................ A-13
5.1. Acquisition Proposals......................................................... A-13
5.2. Interim Operations............................................................ A-13
5.2.1. Conduct of Business................................................... A-14
5.2.2. Certificate and By-Laws............................................... A-14
5.2.3. Capital Stock......................................................... A-14
5.2.4. Dividends............................................................. A-14
5.2.5. Debt.................................................................. A-14
5.3. Employee Plans, Compensation, Etc. ........................................... A-14
5.4. Access and Information........................................................ A-15
5.5. Certain Filings, Consents and Arrangements.................................... A-16
5.6. State Takeover Statutes....................................................... A-16
5.7. Proxy Statement............................................................... A-16
5.8. Indemnification and Insurance................................................. A-16
5.9. Additional Agreements......................................................... A-16
5.10. Compliance with Antitrust Laws................................................ A-17
5.11. Publicity..................................................................... A-17
5.12. Notice of Actions and Proceedings............................................. A-17
5.13. Notification of Certain Other Matters......................................... A-17
5.14. Listing of Preferred Stock.................................................... A-18
5.15. Certain Obligations of Parent................................................. A-18
VI. CONDITIONS........................................................................... A-18
6.1. Conditions.................................................................... A-18
6.1.1. Stockholder Approval.................................................. A-18
6.1.2. Purchase of Shares of Voting Stock.................................... A-18
6.1.3. Injunctions; Illegality............................................... A-18
6.1.4. HSR Act............................................................... A-18
6.2. Parent Obligations............................................................ A-18
VII. MISCELLANEOUS........................................................................ A-19
7.1. Termination................................................................... A-19
7.2. Non-Survival of Representations, Warranties and Agreements.................... A-20
7.3. Waiver and Amendment.......................................................... A-20
7.4. Entire Agreement.............................................................. A-20
7.5. Applicable Law................................................................ A-20
7.6. Interpretation................................................................ A-20
7.7. Notices....................................................................... A-20
7.8. Counterparts.................................................................. A-21
7.9. Parties in Interest; Assignment............................................... A-21
7.10. Expenses; Termination Fee..................................................... A-21
7.11. Obligation of Parent.......................................................... A-21
7.12. Enforcement of the Agreement.................................................. A-22
7.13. Severability.................................................................. A-22
7.14. Consent to Jurisdiction and Service of Process................................ A-22
</TABLE>
A-(ii)
<PAGE> 52
TABLE OF DEFINED TERMS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
Term Section
- ---- ---------
<S> <C>
Agreement......................................................................... Preamble
Balance Sheet..................................................................... 4.19(b)
Benefits Agreements............................................................... 5.3(c)
Benefit Plans..................................................................... 4.19
Certificate of Merger............................................................. 2.1.2
Certificate....................................................................... 1.2
Closing........................................................................... 2.3
Code.............................................................................. 4.17(a)
Commission........................................................................ 1.2
Commitment........................................................................ 3.7
Common Stock...................................................................... 1.1
Company........................................................................... Preamble
Competing Transaction............................................................. 7.1
Confidentiality Agreement......................................................... 1.1
Constituent Corporations.......................................................... 2.1.2
Continuing Directors.............................................................. 7.1
Controlled Group.................................................................. 4.19(e)
CSFB.............................................................................. 1.2
Current Premium................................................................... 5.8
D&O Insurance..................................................................... 5.8
DGCL.............................................................................. 1.2
Director Plan..................................................................... 4.2
Domestic Taxes.................................................................... 4.17(a)
Effective Time.................................................................... 2.1.2
ERISA............................................................................. 4.19(a)
Exchange Act...................................................................... 1.1
$4.00 Preferred Stock............................................................. 1.1
401(k) Plan....................................................................... 4.2
Fully Diluted..................................................................... 1.1
GAAP.............................................................................. 4.5
Governmental Entity............................................................... 3.6
HSR Act........................................................................... 3.6
Indemnified Party................................................................. 5.8
Merger............................................................................ 2.1.1
Merger Price...................................................................... 2.1.4
Minimum Share Condition........................................................... 1.1
$9.75 Preferred Stock............................................................. 2.1.4
Offer............................................................................. 1.1
</TABLE>
A-(iii)
<PAGE> 53
<TABLE>
<CAPTION>
Term Section
- ------- ---------
<S> <C>
Offer Documents................................................................... 3.3
Option Plans...................................................................... 2.6
Options........................................................................... 2.6
Options and Converts.............................................................. 1.1
Parent............................................................................ Preamble
Paying Agent...................................................................... 2.4
PBGC.............................................................................. 4.19(e)
Person............................................................................ 7.6
Preferred Stock................................................................... 2.1.4
Proxy Statement................................................................... 3.4
Purchaser......................................................................... Preamble
Redemption........................................................................ 1.1
Rights............................................................................ 1.1
Rights Agreement.................................................................. 1.1
Schedule 14D-1.................................................................... 3.3
Schedule 14D-9.................................................................... 1.2
Securities Act.................................................................... 4.5
SEC Documents..................................................................... 4.5
Senior Executives................................................................. 4.6
Significant Subsidiary............................................................ 4.16
Stock Certificate................................................................. 2.4
Stock Plans....................................................................... 5.3(b)
Subsidiary........................................................................ 7.6
Surviving Corporation............................................................. 2.1.3
Tax............................................................................... 4.17(b)
Tax Affiliates.................................................................... 4.17(a)
Tax Return........................................................................ 4.17(b)
Transmittal Letter................................................................ 2.4
$2.50 Preferred Stock............................................................. 2.1.4
Voting Stock...................................................................... 1.1
</TABLE>
A-(iv)
<PAGE> 54
AGREEMENT OF MERGER
AGREEMENT OF MERGER, dated as of February 28, 1995 (the "Agreement"), among
YPF Sociedad Anonima, a sociedad anonima organized under the laws of the
Republic of Argentina ("Parent"), YPF Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Purchaser"), and Maxus Energy
Corporation, a Delaware corporation (the "Company").
Parent, Purchaser and the Company hereby agree as follows:
I. THE TENDER OFFER
1.1. The Offer. Provided that this Agreement has not been terminated in
accordance with Section 7.1 hereof and none of the events set forth in Exhibit A
hereto has occurred or exists, Purchaser will, and Parent will cause Purchaser
to, commence (within the meaning of Rule 14d-2(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) as promptly as practicable after the
date hereof, but in any event not later than March 7, 1995, a tender offer for
all outstanding shares of Common Stock, par value $1.00 per share ("Common
Stock"), of the Company at a price of $5.50 per share, net to the seller in
cash. (Such tender offer, as it may be amended from time to time pursuant to
this Agreement, is referred to herein as the "Offer.") The Offer will be subject
only to the conditions set forth in Exhibit A, including without limitation the
conditions that (a) the Board of Directors of the Company, within the time
provided in the Rights Agreement, dated as of September 8, 1988, between the
Company and AmeriTrust Company National Association as rights agent (the "Rights
Agreement") shall have taken the steps necessary to redeem the preferred stock
purchase rights (the "Rights") issued pursuant to the Rights Agreement so that
the Rights issued pursuant to the Rights Agreement will not become exercisable
as a result of the consummation of the transactions contemplated in this
Agreement (such action, the "Redemption") and (b) the number of shares of Common
Stock being validly tendered and not withdrawn prior to the expiration date
provided in the Offer which, when added to the shares of Common Stock and $4.00
Cumulative Convertible Preferred Stock, par value $1.00 per share, of the
Company ("$4.00 Preferred Stock" and, together with the Common Stock, "Voting
Stock") beneficially owned by Parent and Purchaser, represent not less than a
majority of the shares of Voting Stock outstanding on a Fully Diluted (as
hereinafter defined) basis (the "Minimum Share Condition"). For purposes of this
Agreement, "Fully Diluted" means the number of shares of Voting Stock
outstanding as of the close of business on February 23, 1995, increased by the
number of shares of Voting Stock (i) issued between such date and the expiration
date of the Offer and (ii) issuable pursuant to the exercise of rights (other
than the Rights) to purchase Voting Stock or upon conversion or exchange of
other securities, including without limitation the rights and securities listed
on Schedule 1.1 (collectively, the "Options and Converts"), reduced, however, by
the number of employee stock options and other rights to be cancelled as
contemplated by Section 2.6. Any such condition other than the Minimum Share
Condition may be waived by Purchaser in its sole discretion. Purchaser may, at
any time, transfer or assign to one or more corporations directly or indirectly
wholly owned by Parent the right to purchase all or any portion of the shares of
Common Stock tendered pursuant to the Offer, but any such transfer or assignment
will not relieve Purchaser of its obligations under the Offer or prejudice the
rights of tendering stockholders to receive payment for shares of Common Stock
validly tendered and accepted for payment. Purchaser will accept for payment all
shares of Common Stock validly tendered pursuant to the Offer and not withdrawn
as soon as legally permissible, and pay for all such shares of Common Stock as
promptly as practicable thereafter, in each case upon the terms and subject to
the conditions of the Offer. Purchaser reserves the right to increase the price
per share of Common Stock payable in the Offer or otherwise to amend the Offer;
provided, however, that no such amendment may be made that decreases the price
per share of Common Stock payable pursuant to the Offer, reduces the minimum
number of shares of Common Stock to be purchased in the Offer, imposes
additional conditions to the Offer or makes any other change in the terms and
conditions of the Offer that is materially adverse to the holders of shares of
Common Stock. If the Agreement is terminated pursuant to Section 7.1 hereof, (A)
Parent and Purchaser will not, and will cause their subsidiaries and affiliates
controlled by them not to, acquire or offer to acquire or request permission to
acquire or offer to acquire (either directly or pursuant to a waiver of this or
any other covenant) shares of Voting Stock otherwise than pursuant to the Offer
or the Merger (as defined in Section 2.1.1 hereof) for a period of not less than
A-1
<PAGE> 55
24 months after termination of this Agreement without the prior written approval
of the Board of Directors of the Company and (B) the provisions of the
confidentiality agreement previously entered into (the "Confidentiality
Agreement") between the Company and Parent (or one of its affiliates) will
continue to apply.
1.2. Company Action. The Company consents to the Offer. As soon as
practicable on the date of commencement of the Offer, the Company will file with
the Securities and Exchange Commission (the "Commission") and mail to the
holders of shares of Common Stock a Solicitation/Recommendation Statement on
Schedule 14D-9 pursuant to the Exchange Act (the "Schedule 14D-9"). The Schedule
14D-9 will set forth, and the Company hereby represents, that the Board of
Directors of the Company has at a meeting duly called and held and at which a
quorum was present and acting throughout, by the requisite vote of all directors
present, (a) determined, based in part on the advice of CS First Boston
Corporation ("CSFB") described in the sixth sentence of this Section 1.2, the
Company's financial advisor in connection with the Offer and the Merger, that
the Offer and the Merger are in the best interests of the Company and its
stockholders, (b) approved the Offer, this Agreement and the Merger, and
determined that such approval satisfies the requirements of Section 203(a)(1) of
the General Corporation Law of the State of Delaware (the "DGCL") and, as a
result, renders inapplicable to the Offer, the Merger and this Agreement the
other provisions of Section 203(a) of the DGCL, (c) subject to the fiduciary
duties of the Board of Directors, recommended acceptance of the Offer and
adoption of this Agreement by the holders of shares of Common Stock, (d) taken
all such action as may be required by law and the Rights Agreement to redeem the
Rights, and (e) taken all such action as may be required by law and the
Company's Restated Certificate of Incorporation (the "Certificate") so that
Sections 1 and 2 of Article Ninth of the Certificate are not applicable to the
transactions contemplated in this Agreement and, as a result, the requirements
of Sections 1 and 2 of Article Ninth of the Certificate will not apply to the
Offer, the Merger and the transactions with Parent and Purchaser contemplated in
this Agreement. The Company will provide Purchaser's counsel a reasonable
opportunity to review and comment on the Schedule 14D-9 prior to its being filed
with the Commission. The Company will provide Purchaser's counsel a copy of any
written comments or a summary of telephonic notification of any verbal comments
the Company or its counsel may receive from the Commission or its Staff with
respect to the Schedule 14D-9 promptly after receipt of such comments and
provide Purchaser's counsel with a copy of any written responses and a summary
of any such verbal responses. The Company further represents and warrants that
CSFB has advised the Board of Directors of the Company that, in the opinion of
CSFB as of the date hereof, the consideration to be received by the existing
holders of shares of Common Stock pursuant to the Offer and the Merger is fair
to such stockholders from a financial point of view. The Company will, and the
Board of Directors of the Company has resolved to, take all actions reasonably
requested by Purchaser necessary to exempt the Offer and the Merger from the
provisions of any applicable takeover, business combination or control share
acquisition law or regulation adopted by any State of the United States of
America.
1.3. Stockholder Lists. The Company will promptly furnish Purchaser a list
of the holders of Common Stock and mailing labels containing the names and
addresses of all record holders relating to Common Stock and lists of securities
positions of shares of Common Stock held in stock depositories, each as of a
recent date, and will promptly furnish Purchaser with such additional
information, including updated lists of stockholders of the Company, mailing
labels and lists of securities positions, and such other assistance as Purchaser
or its agents may reasonably request in connection with the Offer. Subject to
the requirements of law, and except for such steps as are necessary to
disseminate the Offer Documents (as defined in Section 3.3 hereof), Parent and
Purchaser will hold in confidence the information contained in any of such
labels and lists and the additional information referred to in the preceding
sentence, will use such information only in connection with the Offer and, if
this Agreement is terminated, will upon request deliver to the Company all such
written information and any copies or extracts therefrom in its possession or
under its control.
1.4. Board of Directors of the Company. Upon Purchaser's acquisition of a
majority of the outstanding shares of Voting Stock pursuant to the Offer, and
from time to time thereafter so long as Parent and/or any of its direct or
indirect wholly owned subsidiaries (including Purchaser) owns a majority of the
outstanding shares of Voting Stock, Parent will be entitled, subject to
compliance with applicable law, the Certificate and the provisions of the next
sentence, to designate at its option up to that number of directors, rounded up
to the
A-2
<PAGE> 56
nearest whole number, of the Company's Board of Directors as will make the
percentage of the Company's directors designated by Parent equal to the
percentage of outstanding shares of Voting Stock held by Parent and any of its
direct or indirect wholly owned subsidiaries (including Purchaser), including
shares of Common Stock accepted for payment pursuant to the Offer. The Company
will, upon the request of Parent, promptly increase the size of its Board of
Directors and/or use its reasonable best efforts to secure the resignation of
such number of directors as is necessary to enable Parent's designees to be
elected to the Company's Board of Directors and will use its reasonable best
efforts to cause Parent's designees to be so elected, subject in all cases to
Section 14(f) of the Exchange Act, it being understood that the Company will
have no obligation to comply with Section 14(f) of the Exchange Act until after
the Offer is completed in accordance with the terms hereof and that the Company
agrees to comply with such Section of the Exchange Act as promptly as
practicable thereafter, provided that, prior to the Effective Time (as defined
in Section 2.1.2 hereof), the Company will use its reasonable best efforts to
assure that the Company's Board of Directors always has (at its election) at
least three members who are directors of the Company as of the date hereof. At
such times, the Company will use its reasonable best efforts, subject to any
limitations imposed by applicable laws or rules of the New York Stock Exchange,
to cause persons designated by Parent to constitute the same percentage as such
persons represent on the Company's Board of Directors of (a) each committee of
the Board of Directors of the Company, (b) each board of directors or board of
management of each subsidiary of the Company, and (c) each committee of each
such board.
II. THE MERGER
2.1.1. Merger. Subject to the terms and conditions hereof, (a) Purchaser
will be merged with and into the Company and the separate corporate existence of
Purchaser will thereupon cease (the "Merger") in accordance with the applicable
provisions of the DGCL and (b) each of the Company and Parent will use its
reasonable best efforts to cause the Merger to be consummated as soon as
practicable following the expiration of the Offer.
2.1.2. Effective Time. As soon as practicable following fulfillment or
waiver of the conditions specified in Article VI hereof, and provided that this
Agreement has not been terminated or abandoned pursuant to Section 7.1 hereof,
the Company and Purchaser (the "Constituent Corporations") will cause a
Certificate of Merger (the "Certificate of Merger") to be filed with the
Secretary of State of the State of Delaware as provided in Section 251 of the
DGCL. The Merger will become effective on the date on which the Certificate of
Merger has been filed with the Secretary of State of the State of Delaware (the
"Effective Time").
2.1.3. Effect of Merger. The Company will be the surviving corporation in
the Merger (sometimes hereinafter referred to as the "Surviving Corporation")
and will continue to be governed by the laws of the State of Delaware, and the
separate corporate existence of the Company and all of its rights, privileges,
powers and franchises of a public as well as of a private nature, and being
subject to all of the restrictions, disabilities and duties as a corporation
organized under the DGCL, will continue unaffected by the Merger. The Merger
will have the effects specified in the DGCL. The Certificate and the By-Laws of
the Company in effect at the Effective Time will be the Certificate of
Incorporation and By-Laws of the Surviving Corporation until duly amended in
accordance with their terms and the DGCL. The directors of Purchaser immediately
prior to the Effective Time will be the directors of the Surviving Corporation,
and the officers of the Company immediately prior to the Effective Time will be
the officers of the Surviving Corporation, from and after the Effective Time,
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the terms
of Surviving Corporation's Certificate of Incorporation and By-Laws and the
DGCL.
2.1.4. Conversion of Shares of Common Stock. At the Effective Time, (a)
each then-outstanding share of Common Stock not owned by Parent, Purchaser or
any other direct or indirect subsidiary of Parent (other than those shares of
Common Stock held in the treasury of the Company and shares of Common Stock held
by stockholders who perfect their appraisal rights under the DGCL) will be
cancelled and retired and be converted into a right to receive in cash an amount
per share of Common Stock equal to the highest price per share paid for a share
of such stock by Purchaser pursuant to the Offer (the "Merger Price"), without
interest
A-3
<PAGE> 57
thereon, (b) each then-outstanding share of Common Stock owned by Parent,
Purchaser or any other direct or indirect subsidiary of Parent will be cancelled
and retired, and no payment will be made with respect thereto, (c) each share of
Common Stock issued and held in the Company's treasury will be cancelled and
retired, and no payment will be made with respect thereto, (d) each outstanding
share of common stock of Purchaser will, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and become one share
of common stock of the Surviving Corporation, and (e) each outstanding share of
$4.00 Preferred Stock, $9.75 Cumulative Convertible Preferred Stock, par value
$1.00 per share ("$9.75 Preferred Stock"), and $2.50 Cumulative Preferred Stock,
par value $1.00 per share ("$2.50 Preferred Stock"), of the Company
(collectively, the "Preferred Stock") will remain outstanding and have, as to
the Surviving Corporation, the identical powers, preferences, rights,
qualifications, limitations and restrictions as such shares of Preferred Stock
presently have, except as agreed to by the holder of $9.75 Preferred Stock.
2.2. Stockholders' Meeting of the Company. The Company will take all
action necessary in accordance with applicable law and the Certificate and its
By-Laws to convene a meeting of its stockholders as promptly as reasonably
practicable following the date hereof to consider and vote upon the adoption of
this Agreement, if such stockholder approval is required by applicable law;
provided, however, that nothing herein will affect the right of Purchaser to
take action by written consent in lieu of a meeting or otherwise to the extent
permitted by applicable law. At any such meeting, all shares of Voting Stock
then owned by Parent, Purchaser or any other direct or indirect subsidiary of
Parent will be voted in favor of adoption of this Agreement. Subject to its
fiduciary duties under applicable law, the Board of Directors of the Company
will recommend that the Company's stockholders approve adoption of this
Agreement if such stockholder approval is required.
2.3. Consummation of the Merger. The closing of the Merger (the "Closing")
will take place (a) at the principal executive offices of the Company as
promptly as practicable after the later of (i) the business day of (and
immediately following) the receipt of approval of adoption of this Agreement by
the Company's stockholders if such approval is required, or as soon as
practicable after completion of the Offer if such approval by stockholders is
not required, and (ii) the day on which the last of the conditions set forth in
Article VI hereof is satisfied or duly waived or (b) at such other time and
place and on such other date as Purchaser and the Company may agree.
2.4. Payment for Shares of Common Stock. Purchaser will authorize the
depositary for the Offer (or one or more commercial banks organized under the
laws of the United States or any state thereof with capital, surplus and
undivided profits of at least $100,000,000) to act as Paying Agent hereunder
with respect to the Merger (the "Paying Agent"). Each holder (other than Parent,
Purchaser or any subsidiary of Parent) of a certificate or certificates which
prior to the Effective Time represented shares of Common Stock will be entitled
to receive, upon surrender to the Paying Agent of such certificate or
certificates for cancellation and subject to any required withholding of taxes,
the aggregate amount of cash into which the shares of Common Stock previously
represented by such certificate or certificates shall have been converted in the
Merger. On or before the Effective Time, Purchaser will make available to the
Paying Agent sufficient funds to make all payments pursuant to the preceding
sentence. Pending payment of such funds to the holders of shares of Common
Stock, such funds shall be held and invested by the Paying Agent as Parent
directs. Any net profit resulting from, or interest or income produced by, such
investments will be payable to the Surviving Corporation or Parent, as Parent
directs. Parent will promptly replace any monies lost through any investment
made pursuant to this Section 2.4. Until surrendered to the Paying Agent, each
certificate which immediately prior to the Effective Time represented
outstanding shares of Common Stock (other than shares of Common Stock owned by
Parent, Purchaser or any other direct or indirect subsidiary of Parent and
shares of Common Stock held by stockholders who perfect their appraisal rights
under the DGCL) (a "Stock Certificate") will be deemed for all corporate
purposes to evidence only the right to receive upon such surrender the aggregate
amount of cash into which the shares of Common Stock represented thereby will
have been converted, subject to any required withholding of taxes. No interest
will be paid on the cash payable upon the surrender of the Stock Certificate or
Stock Certificates. Any cash delivered or made available to the Paying Agent
pursuant to this Section 2.4 and not exchanged for Stock Certificates within
three months after the Effective Time will be returned by the Paying Agent to
the Surviving Corporation which thereafter will act as Paying Agent, subject
A-4
<PAGE> 58
to the rights of holders of unsurrendered Stock Certificates under this Article
II, and any former stockholders of the Company who have not theretofore complied
with the instructions for exchanging their Stock Certificates will thereafter
look only to the Surviving Corporation for payment of their claim for the
consideration set forth in Section 2.1, without any interest thereon, but will
have no greater rights against the Surviving Corporation (or either Constituent
Corporation) than may be accorded to general creditors thereof under applicable
law. Notwithstanding the foregoing, neither the Paying Agent nor any party
hereto will be liable to a holder of shares of Common Stock for any cash or
interest thereon delivered to a public official pursuant to applicable abandoned
property laws. Promptly after the Effective Time, the Paying Agent will mail to
each record holder of Stock Certificates a form of letter of transmittal (the
"Transmittal Letter") and instructions for use thereof in surrendering such
Stock Certificates which will specify that delivery will be effected and risk of
loss and title to the Stock Certificates will pass to the Paying Agent only upon
proper delivery of the Stock Certificates to the Paying Agent in accordance with
the terms of delivery specified in the Transmittal Letter and instructions for
use thereof in surrendering such Stock Certificates and receiving the applicable
Merger Price for each share of Common Stock previously represented by such Stock
Certificates. From and after the Effective Time, holders of Stock Certificates
immediately prior to the Merger will have no right to vote or to receive any
dividends or other distributions with respect to any shares of Common Stock
which were theretofore represented by such Stock Certificates, other than any
dividends or other distributions payable to holders of record as of a date prior
to the Effective Time, and will have no other rights other than as provided
herein or by law.
2.5. Closing of the Company's Transfer Books. At the Effective Time, the
stock transfer books of the Company will be closed with respect to Common Stock
and no transfer of shares of Common Stock will thereafter be made. If, after the
Effective Time, Stock Certificates are presented to the Surviving Corporation,
they will be cancelled, retired and exchanged for cash as provided in Section
2.4 hereof.
2.6. The Company Stock Options and Related Matters. The Company will
cooperate with Parent and Purchaser in an effort to obtain the surrender of all
options to purchase shares of Common Stock and other rights (collectively,
"Options") granted pursuant to the 1992 Director Stock Option Plan, the 1992
Long-Term Incentive Plan, the 1986 Long-Term Incentive Plan, the 1980 Long-Term
Incentive Plan or any other plans in effect as of the date hereof (collectively,
the "Option Plans") in accordance with the provisions of Schedule 2.6. Effective
immediately prior to the Effective Time, the restrictions on all shares of
restricted Common Stock identified in Schedule 2.6 will lapse without further
action.
III. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby jointly and severally represent and warrant to
the Company that:
3.1. Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of its state or other jurisdiction of incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as it is now being conducted, except where
the failure to have such power or authority would not individually or in the
aggregate have a material adverse effect on the financial condition, properties,
business or results of operations of Parent and Purchaser, taken as a whole.
Parent beneficially owns all of the outstanding capital stock of Purchaser.
3.2. Authority. Each of Parent and Purchaser has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
approved by the respective Boards of Directors of Parent and Purchaser and by
Parent as the sole stockholder of Purchaser, and no other corporate proceedings
on the part of Parent or Purchaser are necessary to consummate the transactions
so contemplated. This Agreement has been duly executed and delivered by each of
Parent and Purchaser and constitutes a valid and binding obligation of each of
Parent and Purchaser, enforceable against Parent and Purchaser in accordance
with its terms.
A-5
<PAGE> 59
3.3. Offer Documents. The documents (the "Offer Documents") pursuant to
which the Offer will be made, including the Schedule 14D-1 filed by Purchaser
pursuant to the Exchange Act (the "Schedule 14D-1"), will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. The information contained in the Offer Documents (other
than information supplied in writing by the Company expressly for inclusion in
the Offer Documents) will not, at the respective times the Schedule 14D-1 or any
amendments or supplements thereto are filed with the Commission, 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 made therein,
in light of the circumstances under which they were made, not misleading.
Purchaser will promptly correct any statements in the Schedule 14D-1 and the
Offer Documents that have become false or misleading and take all steps
necessary to cause such Schedule 14D-1 as so corrected to be filed with the
Commission and such Offer Documents as so corrected to be disseminated to
holders of shares of Common Stock, in each case as and to the extent required by
applicable law.
3.4. Proxy Statement. None of the information to be supplied by Parent or
Purchaser in writing expressly for inclusion in a proxy or information statement
of the Company required to be mailed to the Company's stockholders in connection
with the adoption of this Agreement (the "Proxy Statement"), or in any
amendments or supplements thereto will, at the time of (a) the first mailing
thereof and (b) the meeting, if any, of stockholders to be held in connection
with the adoption of this Agreement, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.5. Fees. In no event, including without limitation termination of this
Agreement and abandonment of the Merger pursuant to Section 7.1 hereof, will the
Company or any of its subsidiaries, prior to the Merger, be obligated to pay any
fee or commission to any financial advisor, broker, finder or intermediary in
connection with the transactions contemplated hereby pursuant to or as a
consequence of any agreement or commitment of Parent, Purchaser or any of their
respective affiliates.
3.6. Consents and Approvals; No Violation. Except as set forth in
Schedule 3.6, neither the execution and delivery of this Agreement by Parent and
Purchaser nor the consummation by Parent and Purchaser of the transactions
contemplated hereby will (a) conflict with or result in any breach of any
provision of their respective certificates of incorporation or by-laws (or
comparable governing instruments), (b) violate, conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any lien or other
encumbrance upon any of the properties or assets of Parent or any of its
subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease agreement or other
instrument or obligation to which Parent or any such subsidiary is a party or to
which they or any of their respective properties or assets are subject, except
for such violations, conflicts, breaches, defaults, terminations, accelerations
or creations of liens or other encumbrances, which, individually or in the
aggregate, will not have a material adverse effect on the business, financial
condition or results of operations of Parent and its subsidiaries, taken as a
whole, or (c) require any consent, approval, authorization or permit of or from,
or filing with or notification to, any court, governmental authority or other
regulatory or administrative agency or commission, domestic or foreign
("Governmental Entity"), except (i) pursuant to the Exchange Act, (ii) filing
certificates of merger pursuant to the DGCL and the laws of any other state,
(iii) filings required under the securities or blue sky laws of the various
states, (iv) filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (v) consents, approvals, authorizations,
permits, filings or notifications under laws and regulations of various foreign
jurisdictions, other than Argentina and its provinces, or (vi) consents,
approvals, authorizations, permits, filings or notifications which if not
obtained or made will not, individually or in the aggregate, have a material
adverse effect on the business, financial condition or results of operations of
Parent and its subsidiaries, taken as a whole.
3.7. Financing. Prior to the execution of this Agreement by the parties
hereto, Parent executed a commitment letter with Chase Manhattan Bank, N.A. (the
"Commitment"), a copy of which has been previously furnished to the Company,
providing for up to $800 million of acquisition financing. As of the date
hereof, the executive officers of Parent have no reason to believe that any
condition to the financing
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contemplated by the Commitment will not be satisfied in accordance with the
terms of the Commitment. Parent and Purchaser hereby covenant that they will use
their respective reasonable best efforts to obtain the financing contemplated by
the Commitment.
3.8. Operations of the Company Following the Merger. Based upon, among
other things, Parent's review of the Company's financial condition and
operations, the Company's business plan and the representations made by the
Company in this Agreement, the financial condition of Parent and its
subsidiaries and Parent's and Purchaser's present plans with respect to the
Company and its subsidiaries following the Merger, Parent has no reason to
believe that, following the consummation of the Merger and the completion of the
financings contemplated by the Commitment, the Company will not be able to meet
its obligations as they come due, including solely for purposes of this
representation preferred stock dividend and mandatory redemption payments.
IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and Purchaser
that:
4.1. Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation and is in good standing as a foreign corporation in each
jurisdiction where failure to so qualify or be in good standing is reasonably
likely to have a material adverse effect on the financial condition, properties,
business or results of operation of the Company and its subsidiaries, taken as a
whole. The Company has the requisite corporate power to own, lease and operate
its properties and assets and to carry on its businesses as they are now being
conducted. The Company has furnished Parent true and correct copies of the
certificate of incorporation and by-laws (or other governing instruments), as
amended to the date hereof, of the Company and each of its subsidiaries (except
the inactive subsidiaries identified as such on Schedule 4.1). The Company's and
each subsidiary's certificate of incorporation and by-laws (or other governing
instruments) as so delivered are in full force and effect.
4.2. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 300,000,000 shares of Common Stock and (ii)
100,000,000 shares of Preferred Stock. As of the close of business on February
23, 1995, (a) 135,497,705 shares of Common Stock were validly issued and
outstanding, fully paid and nonassessable and not subject to preemptive rights,
(b) 4,358,658 shares of $4.00 Preferred Stock were validly issued and
outstanding, fully paid and nonassessable, (c) 1,250,000 shares of $9.75
Preferred Stock were validly issued and outstanding, fully paid and
nonassessable, and (d) 3,500,000 shares of $2.50 Preferred Stock were validly
issued and outstanding, fully paid and nonassessable. Since such date, the
Company has not issued any additional shares of capital stock other than
pursuant to (i) the exercise or conversion of Options and Converts, (ii) the
Company's Employee Shareholding and Investment Plan (the "401(k) Plan"), or
(iii) the Company's Director Stock Compensation Plan (the "Director Plan").
Except for the Options and Converts, the Rights, shares issued pursuant to the
Director Plan and as otherwise set forth in this Section 4.2, there are not now,
and at the Effective Time there will not be, any shares of capital stock of the
Company authorized, issued or outstanding and there are not now, and at the
Effective Time there will not be, any outstanding subscriptions, options,
warrants, rights, convertible securities or any other agreements or commitments
of any character relating to the issued or unissued capital stock or other
securities of the Company obligating the Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of the
Company or obligating the Company to grant, extend or enter into any
subscription, option, warrant, right, convertible security or other similar
agreement or commitment. Except as set forth in this Section 4.2, on Schedule
4.2 or otherwise in this Agreement, and except for provisions in employee plans
relating to the pass-through of voting rights, there are not now, and at the
Effective Time there will not be, any voting trusts or other agreements or
understandings to which the Company or any subsidiary of the Company is a party
or is bound with respect to the voting of the capital stock of the Company.
4.3. Authority. The Company has the requisite corporate power and
authority to enter into this Agreement and, except for any required adoption of
this Agreement by the holders of the Voting Stock, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of
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Directors of the Company and no other corporate proceedings on the part of the
Company are necessary to enter into this Agreement or to consummate the
transactions so contemplated, subject only, to the extent required with respect
to the consummation of the Merger, to adoption of this Agreement, if necessary,
by the holders of Voting Stock. This Agreement has been duly executed and
delivered by, and constitutes a valid and binding obligation of, the Company,
enforceable against the Company in accordance with its terms.
4.4. Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement by the Company nor the consummation by the Company of
the transactions contemplated hereby will (a) conflict with or result in any
breach or violation of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in the creation of any lien or other encumbrance upon any of the
properties or assets of the Company or any of its subsidiaries under, any of the
terms, conditions or provisions of (i) their respective certificates of
incorporation or by-laws or (ii) any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which the
Company or any such subsidiary is a party or to which they or any of their
respective properties or assets are subject, except for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of liens
or other encumbrances which are set forth on Schedule 4.4 or which, individually
or in the aggregate, will not have a material adverse effect on the business,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, or (b) require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity, except (i) pursuant to the Exchange Act, (ii) filing certificates of
merger pursuant to the DGCL and the laws of any other state, (iii) filings
required under the securities or blue sky laws of the various states, (iv)
filings under the HSR Act, (v) consents, approvals, authorizations, permits,
filings or notifications under laws and regulations of various foreign
jurisdictions listed or described on Schedule 4.4, and (vi) consents, approvals,
authorizations, permits, filings or notifications which if not obtained or made
will not, individually or in the aggregate, have a material adverse effect on
the business, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole.
4.5. Commission Filings. The Company has heretofore filed all statements,
forms, reports and other documents with the Commission required to be filed
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and
the Exchange Act since January 1, 1993, and has made available to Parent copies
of all such statements, forms, reports and other documents, including without
limitation each registration statement, Current Report on Form 8-K, proxy or
information statement, Annual Report on Form 10-K and Quarterly Report on Form
10-Q filed during such period (in the case of each such report, including all
exhibits thereto) (the "SEC Documents"). The SEC Documents, as of their
respective filing dates, complied as to form in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and did not
(as of their respective filing dates) contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The audited and unaudited
consolidated financial statements, together with the notes thereto, of the
Company included (or incorporated by reference) in the SEC Documents present
fairly, in all material respects, the financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis (except as stated in such financial statements), subject, in
the case of the unaudited financial statements, to normal year-end audit
adjustments.
4.6. Absence of Certain Changes. Except as disclosed in the SEC
Documents, as disclosed to Parent by the Company in a writing which makes
express reference to this Section 4.6 or as set forth on Schedule 4.6, since
December 31, 1994, the Company and its subsidiaries have conducted their
respective businesses only in the ordinary course, and there has not been (a)
any event or change having or that is reasonably expected to have a material
adverse effect on the business, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole, (b) in the case of the
Company, any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock, other than the regular cash
dividends on shares of $4.00 Preferred Stock, $9.75 Preferred Stock and $2.50
Preferred Stock, or relating to the redemption of the Rights as herein
contemplated, (c) in the case of the Company, any change by the
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Company in accounting principles used for purposes of financial reporting, (d)
any entry into any agreement or understanding, whether written or (if
enforceable) oral, between the Company or any of its subsidiaries on the one
hand, and any of their respective employees at Pay Grade 12 or above ("Senior
Executives"), on the other hand, providing for the employment of any such Senior
Executive or any severance or termination benefits payable or to become payable
by the Company or any subsidiary to any Senior Executive, or (e) except as
permitted by this Agreement, any increase (including any increase effective in
the future) in (i) the compensation, severance or termination benefits payable
or to become payable by the Company or any subsidiary to any Senior Executive
(or any increase in benefits under any change in control severance arrangement
applicable to employees of the Company and its subsidiaries, generally) or (ii)
any bonus, insurance, pension or other employee benefits (including without
limitation the granting of stock options, stock appreciation rights or
restricted stock awards) made to, for or with any Senior Executive, except for
normal increases associated with regular annual performance evaluations in the
ordinary course of business or normal accruals of benefits under the terms of
any such plan or arrangement.
4.7. Litigation. Except as disclosed in SEC Documents filed prior to the
date of this Agreement or on Schedule 4.7, there is no suit, action,
investigation or proceeding pending, or, to the knowledge of the executive
officers of the Company, threatened against or affecting the Company or any
subsidiary of the Company which is reasonably expected to have a material
adverse effect on the Company and its subsidiaries taken as a whole, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company having, or which, insofar as
reasonably can be foreseen, in the future would have, any such effect.
4.8. Compliance with Applicable Laws. The Company and each of its
subsidiaries hold, and at all relevant times have held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business substantially as it is currently conducted. Except as required to be
disclosed in the SEC Documents filed prior to the date of this Agreement or as
to matters for which reserves have been established and which reserves have been
disclosed to Purchaser, to the knowledge of the executive officers of the
Company, the businesses of the Company and its subsidiaries are not presently
being conducted, and to the knowledge of the executive officers of the Company,
have not previously been conducted, in violation of any law, ordinance or
regulation of any Governmental Entity, except for possible violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a material adverse effect on the Company
and its subsidiaries taken as a whole. Except as described in SEC Documents
filed prior to the date of this Agreement, no investigation or review by any
Governmental Entity concerning any such possible violations by the Company or
any of its subsidiaries is pending or, to the knowledge of the executive
officers of the Company, threatened, nor has any Governmental Entity indicated
an intention to conduct the same in each case other than those the outcome of
which will not have a material adverse effect on the Company and its
subsidiaries taken as a whole.
4.9. Fees. Except as will be set forth in the Schedule 14D-9, neither the
Company nor any of its subsidiaries has paid or become obligated to pay any fee
or commission to any financial advisor, broker, finder or intermediary in
connection with the transactions contemplated hereby. The Company has previously
furnished Parent a copy of its engagement letter with CSFB.
4.10. Offer Documents. None of the information supplied by the Company or
its subsidiaries in writing expressly for inclusion in the Offer Documents or in
any amendments thereto or supplements thereto will, at the time supplied or upon
the expiration of the Offer, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.11. Schedule 14D-9. The Schedule 14D-9 will comply as to form in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations thereunder and will not, at the respective times the
Schedule 14D-9 or any amendments thereto or supplements thereto are filed with
the Commission, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Company will promptly correct any statements in the
Schedule 14D-9
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that have become materially false or misleading and take all steps necessary to
cause such Schedule 14D-9 as so corrected to be filed with the Commission and to
be disseminated to holders of shares of Voting Stock, in each case as and to the
extent required by applicable law.
4.12. Proxy Statement. The Proxy Statement and all amendments and
supplements thereto will comply as to form in all material respects with the
applicable requirements of the Exchange Act and the rules and regulations
thereunder and will not, at the time of (a) the first mailing thereof and (b)
the meeting, if any, of stockholders to be held in connection with the Merger,
together with any amendments and supplements thereto, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied in
writing by Parent or any affiliate of Parent expressly for inclusion in the
Proxy Statement.
4.13. Rights. The Company has, or prior to the commencement of the Offer
shall have, taken the necessary steps to redeem prior to the close of business
on the 20th calendar day after commencement of the Offer all of the outstanding
Rights issued pursuant to the Rights Agreement in accordance with the terms of
the Rights Agreement and applicable law.
4.14. Certain Actions. The actions referred to in Section 1.2 have been
duly taken by the Board of Directors of the Company prior to the date hereof.
4.15. Subsidiaries. (a) Each subsidiary of the Company is a corporation
or other legal entity duly incorporated or organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, has all requisite corporate or similar power and authority to own
its properties and assets and to carry on its business as now conducted except
where the failure to have such power and authority would not have a material
adverse effect on the financial condition, properties, business or results of
operations of the Company and its subsidiaries taken as a whole. Each subsidiary
of the Company is duly qualified to do business as a foreign corporation or
other legal entity and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
make such qualification necessary, except for those jurisdictions where failure
to be so qualified or in good standing would not, individually or in the
aggregate, have a material adverse effect on the financial condition,
properties, business or results of operations of the Company and its
subsidiaries taken as a whole. Schedule 4.15(a) sets forth the name,
jurisdiction of incorporation or organization, capitalization and equity holders
of each subsidiary of the Company. Except as disclosed in Schedule 4.15(a) and
except for insignificant equity or other interests received in the ordinary
course of business of the Company, the Company does not own, directly or
indirectly, or have voting rights with respect to, any capital stock or other
equity securities of any corporation or have any direct or indirect equity or
ownership interest in any business.
(b) Except as disclosed on Schedule 4.15(a) or 4.15(b), or as may be
disclosed on the certificates representing the capital stock of the subsidiaries
of the Company or provided pursuant to the terms of partnership agreements,
joint venture agreements or other constituent documentation, copies of which
have been provided or made available to representatives of Parent, and except as
may be required under the securities laws of any jurisdiction, (i) all of the
outstanding capital stock of, or other ownership interests in, each subsidiary
of the Company, has been validly issued, is (in the case of capital stock) fully
paid and nonassessable and (in the case of partnership interests) not subject to
current or future capital calls, and is owned by the Company, directly or
indirectly, free and clear of any lien and free of any other charge, claim,
encumbrance, limitation or restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other ownership
interests) and (ii) there are not now, and at the Effective Time there will not
be, any outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of any of the Company's
subsidiaries, or otherwise obligating the Company or any such subsidiary to
issue, transfer or sell any such securities or to make any payments in respect
of any of its securities or its equity.
4.16. No Default. Neither the Company nor any of its subsidiaries which
would be a "significant subsidiary" within the meaning of Regulation S-X (a
"Significant Subsidiary") is in default or violation (and
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no event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (a)
the Certificate or the By-Laws of the Company, (b) the organizational
documentation of any Significant Subsidiary, or (c) except as set forth in
Schedule 4.16, any note, bond, mortgage, indenture, license, contract,
franchise, permit, lease, agreement or other instrument or obligation to which
the Company or any of its Significant Subsidiaries is a party or by which they
or any of their properties or assets may be bound, except for defaults or
violations which, in the case of clauses (b) or (c) of this sentence, will not,
individually or in the aggregate, have a material adverse effect on the
financial condition, properties, business or results of operations of the
Company and its Significant Subsidiaries taken as a whole.
4.17. Taxes. (a) Except as set forth in Schedule 4.17, the Company has
filed all federal, state, local and foreign tax returns required to be filed by
itself and by each of its and any member of its consolidated, combined or
similar group (each such member a "Tax Affiliate") and by any of the Company's
subsidiaries and has paid or caused to be paid, or has made adequate provision
or set up adequate accruals or reserves which, in the aggregate, are adequate
under GAAP in respect of, liabilities for taxes required to be paid in respect
of the periods for which returns are due, and has established (or will establish
at least quarterly) similar accruals or reserves for the payment of all taxes
payable in respect of periods subsequent to the last of such periods required to
be so accrued or reserved, as the case may be. Except as set forth in Schedule
4.17, neither the Company nor any of its Tax Affiliates or subsidiaries has
entered into any written agreement or other document waiving or extending the
time to assess any taxes due to any United States jurisdiction ("Domestic
Taxes") nor, to the knowledge of the executive officers of the Company, has any
such entity entered into any such agreement or other document in respect of any
tax due to any jurisdiction outside the United States. Except as set forth in
Schedule 4.17, the tax returns of the Company, its Tax Affiliates and
subsidiaries of the Company relating to Domestic Taxes are not under active
audit by the Internal Revenue Service or any comparable state or local agency.
The open taxable years of the Company, its Tax Affiliates and its subsidiaries
relating to United States federal income taxes are set forth in Schedule 4.17.
At no time within the last five years, and to the knowledge of the executive
officers of the Company, (i) at no time in the preceding eight years, have the
Company, any of its Tax Affiliates or any of its subsidiaries ever filed a
consent under Section 341(f) of the Internal Revenue Code of 1986, as amended
(the "Code"), concerning collapsible corporations, (ii) except as set forth on
Schedule 4.17, none of the Company, any of its Tax Affiliates or any of its
subsidiaries has made any payments, is obligated to make any payments, or is a
party to any agreement that under certain circumstances obligates it to make any
payments that will not be deductible under Sections 280G or 162(m) of the Code;
provided, however, that the foregoing representation will not apply to any
payments made as a result of this Agreement or the transactions contemplated
hereby, (iii) the Company is not currently a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code, (iv) each of
the Company, each of its Tax Affiliates and each of its subsidiaries has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a material understatement of federal income tax within the
meaning of Section 6662 of the Code, (v) none of the Company, any of its Tax
Affiliates or any of its subsidiaries is a party to any tax allocation or
sharing agreement other than as set forth in Schedule 4.17, and (vi) none of the
Company, any of its Tax Affiliates or any of its subsidiaries (A) has been a
member of an affiliated group filing a consolidated federal income tax return
(other than a group the common parent of which was the Company) for any open
taxable year or (B) has any liability for the taxes of any person or entity
(other than any of the Company and any of its Affiliates and any of its
subsidiaries) under Treas. Reg. sec. 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract, or
otherwise except as set forth in Schedule 4.17 or as otherwise disclosed to
Purchaser.
(b) For the purposes of this Section, (i) the term "tax" means income,
gross receipts, payroll, employment, excise, severance, stamp, windfall profits,
environmental (including taxes under Section 59A of the Code), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated or
other tax of any kind, levies, penalties, or interest imposed by any United
States federal, state, local and foreign or other taxing authority on the
Company or any of its Tax Affiliates, and (ii) the term "tax return" includes
any return, declaration, claim for refund or information
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return relating to taxes, including without limitation any schedule or
attachment thereto and including any amendment thereof.
4.18. Insurance. Schedule 4.18 lists all insurance policies carried by
the Company or any of its subsidiaries insuring occurrences or claims on or made
on the date hereof. There is no default by the Company or any subsidiary with
respect to any provision contained in any such insurance policy which would
permit the denial of coverage or cancellation of coverage thereunder, except for
defaults or failures which, individually or in the aggregate, would not have a
material adverse effect on the Company and its subsidiaries taken as a whole.
4.19. Benefit Plans. (a) Schedule 4.19(a) lists (i) the material
"employee benefit plans" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), which the Company
or any of its subsidiaries maintains or sponsors or with respect to which the
Company or any of its subsidiaries has any material liability (actual or
contingent, primary or secondary), and (ii) all other (A) employee benefit
plans, programs or arrangements, (B) stock purchase, stock option, severance,
bonus, incentive and deferred compensation plans, (C) written employment
contracts, and (D) change-in-control agreements which the Company or any of its
subsidiaries maintains, sponsors or is a party to or with respect to which the
Company or any of its subsidiaries has any material liability. (The plans,
programs, arrangements, contracts and agreements referred to in the preceding
sentence are collectively referred to herein as the "Benefit Plans.")
(b) Except as set forth on Schedule 4.19(b), (i) the reserves reflected in
the balance sheet contained in the audited financial statements for the period
ending December 31, 1994 (together with all footnotes attached thereto, the
"Balance Sheet") relating to any unfunded benefits under the Benefit Plans were
adequate in the aggregate under GAAP as of December 31, 1994 and (ii) neither
the Company nor any of its subsidiaries has incurred any material unfunded
liability in respect of any such plans since that date.
(c) There are no suits or claims pending or, to the knowledge of the
Company's executive officers, threatened relating to or for benefits under the
Benefit Plans, except for those suits or claims set forth on Schedule 4.19(c) or
which, individually or in the aggregate, will not have a material adverse effect
on the business, financial condition or results of operation of the Company or
its subsidiaries, taken as a whole.
(d) (i) Each Benefit Plan has been established and administered in all
material respects in accordance with its terms, and in all material respects in
compliance with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations and (ii) each Benefit Plan which is
intended to be qualified within the meaning of Code Section 401(a) is so
qualified and nothing has occurred, to the knowledge of the executive officers
of the Company, whether by action or failure to act, which is reasonably
expected to cause the loss of such qualification except where such loss of
qualification would not have a material adverse effect on the business,
financial condition or results of operation of the Company or its subsidiaries,
taken as a whole.
(e) Except as set forth on Schedule 4.19(e), (i) no Benefit Plan currently
has any "accumulated funding deficiency" as such term is defined in ERISA
Section 302 and Code Section 412 (whether or not waived); (ii) to the knowledge
of the executive officers of the Company, no event or condition exists which is
a reportable event within the meaning of ERISA Section 4043 with respect to any
Benefit Plan that is subject to Title IV of ERISA; (iii) each member of the
Company's Controlled Group (as defined below) has made all required premium
payments when due to the Pension Benefit Guaranty Corporation ("PBGC"); (iv)
neither the Company nor any member of its Controlled Group is subject to any
liability to the PBGC for any plan termination; (v) no amendment has occurred
which requires the Company or any member of its Controlled Group to provide
security pursuant to Code Section 401(a)(29); and (vi) neither the Company nor
any member of its Controlled Group has engaged in a transaction which is
reasonably likely to subject it to liability under ERISA Section 4069, except,
in each case, where any such circumstance will not have a material adverse
effect on the business, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole. For the purposes of this Section
4.19, the term "Controlled Group" means all corporations, trades or businesses
which, together with the Company, are treated as a single employer under Section
414 of the Code.
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(f) No Benefit Plan is a multiemployer plan (within the meaning of Section
3(37) of ERISA) and neither the Company nor any member of its Controlled Group
is reasonably likely to incur any liability to any multiemployer plan nor is
engaged in a transaction which is reasonably expected to subject the Company to
any material liability under ERISA Section 4212(c).
4.20. Labor Matters. Except as set forth in Schedule 4.20, (a) neither
the Company nor any of its subsidiaries is party to an unexpired collective
bargaining agreement or other unexpired material contract or agreement with any
labor organization or other representative of employees nor is any such contract
being negotiated; (b) there is no material unfair labor practices charge or
complaint pending nor, to the knowledge of the executive officers of the
Company, threatened, with regard to employees of the Company or any of its
subsidiaries; (c) there is no labor strike, material organized slowdown,
material organized work stoppage or other material organized labor controversy
in effect or, to the knowledge of the executive officers of the Company,
threatened against the Company or any of its subsidiaries; (d) as of the date
hereof, to the knowledge of the executive officers of the Company, no
representation question exists and no campaigns are being conducted to solicit
cards from the employees of the Company or any subsidiary of the Company to
authorize representation by any labor organization; (e) neither the Company nor
any subsidiary of the Company is party to, or is otherwise bound by, any consent
decree with any governmental authority relating to employees or employment
practices of the Company or any subsidiary of the Company which is material to
the Company or its subsidiaries taken as a whole; and (f) the Company and each
subsidiary of the Company is in compliance with all applicable agreements,
contracts and policies relating to employment, employment practices, wages,
hours and terms and conditions of employment of the employees except where
failure to be in compliance with each such agreement, contract and policy is
not, individually or in the aggregate, reasonably likely to have a material
adverse effect on the financial condition, properties, business or results of
operations of the Company and its subsidiaries taken as a whole.
4.21. Certain Environmental Matters. To the knowledge of the executive
officers of the Company, (a) the reserves reflected in the Balance Sheet
relating to environmental matters were adequate under GAAP as of December 31,
1994, and neither the Company nor any of its subsidiaries has incurred any
material liability in respect of any environmental matter since that date, and
(b) the SEC Documents include all information relating to environmental matters
required to be included therein under the rules and regulations of the
Commission applicable thereto.
V. COVENANTS
5.1. Acquisition Proposals. Neither the Company nor any of its
subsidiaries may, directly or indirectly, and each will instruct and otherwise
use its reasonable best efforts to cause its affiliates that are controlled by
the Company, and the officers, directors, employees, agents or advisors or other
representatives or consultants of the Company not to, encourage, solicit,
initiate, engage or participate in discussions or negotiations with, or provide
information to, any Person (as hereafter defined) (other than Parent, Purchaser
or subsidiaries, affiliates or representatives of any of the foregoing) in
connection with any tender offer, exchange offer, merger, consolidation,
business combination, sale of substantial assets, sale of securities,
liquidation, dissolution or similar transaction involving the Company or any of
its subsidiaries or divisions, including, without limitation, Midgard Energy
Company. Notwithstanding the foregoing, the Company may do any of the foregoing
if outside counsel to the Company advises the Company's Board of Directors that
any such action is required for the Company's directors to satisfy their
fiduciary duties to the Company and its constituencies under applicable law. The
Company will (a) promptly notify Parent in the event of any discussion,
negotiation, proposal or offer of the type referred to in the first sentence of
this Section 5.1 or any decision to furnish information or take any other action
referred to in the second sentence of this Section 5.1 and (b) promptly furnish
Parent copies of all written information furnished to any Person pursuant to the
second sentence of this Section 5.1 to the extent not previously furnished to
Parent.
5.2. Interim Operations. During the period from the date of this
Agreement to the earlier of the time that the designees of Parent have been
elected to, and constitute a majority of, the Board of Directors of the Company
pursuant to Section 1.4 hereof or the Effective Time, except as specifically
contemplated by this
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Agreement, as set forth in Schedule 5.2 or as otherwise approved by Parent in a
writing which makes express reference to this Section 5.2:
5.2.1. Conduct of Business. The Company will, and will cause each of its
subsidiaries to, conduct their respective businesses only in, and not take any
action except in, the ordinary and usual course of business substantially
consistent with past practice. The Company will use reasonable efforts to
preserve intact the business organization of the Company and each of its
subsidiaries, to keep available the services of its and their present officers
and key employees and to preserve the goodwill of those having business
relationships with it or its subsidiaries.
5.2.2. Certificate and By-Laws. The Company will not and will not permit
any of its subsidiaries to make or propose any change or amendment to their
respective certificates of incorporation or by-laws (or comparable governing
instruments), except as may be required by law.
5.2.3. Capital Stock. The Company will not and will not permit any of its
subsidiaries to authorize for issuance, issue, sell or deliver any shares of
capital stock or any other securities of any of them (other than pursuant to the
Options, Options and Converts, the $4.00 Preferred Stock, the $9.75 Preferred
Stock or the 401(k) Plan or the issuance of shares issued under the terms of the
Director Plan in a manner consistent with any such plan or past practice) or
issue any securities convertible into or exchangeable for, or options, warrants
to purchase, scrip, rights to subscribe for, calls or commitments of any
character whatsoever relating to, or enter into any contract with respect to the
issuance of, any shares of capital stock or any other securities of any of them
(other than pursuant to the Options, Options and Converts, the $4.00 Preferred
Stock, the $9.75 Preferred Stock, the 401(k) Plan (or in connection with the
401(k) Plan or the Director Plan as aforesaid), purchase or otherwise acquire or
enter into any contract with respect to the purchase or voting of shares of
their capital stock, or adjust, split, combine or reclassify any of their
capital stock or other securities, or make any other changes in their capital
structures.
5.2.4. Dividends. The Company will not and will not permit any of its
subsidiaries to declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect to, or
purchase or redeem, any shares of the capital stock of any of them other than
(a) regular quarterly cash dividends on the $4.00 Preferred Stock, the $9.75
Preferred Stock and the $2.50 Preferred Stock, (b) dividends, distributions or
payments paid by its subsidiaries to the Company or its subsidiaries with
respect to their capital stock, (c) the Rights in accordance with the Rights
Agreement, and (d) loans and payments from the Company to any of its
subsidiaries or from any of such subsidiaries to the Company or another such
subsidiary.
5.2.5. Debt. Except as set forth in Schedule 5.2.5, the Company and its
subsidiaries will not, except in the ordinary course of business, (a) incur or
assume any indebtedness, (b) assume, guarantee, endorse or otherwise become
liable (whether directly, contingently or otherwise) for the obligation of any
other Person except in the ordinary course of business and consistent with past
practice, or (c) make any loans, advances or capital contributions to, or
investments (other than intercompany accounts and short-term investments
pursuant to customary cash management systems of the Company in the ordinary
course and consistent with past practices) in, any other Person other than such
of the foregoing as are made by the Company to or in a wholly owned subsidiary
of the Company.
5.3. Employee Plans, Compensation, Etc. (a) Except as provided in Section
2.6 hereof, this Section 5.3 or as set forth in Schedule 5.3 or required by
applicable law, prior to the Effective Time the Company will not and will not
permit any of its subsidiaries to adopt or amend any bonus, profit sharing,
compensation, severance, termination, stock option, pension, retirement,
deferred compensation, welfare benefit plan, change-in-control agreement,
restricted stock, performance unit, employment or other employee benefit
agreements, trusts, plans, funds or other arrangements for the benefit or
welfare of any director, officer or employee, or (except, other than with
respect to the Senior Executives, for normal increases in the ordinary course of
business that are consistent with past practices and that, in the aggregate, do
not result in a material increase in benefits or compensation expense to the
Company or pursuant to collective bargaining agreements or other contracts
presently in effect) increase in any manner the compensation or fringe benefits
of any director or officer or pay any benefit not required by any existing plan,
arrangement or contract (including
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without limitation the granting of stock options, stock appreciation rights,
shares of restricted stock or performance units) or take any action or grant any
benefit not expressly required under the terms of any existing contracts,
trusts, plans, funds or other such arrangements or enter into any contract to do
any of the foregoing.
(b) Subject to Purchaser's purchase of Common Stock pursuant to the Offer
and for a period of 12 months following the Effective Time, the Company or
Surviving Corporation, as the case may be, will continue without amendment or
change, except changes which increase compensation or benefits paid or payable
thereunder or as may be required by law, the Benefit Plans and other sponsored,
maintained or offered compensation and benefit policies, practices, programs and
arrangements which provide compensation or benefits to employees of the Company
or its subsidiaries. Anything in the preceding sentence to the contrary
notwithstanding, (i) to the extent any Benefit Plan, or such other compensation
or benefit policy, practice, program or arrangement other than any stock option,
restricted stock or other stock-based award plan or program ("Stock Plans") so
allows, the Surviving Corporation may replace any of such individual plans,
policies, practices, programs or arrangements with another plan, policy,
practice, program or arrangement providing, in the aggregate, not less than a
substantially equivalent level of compensation or benefits, as the case may be,
and (ii) the Company or the Surviving Corporation, as the case may be, may amend
or replace any Stock Plan of the Company with another plan, policy, practice,
program or arrangement that the Board of Directors of the Company or the
Surviving Corporation, as the case may be, determines in good faith provides
comparable incentive compensation opportunities.
(c) Except as may be expressly provided in a valid written waiver
voluntarily signed by an affected employee, the Company will honor and, on and
after the Effective Time, Parent will cause the Surviving Corporation to honor
in accordance with the terms thereof, without offset, deduction, counterclaim,
interruption or deferment (other than withholdings under applicable law), all
employment, change-in-control, severance, termination, consulting and unfunded
retirement or benefit agreements to which the Company or any of its subsidiaries
is presently a party ("Benefits Agreements"). All of the Benefits Agreements
which require the Company to make payments in excess of $250,000 from and after
the Effective Date are set forth in Schedule 5.3.
(d) Without limiting the obligations of Parent, Purchaser, the Company or
the Surviving Corporation contained herein, the parties will take the actions,
if any, with respect to employment, severance and other benefits as set forth in
Schedule 5.3.
(e) Parent will consult with the human resources department of the Company
regarding the appropriate treatment of the insurance, compensation and other
benefit plans of the Company after the Merger.
5.4. Access and Information. The Company will (and will cause each of its
subsidiaries to) afford to Parent and its representatives (including without
limitation directors, officers and employees of Parent and its affiliates, and
counsel, accountants and other professionals retained by Parent) such access,
during normal business hours throughout the period prior to the Effective Time,
to the Company's books, records (including without limitation tax returns and
work papers of the Company's independent auditors), properties, personnel and to
such other information as Parent reasonably requests and will permit Parent to
make such inspections as Parent may reasonably request and will cause the
officers of the Company and those of its subsidiaries to furnish Parent with
such financial and operating data and other information with respect to the
business, properties and personnel of the Company and its subsidiaries as Parent
may from time to time reasonably request, provided, however, that no
investigation pursuant to this Section 5.4 will affect or be deemed to modify
any of the representations or warranties made by the Company in this Agreement.
Subject to the requirements of law, Parent will hold in confidence, and will
instruct and use its reasonable best efforts to cause its representatives to
keep confidential, all such non-public information it may acquire in its
investigation pursuant to this Section 5.4, and if this Agreement is terminated,
Parent will, and will instruct and use its reasonable best efforts to cause its
representatives to, destroy or deliver to the Company all documents, work papers
and other material (including copies) obtained by Parent or such representatives
pursuant to this Section 5.4 and such of the foregoing as has been furnished by
the Company to Parent or Purchaser prior to the date hereof, whether so obtained
or furnished before or after the execution hereof.
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Nothing in this Section 5.4 will require the Company to afford Parent or its
representatives access to any information, documents or materials which are
privileged or which are confidential and as to which such disclosure would cause
the loss of privilege or breach the terms of a confidentiality agreement.
5.5. Certain Filings, Consents and Arrangements. Parent, Purchaser and the
Company will (a) promptly make their respective filings, and will thereafter use
their best efforts promptly to make any required submissions under the HSR Act
with respect to the Offer, the Merger and the other transactions contemplated by
this Agreement and (b) cooperate with one another (i) in promptly determining
whether any filings are required to be made or consents, approvals, permits or
authorizations are required to be obtained under any other federal, state or
foreign law or regulation and (ii) in promptly making any such filings,
furnishing information required in connection therewith and seeking timely to
obtain any such consents, approvals, permits or authorizations.
5.6. State Takeover Statutes. The Company will use its reasonable best
efforts to (a) exempt the Company, the Offer and the Merger from the
requirements of any state takeover law by action of the Company's Board of
Directors or otherwise and (b) assist in any challenge by Purchaser to the
validity or applicability to the Offer or the Merger of any state takeover law.
5.7. Proxy Statement. As soon as reasonably practicable after the date
hereof, the Company will, if required by applicable law in order to consummate
the Merger, prepare the Proxy Statement, file it with the Commission and mail it
to all holders of shares of Voting Stock. Parent, Purchaser and the Company will
cooperate with each other in the preparation of the Proxy Statement; without
limiting the generality of the foregoing, Parent and Purchaser will furnish to
the Company the information relating to Parent and Purchaser required by the
Exchange Act to be set forth in the Proxy Statement. The Company, acting through
its Board of Directors, subject to the fiduciary duties of the Company's Board
of Directors as advised by counsel, will include in the Proxy Statement the
recommendation of its Board of Directors that stockholders of the Company vote
in favor of the adoption of this Agreement and use its reasonable best efforts
to secure such adoption.
5.8. Indemnification and Insurance. For seven years after the Effective
Time, Parent will cause the Surviving Corporation to indemnify, defend and hold
harmless the present and former officers, directors, employees and agents of the
Company and its subsidiaries (an "Indemnified Party") against all losses,
claims, damages or liabilities arising out of actions or omissions occurring on,
prior to or after the Effective Time (whether or not based in whole or in part
on the sole or concurrent negligence of the Indemnified Party or on the theory
of strict products liability) to the full extent provided under Delaware law,
the Certificate and By-Laws of the Company in effect at the date hereof and
under all agreements to which the Company is a party as of the date hereof,
including without limitation provisions relating to advances of expenses
incurred in the defense of any action or suit (including without limitation
attorneys' fees of counsel selected by the Indemnified Party), provided that any
determination required to be made with respect to whether an Indemnified Party's
conduct complies with the standards set forth under Delaware law, the
Certificate or By-Laws of the Company or under any such contract will be made by
independent counsel selected by the Indemnified Party and reasonably
satisfactory to the Surviving Corporation. Nothing in this Agreement shall
diminish or impair the rights of any Indemnified Party under the Certificate or
By-Laws of the Company or any agreement to which the Company is a party at the
date hereof. The Surviving Corporation will maintain the Company's existing
officers' and directors' liability insurance ("D&O Insurance") in full force and
effect without reduction of coverage for a period of seven years after the
Effective Time, provided, however, that the Surviving Corporation will not be
required to pay an annual premium therefor in excess of 250% of the last annual
premium paid prior to the date hereof (the "Current Premium"), and, provided,
further, however, that if the existing D&O Insurance expires, is terminated or
cancelled during such seven-year period, the Surviving Corporation will use its
best efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium on an annualized basis not in excess of
250% of the Current Premium.
5.9. Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties will use its reasonable best efforts to take
promptly, or cause to be taken promptly, all actions and to do promptly, or
cause to be done promptly, all things necessary, proper or advisable under
applicable laws and
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regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its reasonable best efforts to obtain all
necessary actions or non-actions, extensions, waivers, consents and approvals
from all applicable Governmental Entities, effecting all necessary registrations
and filings (including without limitation filings under the HSR Act) and
obtaining any required contractual consents, subject, however, to any required
vote of the stockholders of the Company. If, at any time after the Effective
Time, the Surviving Corporation considers or is advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable 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,
properties or assets of either of the Constituent Corporations acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with the
Merger or otherwise to carry out the purposes of this Agreement, the officers
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such other actions and things as may be necessary or desirable to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in the Surviving Corporation or otherwise to
carry out the purposes of this Agreement.
5.10. Compliance with Antitrust Laws. Each of Parent and the Company will
use its reasonable best efforts to resolve such objections, if any, which may be
asserted with respect to the Offer or the Merger under the antitrust laws. In
the event a suit is instituted challenging the Offer or the Merger as violative
of the antitrust laws, each of Parent and the Company will use its best efforts
to resist or resolve such suit. Parent and the Company will use their reasonable
best efforts to take such action as may be required (a) by the Antitrust
Division of the Department of Justice or the Federal Trade Commission in order
to resolve such objections as either of them may have to the Offer or the Merger
under the antitrust laws or (b) by any federal or state court of the United
States, in any suit brought by a private party or Governmental Entity
challenging the Offer or the Merger as violative of the antitrust laws, in order
to avoid the entry of, or to effect the dissolution of, any injunction,
temporary restraining order or other order which has the effect of preventing
the consummation of the Offer or the Merger.
5.11. Publicity. The initial press release announcing this Agreement will
be a joint press release and thereafter the Company and Parent will consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and in making any filings
with any Governmental Entity or with any national securities exchange with
respect thereto, and will not issue any such press release or make any such
public statement prior to such consultation except as may be required by law or
by obligation pursuant to any listing agreement with any national securities
exchange or the National Association of Securities Dealers or any rules or
regulations of a foreign securities exchange upon which the securities are
traded.
5.12. Notice of Actions and Proceedings. The Company will promptly notify
Parent of any actions, suits, claims, investigations or proceedings commenced
or, to the knowledge of the executive officers of the Company, threatened in
writing against, relating to or involving or otherwise affecting the Company or
any of its subsidiaries which, if pending on the date hereof, would have been
required to have been disclosed in writing pursuant to any Schedule required
hereby or which relates to the consummation of the Offer or the Merger.
5.13. Notification of Certain Other Matters. The Company will promptly
notify Parent of:
(a) any written notice or other written communication from any third
party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement;
(b) any written notice or other written communication from any
Governmental Entity in connection with the transactions contemplated
hereby; and
(c) any fact, development or occurrence that constitutes a material
adverse effect on the business, financial condition or results of
operations of the Company and its subsidiaries taken as a whole or is
reasonably expected to result in such an effect.
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5.14. Listing of Preferred Stock. The Company will, and Parent will cause
the Surviving Corporation to, use their respective reasonable efforts to
continue the listing on the New York Stock Exchange of the shares of Preferred
Stock which are currently listed on such Exchange or, if such shares are
delisted, to cause such shares of Preferred Stock to be listed on another
national securities exchange within the United States or admitted to trading on
the National Association of Securities Dealers Automated Quotation System and on
other organized securities markets in such foreign jurisdictions in which such
shares are presently traded. Notwithstanding anything in this Agreement to the
contrary, the obligations of the Company and Parent under this Section 5.14 will
survive the Effective Time with respect to any series of Preferred Stock until
such time as the aggregate market value of all outstanding shares of such series
is less than $2 million or the number of outstanding shares of such series is
less than 100,000.
5.15. Certain Obligations of Parent. In the event that the Company is
unable to meet its obligations as they come due, whether at maturity or
otherwise, including solely for the purposes of this Section 5.15 dividend and
redemption payments with respect to the Preferred Stock, Parent will capitalize
the Company in an amount necessary to permit the Company to meet such
obligations, provided that Parent's aggregate obligation under this Section 5.15
shall be (a) limited to the amount of debt service obligations under "Tranche 1"
of the loan agreement contemplated by the Commitment and, to the extent "Tranche
1" is replaced by "Tranche 2 and/or Tranche 3" under the Commitment, the amount
of debt service obligations under such "Tranche 2 and/or Tranche 3," and (b)
reduced by the amount, if any, of capital contributions received by the Company
after the Effective Time and the net proceeds of any sale by the Company of
common stock or non-redeemable preferred stock after the Effective Time.
Notwithstanding anything in this Agreement to the contrary, the obligations of
Parent under this Section 5.15 will survive until the ninth anniversary of the
Effective Time.
VI. CONDITIONS
6.1. Conditions. The obligations of Parent, Purchaser and the Company to
consummate the Merger are subject to the satisfaction, at or before the
Effective Time, of each of the following conditions, as applicable thereto:
6.1.1. Stockholder Approval. The holders of the Voting Stock shall
have duly adopted this Agreement.
6.1.2. Purchase of Shares of Voting Stock. Purchaser shall have
accepted for payment shares of Common Stock pursuant to the Offer.
6.1.3. Injunctions; Illegality. The consummation of the Merger shall
not be precluded or materially restricted by any order, injunction, decree
or ruling of a court of competent jurisdiction or Governmental Entity (each
party agreeing to use its reasonable best efforts to rectify any such
occurrence), and there shall not have been any action taken or any statute,
rule or regulation enacted, promulgated or deemed applicable to the Merger
by any Governmental Entity which prevents or materially restricts the
consummation of the Merger or that would make the acquisition or holding by
Parent or its subsidiaries of the shares of Common Stock or shares of
common stock of the Surviving Corporation illegal.
6.1.4. HSR Act. Any applicable waiting period under the HSR Act shall
have expired or been terminated.
6.2. Parent Obligations. The obligations of Parent and Purchaser to
consummate the Merger are subject to the satisfaction at or prior to the
Effective Time of the additional conditions that (a) the Company in all material
respects shall have satisfied and complied with each of the covenants of the
Company contained herein, (b) the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date (except for
representations and warranties made as of a specified date, which shall be true
and correct in all material respects as of such specified date) and (c)
Purchaser and Parent shall have the right to draw down funds under the loan
agreement contemplated by the Commitment.
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VII. MISCELLANEOUS
7.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned (a) by the mutual consent of the Boards of
Directors of Parent, Purchaser and the Company; (b) by Parent and Purchaser, on
the one hand, or the Company, on the other hand, if the Offer expires or is
terminated or withdrawn in accordance with the terms hereof without any shares
of Common Stock being purchased thereunder or the Offer is terminated, or has
not been commenced in accordance with the terms hereof by the close of business
on March 7, 1995, or if Purchaser has not purchased shares of Common Stock
validly tendered and not withdrawn pursuant to the Offer in accordance with the
terms hereof within 75 calendar days after commencement of the Offer; provided,
however, that the party seeking to terminate this Agreement pursuant to this
Section 7.1(b) is not in material breach of this Agreement; (c) by the Company,
if Parent or Purchaser materially breaches any of the representations and
warranties or covenants contained in this Agreement, or by Parent and Purchaser
if the Company materially breaches any of the representations and warranties or
covenants contained in this Agreement; (d) by either Parent and Purchaser or the
Company, if the Merger is not consummated prior to June 30, 1995; provided,
however, that the right to terminate this Agreement under this Section 7.1(d)
will not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date; (e) by either Parent and
Purchaser, on the one hand, or the Company, on the other hand, if either one (or
any permitted assignee hereunder) is restrained, enjoined or otherwise precluded
by an order, decree, ruling or injunction (other than an order or injunction
issued on a temporary or preliminary basis) of a court, domestic or foreign, of
competent jurisdiction or other Governmental Entity from consummating the Merger
or making the acquisition or holding by Parent or its subsidiaries of the shares
of Common Stock or shares of common stock of the Surviving Corporation illegal
and all means of appeal and all appeals from such order decree, ruling,
injunction or other action have been finally exhausted; (f) by the Company if
the Board of Directors of the Company determines that it will not recommend
acceptance of the Offer and approval of the Merger by the Company's stockholders
(or if such recommendation is withdrawn) based upon the advice of outside
counsel that such action is necessary for the Board of Directors to comply with
its fiduciary duties to stockholders under applicable law; and (g) by Parent and
Purchaser, if (i) the Board of Directors of the Company shall not have
recommended or shall withdraw, modify or change its recommendation relating to
the Merger or the Offer in a manner materially adverse to Parent or shall have
resolved to do any of the foregoing; (ii) the Board of Directors of the Company
shall have recommended to the stockholders of the Company that they accept or
approve, or the Company or any of its subsidiaries shall have agreed to engage
in, a Competing Transaction; or (iii) any Person shall have acquired beneficial
ownership or the right to acquire beneficial ownership or any "group" (as such
term is defined under Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) shall have been formed which beneficially
owns, or has the right to acquire "beneficial ownership" (as defined in the
Rights Agreement) of, more than 20% of the then-outstanding shares of Common
Stock of the Company. For the purposes of this Agreement, "Competing
Transaction" means any of the following involving the Company or any of its
subsidiaries: (i) any merger, consolidation, share exchange, business
combination or other similar transaction except for such of the foregoing as to
which the only parties are the Company or one or more subsidiaries of the
Company; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of the assets of the Company or any of its subsidiaries constituting
5% or more of the consolidated assets of the Company or accounting for 5% or
more of the consolidated revenues of the Company in a single transaction or
series of related transactions involving any Person other than the Company or
one or more subsidiaries of the Company; or (iii) any tender or exchange offer
for 20% or more of the outstanding shares of Voting Stock or the filing of a
registration statement under the Securities Act in connection therewith. In the
event of any termination and abandonment pursuant to this Section 7.1, no party
hereto (or any of its directors or officers) will have any liability or further
obligation to any other party to this Agreement, except for obligations under
the last sentences of Sections 1.1 and 1.3, the second sentence of Section 5.4
and all of Section 7.10 hereof and except that nothing herein will relieve any
party from liability for any breach of this Agreement. Any action by the Company
to terminate this Agreement pursuant to this Section 7.1 will require only the
approval of a majority of the directors of the Company then in office who are
directors of the Company on the date hereof,
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or persons nominated or elected to succeed such directors by a majority of such
directors (the "Continuing Directors").
7.2. Non-Survival of Representations, Warranties and Agreements. The
representations and warranties or agreements in this Agreement will terminate at
the Effective Time or the earlier termination of this Agreement pursuant to
Section 7.1, as the case may be, provided, however, that if the Merger is
consummated, Sections 2.6, 5.3, 5.8, 5.9, 5.14 and 5.15 hereof will survive the
Effective Time to the extent contemplated by such Sections, and provided
further, however, that the last sentences of Sections 1.1 and 1.3, the second
sentence of Section 5.4 and all of Section 7.10 hereof will in all events
survive any termination of this Agreement.
7.3. Waiver and Amendment. Subject to applicable provisions of the DGCL,
any provision of this Agreement may be waived at any time by the party which is,
or whose stockholders are, entitled to the benefits thereof, and this Agreement
may be amended or supplemented at any time, provided that no amendment will be
made after any stockholder approval of the adoption of the Merger Agreement
which reduces the Merger Price without further approval of the holders of the
Voting Stock, provided further that any action by the Company to waive or amend
any provision of this Agreement will require the approval of a majority of the
Continuing Directors. No such waiver, amendment or supplement will be effective
unless in a writing which makes express reference to this Section 7.3 and is
signed by the party or parties sought to be bound thereby.
7.4. Entire Agreement. This Agreement contains the entire agreement among
Parent, Purchaser and the Company with respect to the Offer, the Merger and the
other transactions contemplated hereby and thereby, and supersedes all prior
agreements among the parties with respect to such matters other than, prior to
the Effective Time, the Confidentiality Agreement.
7.5. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect in the
principles of conflict of laws of that State.
7.6. Interpretation. For purposes of this Agreement, a "subsidiary" of a
corporation means any corporation or other legal entity (including without
limitation partnerships or limited liability companies) more than 50% of the
outstanding voting securities or similar rights of which are directly or
indirectly owned by such other corporation and "Person" means an individual or
legal entity. The descriptive headings contained herein are for convenience and
reference only and will not affect in any way the meaning or interpretation of
this Agreement.
7.7. Notices. All notices and other communications hereunder will be in
writing and will be given by delivery (and will be deemed to have been duly
given upon receipt) in person, by cable, facsimile transmission, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company to:
Maxus Energy Corporation
717 North Harwood Street
Dallas, Texas 75201
Attention: General Counsel
Telephone: 214/953-2000
Telecopy: 214/979-1986
With a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue, 22nd Floor
New York, New York 10022
Attention: Robert A. Profusek, Esq.
Telephone: 212/326-3800
Telecopy: 212/755-7306
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If to Parent or Purchaser to:
YPF Sociedad Anonima
Avenida Pte. Roque Saenz Pena 777
Buenos Aires 1364, Argentina
Attention: President
Telephone: 011-541-329-5705
Telecopy: 011-541-329-5704
With a copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: P. Dexter Peacock, Esq.
Telephone: 713/220-4354
Telecopy: 713/220-3690
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
7.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original but all of which
together will constitute but one agreement.
7.9. Parties in Interest; Assignment. Except for Sections 2.6 and 5.3
hereof (which are intended to be for the benefit of directors and Senior
Executives to the extent contemplated thereby and their beneficiaries, and may
be enforced by such persons) and Section 5.8 hereof (which is intended to be for
the benefit of directors, officers, agents and employees to the extent
contemplated thereby and their beneficiaries, and may be enforced by such
persons), this Agreement is not intended to nor will it confer upon any other
person (other than the parties hereto) any rights or remedies. Except as
otherwise expressly provided herein, this Agreement is binding upon and is
solely for the benefit of the parties hereto and their respective successors,
legal representatives and assigns. Purchaser will have the right (a) to assign
to Parent or any direct or indirect wholly owned subsidiary of Parent any and
all rights and obligations of Purchaser under this Agreement, including without
limitation the right to substitute in its place Parent or such a subsidiary as
one of the constituent corporations in the Merger (such subsidiary assuming all
of the obligations of Purchaser in connection with the Merger), provided that
any such assignment will not relieve Parent or Purchaser from any of its
obligations hereunder, and (b) to transfer to Parent or to any direct or
indirect wholly owned subsidiary of Parent the right to purchase shares of
Common Stock tendered pursuant to the Offer, provided that any such transfer
will not relieve Purchaser from any of its obligations hereunder.
7.10. Expenses; Termination Fee. Whether or not the Offer or Merger is
consummated, all costs and expenses incurred in connection with the Offer, this
Agreement and the transactions contemplated hereby will be paid by the party
incurring such costs and expenses, provided, however, that (a) in the event of a
termination of this Agreement by the Company pursuant to Section 7.1(f) or by
Parent and Purchaser pursuant to Section 7.1(g)(i) or (ii) hereof, the Company
will be obligated to promptly pay to Purchaser $20 million in cash, and (b) in
the event of a termination of this Agreement by the Company or by Parent if at
the date of such termination any condition to the funding of the loans
contemplated by the Commitment has not been satisfied, provided that at such
time no other condition to Parent's obligation to consummate the Offer or the
Merger, as the case may be, is unsatisfied (other than the failure to meet the
Minimum Share Condition as a result of the failure to obtain such funding),
Parent and Purchaser, jointly and severally, will be obligated to promptly pay
to the Company $20 million in cash.
7.11. Obligation of Parent. Whenever this Agreement requires Purchaser to
take any action, such requirement will be deemed to include an undertaking on
the part of Parent to cause Purchaser to take such action.
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7.12. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto will 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 of the United States having jurisdiction, this being
in addition to any other remedy to which they are entitled at law or in equity,
including without limitation under Section 7.10 hereof.
7.13. 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 terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
7.14. Consent to Jurisdiction and Service of Process. (a) Parent consents
to the non-exclusive jurisdiction of any court of the State of New York or any
United States federal court sitting in the Borough of Manhattan, New York City,
New York, United States, and any appellate court from any thereof, and waives
any immunity from the jurisdiction of such courts over any suit, action or
proceeding that may be brought in connection with this Agreement. Parent
irrevocably waives, to the fullest extent permitted by law, any objection to any
suit, action or proceeding that may be brought in connection with this Agreement
in such courts whether on the grounds of venue, residence or domicile or on the
ground that any such suit, action or proceeding has been brought in an
inconvenient forum. Parent agrees that final judgment in any such suit, action
or proceeding brought in such court shall be conclusive and binding upon Parent
and may be enforced in any court to the jurisdiction of which Parent is subject
by suit upon such judgment; provided that service of process is effected upon
Parent in the manner provided in this Agreement. Notwithstanding the foregoing,
any suit, action or proceeding brought in connection with this Agreement may be
instituted in any competent court in Argentina.
(b) Parent agrees that service of all writs, process and summonses in any
suit, action or proceeding brought in connection with this Agreement against
Parent in any court sitting in the Borough of Manhattan, New York City, New
York, United States may be made upon CT Corporation System at 1633 Broadway, New
York, New York 10019, whom Parent irrevocably appoints as its authorized agent
for service of process. Parent represents and warrants that CT Corporation
System has agreed to act as Parent's agent for service of process. Parent agrees
that such appointment shall be irrevocable so long as this Agreement shall
remain in effect or until the irrevocable appointment by Parent of a successor
in The City of New York as its authorized agent for such purpose and the
acceptance of such appointment by such successor. Parent further agrees to take
any and all action, including the filing of any and all documents and
instruments, that may be necessary to continue such appointment in full force
and effect as aforesaid. If CT Corporation System shall cease to be Parent's
agent for service of process, Parent shall appoint without delay another such
agent and provide prompt written notice to the Company, to the extent known to
it, of such appointment. With respect to any such action in any court of the
State of New York or any United States federal court in the Borough of
Manhattan, New York City, service of process upon CT Corporation System, as the
authorized agent of Parent for service of process, and written notice of such
service to Parent, shall be deemed, in every respect, effective service of
process upon Parent.
(c) Nothing in this Section 7.14 shall affect the right of any party to
serve legal process in any other manner permitted by law or affect the right of
any party to bring any action or proceeding against any other party or its
property in the courts of other jurisdictions.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
<TABLE>
<S> <C>
ATTEST: YPF SOCIEDAD ANONIMA
By By
- --------------------------------------------- ---------------------------------------------
YPF ACQUISITION CORP.
By By
- --------------------------------------------- ---------------------------------------------
MAXUS ENERGY CORPORATION
By By
- --------------------------------------------- ---------------------------------------------
</TABLE>
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EXHIBIT A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment, purchase or pay for any shares of Common Stock
tendered pursuant to the Offer (the "Shares"), and may postpone the acceptance
for payment, the purchase of, and/or payment for Shares, and/or may, subject to
the terms of the Agreement, amend or terminate the Offer if (i) the Minimum
Share Condition has not been satisfied, (ii) the Company shall not have taken
the steps necessary to redeem the Rights, (iii) the applicable waiting period
under the HSR Act shall not have expired or been terminated, (iv) the closing of
the loans in connection with the Offer shall not have occurred under the Loan
Agreement contemplated by the commitment letter, dated February 24, 1995,
addressed to Parent from The Chase Manhattan Bank (National Association), a copy
of which has heretofore been delivered to the Company, or (v) at any time at or
before payment for any Shares (whether or not any Shares have theretofore been
accepted for payment or paid for pursuant to the Offer), any of the following
events shall have occurred and be continuing:
(a) there shall be in effect any temporary restraining order,
preliminary or final injunction or other order or decree issued by any
United States federal or state court of competent jurisdiction or United
States federal or state governmental, regulatory or administrative agency
or authority, (1) enjoining, restraining or otherwise prohibiting the
Offer, the Merger or the acquisition by Parent or Purchaser of shares of
Common Stock; (2) prohibiting or materially limiting the ownership or
operation by Parent or Purchaser of all or any substantial portion of the
business or material assets of the Company and its subsidiaries, taken as a
whole, or, as a consequence of the Offer, Merger or Parent or Purchaser's
acquisition of shares of Common Stock, of Parent or any of its
subsidiaries, or compelling Parent or Purchaser to dispose of or to hold
separate all or any material portion of the business or material assets of
the Company and its subsidiaries, taken as a whole, or of Parent or any of
its subsidiaries, or imposing any material limitation on the ability of
Parent or Purchaser to conduct such business or own such assets, (3)
imposing material limitations on the ability of Parent or Purchaser (or any
other affiliate of Parent) to acquire or hold or to exercise full rights of
ownership of the shares of Common Stock, including without limitation the
right to vote the shares of Common Stock purchased by them on all matters
properly presented to the stockholders of the Company, or (4) requiring
material divestitures by Parent or Purchaser or any of their subsidiaries
or affiliates of any Shares, as a consequence of the Offer, Merger or
Parent or Purchaser's acquisition of shares of Common Stock; or
(b) there shall be any statute, rule, regulation or order promulgated,
enacted, entered or deemed applicable to the Offer or the Merger, or any
other action shall have been taken, by any Governmental Entity that is
reasonably likely to result in any of the consequences referred to in
clauses (1) through (4) of paragraph (a) above; or
(c) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, trading in securities on the New York
Stock Exchange or in the over-the-counter-market, (2) a declaration of a
banking moratorium or any limitation or suspension of payments by United
States authorities on the extension of credit by United States lending
institutions, (3) a commencement of war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States, or (4) in the case of any of the foregoing existing at the
time of the commencement of the Offer, a material acceleration or worsening
thereof; or
(d) it shall have been publicly disclosed or Purchaser shall have
learned that any Person shall have entered into a definitive agreement or
an agreement in principle with the Company with respect to a tender offer
or exchange offer for any shares of capital stock of the Company (including
without limitation the shares of Common Stock) or a merger, consolidation
or other business combination or any acquisition or disposition of a
material amount of assets or any comparable event with or involving the
Company (other than such of the foregoing as is permitted by the
Agreement); or
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(e) any of the representations and warranties of the Company in the
Agreement shall not have been, or shall cease to be, true and correct in
all material respects (whether because of circumstances or events occurring
in whole or in part prior to, on or after the date of the Agreement), or
the Company shall have not performed in all material respects the covenants
to be performed by it pursuant to the Agreement; or
(f) the Agreement shall have been terminated by the Company, on the
one hand, or Parent and Purchaser, on the other hand, in accordance with
its terms or Purchaser or Parent, on the one hand, and the Company, on the
other hand, shall have reached an agreement providing for the termination
of the Offer; or
(g) the Company's Board of Directors shall have failed to recommend
and approve, or shall no longer recommend and approve, the Offer or the
adoption of the Merger Agreement, or shall materially modify or amend its
recommendation and approval with respect thereto, or shall have resolved to
do any of the foregoing (except that the foregoing shall not apply to a
modification or amendment solely in the reasons for such recommendation and
approval so long as the Board of Directors of the Company continues to
recommend and approve acceptance of the Offer and adoption of the Merger
Agreement by holders of Voting Stock); or
(h) without limiting the generality or effect of Paragraph (e) of this
Section, except as disclosed to Parent pursuant to the Agreement, there
shall have been any material adverse change in the business, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole;
which, in the sole judgment of Purchaser, in any such case regardless of the
circumstances (including any action or inaction by Purchaser or any of its
affiliates other than a material breach by Purchaser or Parent of the Agreement)
giving rise to any such condition, makes it inadvisable to proceed with the
Offer or with such acceptance for payment or purchase of or payment for any of
the Shares.
The foregoing conditions (i) may be asserted by Purchaser regardless of the
circumstances (including any action or inaction by Purchaser or any of its
affiliates other than a breach by Purchaser or Parent of the Agreement) giving
rise to such condition and (ii) other than the Minimum Share Condition, are for
the sole benefit of Purchaser and its affiliates. The foregoing conditions,
other than the Minimum Share Condition, may be waived by Purchaser in whole or
in part at any time and from time to time in its sole discretion. The failure by
Purchaser at any time to exercise any of the foregoing rights will not be deemed
a waiver of any other rights and each such right will be deemed an ongoing right
which may be asserted at any time and from time to time.
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EXHIBIT B
LETTER, DATED FEBRUARY 28, 1995, FROM CS FIRST BOSTON
CORPORATION TO THE BOARD OF DIRECTORS OF THE COMPANY
February 28, 1995
The Board of Directors
Maxus Energy Corporation
717 North Harwood Street
Dallas, Texas 75201
Dear Sirs:
You have asked us to advise you with respect to the fairness to the holders
of shares of the Common Stock, par value $1.00 per share (the "Shares"), of
Maxus Energy Corporation ("Maxus" or the "Company") from a financial point of
view of the consideration to be received by such stockholders pursuant to the
terms of the Merger Agreement, dated as of February 28 (the "Merger Agreement"),
among the Company, YPF Sociedad Anonima ("YPF"), and YPF Acquisition Corp., a
wholly owned subsidiary of YPF ("Acquisition Corp."). The Merger Agreement
provides, among other things, for (i) a tender offer (the "Tender Offer") by
Acquisition Corp. for all of the outstanding Shares at $5.50 per Share net to
the seller in cash and (ii) a subsequent merger (the "Merger") of Acquisition
Corp. with and into the Company in which the Company will become a wholly owned
subsidiary of YPF and each remaining outstanding Share will be converted into
the right to receive $5.50 in cash.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, including financial
statements. We have also reviewed certain other information, including financial
forecasts and reserve information, provided to us by the Company and have met
with the Company's management to discuss the business prospects and strategic
and financial plans of the Company.
We have also considered certain financial and stock market data of the
Company, and we have compared that data with similar data for other publicly
held companies in businesses similar to those of the Company and we have
considered the financial terms of certain other business combinations and other
transactions which have recently been effected. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. You have instructed us
to assume that the strategic and financial plans of the management of the
Company will be implemented as scheduled. With respect to the financial
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the Company's
management as to the future financial performance of the Company. In addition,
we have not made an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company, nor have we been furnished
with any such evaluations or appraisals. Our opinion is necessarily based upon
financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof. We were not requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company,
except in regard to Midgard Energy Company, a wholly owned subsidiary of the
Company. A number of companies did, however, approach the Company with respect
to a possible acquisition of all or a substantial part of the Company, and at
your request we did engage in discussions with such interested parties.
We have acted as financial advisor to Maxus in connection with the Merger
and will receive a fee for our services, which is contingent upon the
consummation of the Merger.
In the past, we have performed certain investment banking services for both
Maxus and YPF and have received customary fees for such services. In addition,
an officer of CS First Boston is an alternate member of YPF's Board of
Directors.
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In the ordinary course of our business, CS First Boston and its affiliates
may actively trade the debt and equity securities of both the Company and YPF
for their own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
It is understood that this letter is for the information of Maxus' Board of
Directors only in connection with its consideration of the Merger, does not
constitute a recommendation to any stockholder as to whether or not such
stockholder should tender Shares pursuant to the Tender Offer or how such
stockholder should vote on the proposed Merger and is not to be quoted or
referred to, in whole or in part, in any registration statement, prospectus or
proxy statement, or in any other document used in connection with the offering
or sale of securities, nor shall this letter be used for any other purposes,
without CS First Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the stockholders of the Company
in the Tender Offer and the Merger is fair to such stockholders from a financial
point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
By:
William M. Wicker
Managing Director
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EXHIBIT C
SECTION 262 OF DELAWARE GENERAL CORPORATION LAW
(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, sec. 252, sec. 254, sec. 257, sec. 258, sec. 263
or sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of 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.
(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
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of all or substantially all of the assets of the corporation. If the certificate
of incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of 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 sec. 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 the 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 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
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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 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.
C-3
<PAGE> 84
EXHIBIT D
YPF 1994 Annual Report
ANNUAL REPORT 1994
ENGLISH VERSION
[PICTURE]
YPF
Computer Mechanical for Second release date:
release to printer
Tuesday, February 28, 1995
for client approval.
<PAGE> 85
YPF is an integrated oil company, with a dominant position in an
expanding economy. Over the next ten years, we confidently expect to
continue increasing our production of both oil and gas, and to improve our
refineries and better our marketing margins while continuing to cut costs. By
focusing on these objectives, we hope to provide long-term growth and
superior financial returns for our shareholders.
<TABLE>
<CAPTION>
Contents
<S> <C>
Financial Highlights 1
To Our Shareholders 2
How YPF Will Generate 6
Incremental Profits
(Management Answers Investors'
Questions)
Directors and Officers 33
How Sustainable is Argentina's 34
"Economic Miracle"?
Financial Section 45
Corporate Information 108
</TABLE>
[PICTURE]
***************************************************************************
* *
* Lift page to view YPF's and Argentina's largest refinery, La Plata, *
* located 37 miles south of Buenos Aires. La Plata is undergoing *
* efficiency improvements to enhance profitability. *
* *
***************************************************************************
<PAGE> 86
[PICTURE]
<PAGE> 87
[PICTURE]
<PAGE> 88
[PICTURE]
<PAGE> 89
YPF SOCIEDAD ANONIMA
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(in millions of pesos except per share data) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Revenues 4,192 4,190 4,094
- ------------------------------------------------------------------------------------------------------
Net Income Before TOTAL Contract Renegotiation 538 523 271
- ------------------------------------------------------------------------------------------------------
Total Net Income 538 747 271
- ------------------------------------------------------------------------------------------------------
Net Income Per Share 1.52 2.12 0.77
- ------------------------------------------------------------------------------------------------------
Dividends Per Share 2.01(1) 0.72 0.72
- ------------------------------------------------------------------------------------------------------
Shareholders' Equity 5,086 5,257 4,762
- ------------------------------------------------------------------------------------------------------
Fixed Assets Acquisitions and Exploration Expenses 1,325 1,333 811
- ------------------------------------------------------------------------------------------------------
Number of Common Shares Outstanding 353,000,000 353,000,000 -
- ------------------------------------------------------------------------------------------------------
</TABLE>
Ps. = Peso 1 Peso = 1 U.S. Dollar
(1) Includes Ps. 1.16 of one-time special dividend only for the government
shares.
[BAR CHART] [BAR CHART] [BAR CHART]
[BAR CHART] [BAR CHART] [BAR CHART]
1
<PAGE> 90
TO OUR SHAREHOLDERS
1994 has been an exciting first year for YPF as a public company.
We have achieved our basic objectives of increasing oil production by 19%, we
have added 179% more crude reserves than we produced in 1994 because of our
extensive exploration program, we have successfully negotiated higher priced
long-term contracts with the natural gas distribution companies, we have
improved our refining efficiency, extremely important for our downstream
(refining and marketing) operations, and we have changed the image of our
service station network throughout the country.
"SUSTAINING EARNINGS DESPITE FALLING WORLD
CRUDE PRICES IS A GRATIFYING ACHIEVEMENT
AND REFLECTS OUR SUCCESS IN CARRYING OUT
OUR STRATEGIES."
Achieving operational targets and making profits happen is a clear definition
of our commitment to our stockholders. 1994 net income was Ps. 538 million,
compared to Ps. 747 million in 1993. Excluding 1993's one-time gain of Ps. 224
million from the TOTAL contract renegotiation, 1994 earnings closely matched
last year's performance, despite a weaker market price for crude oil.
Sustaining earnings despite falling world crude oil prices is a gratifying
achievement and reflects our success in carrying out our strategies.
Our exploration activities, capitalizing on the choice acreage position we
retained at the time of YPF's privatization, allowed us to replace 120% of
our production in 1994. Our exploration expenditures for the year were Ps.
298 million, up from the Ps. 150 million spent in 1993. In subsequent years
we plan to increase the exploration expenditure in Argentina and in
neighboring countries to over Ps. 350 million per year.
During the year we signed exploration contracts in Chile, Bolivia and
Peru. In addition, we are expanding our marketing and commercial operations
into these countries. The privatization programs of the state controlled oil
and gas operations in Bolivia and Peru could provide YPF with an opportunity
to acquire unique assets of great importance in the Latin American energy
market that may never be available again.
In 1994 average crude oil deliveries rose to 350 thousand barrels per day
from 315 thousand barrels in 1993. This increase comes about mainly as a
result of increased drilling activity, improved reservoir productivity and
expanded transportation facilities. We increased the number of rigs drilling
in Argentina to 75 as of December 1994, from 51 in December 1993 and drilled
891 development and exploration wells compared to 472 in 1993.
Regional expansion in exploration and production started in 1994, when
contracts were signed in
2
<PAGE> 91
[PICTURE]
Jose A. Estenssoro
President and
Chief Executive Officer
Bolivia, Chile, Peru and the Gulf of Mexico (offshore Louisiana). These
exploration prospects cover 9 million acres. Exploration commitments start in
1995 and continue until 2002.
During the year, we continued to improve reservoir performance by increasing
the use of secondary recovery techniques throughout our fields. Our plan is to
continue optimizing reservoir performance in 1995 by further expanding
secondary recovery.
The use of enhanced production recovery methods throughout our oil fields
has provided a permanent improvement of reservoir performance. Severe
weather conditions in our winter months of June to August hampered our ability
to increase production as fast as we had planned, and we could not put
competitively priced drilling rigs in the Golfo San Jorge Basin as early as
we had planned. However, we reached delivery of 386 thousand barrels per day
in the month of December. We will further increase production in 1995.
"REGIONAL EXPANSION IN EXPLORATION AND
PRODUCTION STARTED IN 1994, WHEN
CONTRACTS WERE SIGNED IN BOLIVIA, CHILE,
PERU AND THE GULF OF MEXICO."
In February 1994 the Trans-Andean pipeline came on stream.
3
<PAGE> 92
TO OUR SHAREHOLDERS
CONTINUED
The inauguration ceremony was attended by Presidents Carlos Menem of
Argentina and Patricio Aylwin of Chile. The pipeline crosses over the Andes
to the Pacific and opened new markets for us. Today Argentina is the largest
supplier of crude oil to neighboring Chile. This is a major achievement for
the company, which holds a 57.75% equity interest in the pipeline.
"IN FEBRUARY 1994 THE TRANS-ANDEAN PIPE-
LINE CAME ON STREAM...TODAY ARGENTINA IS
THE LARGEST SUPPLIER OF CRUDE OIL TO
NEIGHBORING CHILE."
Prices for natural gas in Argentina were deregulated effective May 1994, and
we negotiated five-year contracts with seasonal pricing variations with most
of the distribution companies. Increased demand for clean fuels from
industrial, residential and power generating markets continue to hold large
potential for future sales prospects.
During the year we also signed a three-year agreement with Chevron
Corporation to provide technical assistance to our La Plata refinery. The
objectives are to lower our operating costs to the most efficient
international levels and to train our management to have the highest skills
required for such efficiency.
With the completion in 1994 of the revamping of our "platforming" facilities
in the Lujan de Cuyo refinery and the modernization of the largest catalytic
cracking unit in La Plata, in 1995 we will be the first company in the
country to produce only unleaded gasoline.
We believe, in the near future, federal environmental legislation in
Argentina will require oil companies to cease production and sale of leaded
gasoline, and in 1995 we will already be there.
Capital investment to improve the quality of our refined products will be
on stream in 1995, making them the highest quality products available in
the market.
Continuing our service stations' modernization program during 1994, a further
583 stations were renovated, bringing to 1,319 the total number of stations
completed since the program started.
In May 1994, in suburban Buenos Aires, the first prototype design of our "new
image" service
[PICTURE]
Nells Leon
Executive Vice President and
Chief Operating Officer
4
<PAGE> 93
station was inaugurated. Designed by the French firm SOPHA, it was
distinguished in 1994 with the Grand French Global Design Award. Over the next
several years, YPF plans to build and operate at least 300 of these new
stations as company-owned outlets. They are full service stations complete
with AM/PM fast-food stores franchised by ARCO (USA), which should provide
higher returns from increased fuels throughput, and additional profits from
non-conventional sales. They will be essential in helping us maintain a
uniform retail pricing structure across our network.
During the year, as part of our long-term strategy, we continued our
expansion in the petrochemical business by acquiring a 50% interest in
Petroken, a manufacturer of polypropylene. YPF is also the principal
supplier of refinery grade propylene for this facility.
To broaden the professional background and technical expertise of our
personnel, we have signed agreements with Harvard University, the
Massachusetts Institute of Technology and the University of Texas at Austin
for advanced management training. We presently have in the United States 20
managers, engineers and technicians taking specialization courses in their
fields of endeavor. The program is expected to continue for the next few years.
Throughout the year, our employees' commitment made a superb contribution in
meeting our company objectives.
Despite our progress, much remains to be done. We are still targeting further
improvements in refining efficiency and retail margins and increases in crude
oil and natural gas production.
"OUR STRONG BALANCE SHEET AND KNOWLEDGE
OF THE REGION PUTS US IN A UNIQUE
POSITION TO CAPITALIZE ON THE GROWING
OPPORTUNITIES IN LATIN AMERICA."
Our strong balance sheet and knowledge of the region puts us in a unique
position to capitalize on the growing opportunities in Latin America and the
world. We believe that achieving operational excellence, growing locally and
regionally, as well as looking for opportunities worldwide, will enable YPF to
meet the challenge of the international markets.
/s/ JOSE A. ESTENSSORO
Jose A. Estenssoro
President and Chief Executive Officer
/s/ NELLS LEON
Nells Leon
Executive Vice President and Chief Operating Officer
5
<PAGE> 94
HOW YPF WILL GENERATE INCREMENTAL PROFITS
MANAGEMENT ANSWERS INVESTORS' QUESTIONS
YPF management believes that one of its duties is to provide shareholders and
potential shareholders with candid answers to their questions about the
company. To answer the questions that investors ask most frequently, the
questions were put to several of YPF's corporate executives and some of their
senior associates. Top executives in our picture: President and CEO Jose A.
Estenssoro; Executive Vice President and COO Nells Leon; Vice President Finance
and Corporate Development Cedric Bridger; Vice President
Juan A. Rodriguez, Carlos A. Olivieri,
Vice President, Vice President
Engineering and and Controller
Technology
[PICTURE]
Eduardo Petazze, Cedric D. Bridger, Marcelo Guiscardo,
Vice President, Vice President, Finance Vice President,
Refining and Marketing and Corporate Development Exploration and Production
Missing from picture:
Juan J. Garacija,
Vice President,
Purchasing, Contracts and
Environmental Protection
Raul Oreste,
Vice President,
Human Resources
6
<PAGE> 95
Exploration and Production Marcelo Guiscardo; Vice President Refining and
Marketing Eduardo Petazze; Vice President and Controller Carlos Olivieri; Vice
President Engineering and Technology Juan A. Rodriguez; Vice President
Institutional Relations Martin Paez Allende, and Vice President Legal Affairs
Noberto Noblia.
Martin Paez Allende, Vice President, Noberto Noblia,
Institutional Relations Vice President, Legal Affairs
[PICTURE]
Jose A. Estenssoro, President Nells Leon, Executive Vice President
and Chief Executive Officer and Chief Operating Officer
Foremost on the minds of investors, J. A. Estenssoro observes, is an
underlying question about the company's prospects for growth. "More
specifically: whether we are on target with our production plans; whether we
are adequately replacing our reserves; what we are doing to improve refining
and marketing; and finally, how we are continuing to cut costs."
7
<PAGE> 96
In this section of the report, we examine each of these topics in overall
terms, and then focus on prospects in specific areas and business units:
- - We believe growth will be substantial. To take just one example: this year,
deliveries grew to an average of some 350 thousand barrels per day; we
confidently expect to increase production substantially in 1995.
- - We have aggressive plans to replace our reserves. In 1994 our replacement
factor for these properties was over 120% of oil production. We will find
and develop production in our low and medium risk areas, and undertake very
aggressive exploration in those where the risk is higher. At the same time,
we are employing new techniques to improve our secondary recovery.
- - We also have intensive plans to improve -- still further -- downstream: we
made profits of Ps. 145 million downstream in 1993, and Ps. 279 million in
1994.
- - As Mr. Leon says, cost reduction for YPF is not just a matter of targeting
certain areas on a one-time basis, but a permanent objective in all areas
and all activities. For instance, although we completed our major personnel
reductions by 1992, we lowered staff costs by approximately Ps. 100 million
the following year, and by a further Ps. 50 million in 1994. As explained
in the separate sections that follow, YPF's costs already compare favorably
with those of other major international oil companies. "But continuing
reduction is a permanent goal for all of us at YPF," he sums up, "and if
anyone ever thinks we've reached that goal, they're wrong."
***************************************************************************
* *
* Production is increasing at the mature oil field, Los Cavaos in *
* Mendoza, through the use of new production techniques, such as *
* horizontal drilling. *
* *
***************************************************************************
[BAR CHART]
[PICTURE]
8
<PAGE> 97
EXPLORATION AND PRODUCTION
[BAR CHART]
As noted, YPF delivered 350,000 barrels of crude oil per day in 1994 --
11% more than in 1993. At January 1, 1995, YPF's proven reserves of crude
oil were 1,045 million barrels -- an increase of 10% over the equivalent
figure for the remaining properties held at January 1, 1994. Upstream sales
amounted to Ps. 2,472 million in 1994, a decrease of 5% from 1993: the
increase in production was offset by a decrease in the world price of oil.
Operating income decreased to Ps. 566 million down 24% -- due mainly to the
reduction in oil prices and to higher exploration expenses, which were to
some extent offset by the increases in production and to decreases in
costs.
Where and how will YPF increase production?
To achieve its planned oil reserve and production increases in 1995 and
beyond, Exploration and Production Vice President Marcelo Guiscardo says
YPF will use a broad variety of main methods: "we will employ many more
rigs; we will explore aggressively in new areas, including offshore; we
will improve recovery from existing reservoirs; we will intensify use of
new technology; we will move forward vigorously in joint ventures with
partner companies; and we will develop an intensive exploration program
abroad."
Answering specific investor questions on each of these topics, YPF
executives provided the following details:
- - With nearly 80 rigs active in 1995, says Guiscardo, YPF will be drilling
more than 1,400 new wells: 199 exploration wells, 1,134 production wells,
and nearly 100 service wells.
- - At the most recent lease sale, YPF won 7 of the 9 new areas that were
offered. Offshore, we've drilled one well in a virgin basin, and found
enough hydrocarbon traces to justify putting money down for a second well
in the same area. There are 20 basins in Argentina, covering more than 450
million acres, that can be considered potentially productive, Guiscardo
adds, and only 5 of them have been actively explored. "One of these, the
Chacoparanaense, he observes, has had only 32 wildcat wells drilled -- and
it's the size of France." YPF presently holds exploration permits covering
50 million acres, and production concessions for 5 million acres.
"WE ARE INCREASING PRODUCTION BY
ADDITIONAL DRILLING, EXPLORING IN NEW
AREAS, IMPROVING HYDROCARBON RECOVERY
AND USING NEW TECHNOLOGY." MARCELO GUISCARDO
9
<PAGE> 98
[PICTURE]
10
<PAGE> 99
[PICTURE]
***************************************************************************
* *
* Pumping unit, and oil and gas processing plant in Mendoza. *
* *
***************************************************************************
***************************************************************************
* *
* Next page: *
* *
* Aggressively exploring for oil and gas, a tractor-like seismic *
* vibrator vehicle travels across frontier acreage in Mendoza. Sound *
* waves sent down by the vehicle are reflected back by formations below *
* the earth's surface and are measured by instruments. By interpreting *
* these measurements, geophysicists can locate formations likely to *
* contain hydrocarbons. *
* *
***************************************************************************
- - YPF will also expand internationally. As part of its strategic plan, the
company has signed exploration agreements in Bolivia, Peru, Chile, and the
Gulf of Mexico. To give an idea of the scale on which these efforts are
planned, says Guiscardo, "they will involve investments on the order of 15%
of our entire exploration budget for the years 1995-1999."
- - A major effort in joint ventures. For instance, offshore in the Magallanes
region, in conjunction with our partner, Sipetrol S.A. of Chile, we aim to
increase output in the area of the Straits; we only started production
there in 1994, but were up to 13,000 barrels a day by year-end.
- - Apart from the increase in production that will come from increasing
exploration and development, Guiscardo continues, YPF's big opportunity is
in better management of existing reservoirs. The average recovery from the
world's reservoirs is 30% of the oil that's actually in them, he says, "and
YPF's is less than that, so we can gain a lot both by increasing secondary
and tertiary recovery, and by taking a fresh look at the possibilities of
going deeper in existing fields." We will also employ state-of-the-art
technology -- intensifying our use of techniques such as... 3D seismic,
both in exploration and development; horizontal and slim hole wells;
interactive interpretation; and other advanced processes.
What about costs? investors are asking -- and what kind of exploration
success ratio can YPF reasonably expect, with what kind of risk?
- - Between exploration, development, and production per se, Estenssoro
reports, "we will invest close to Ps. 1.5 billion in 1995."
- - As far as finding costs are concerned, Leon says YPF's are the lowest in
the industry: "less than $1.50 per barrel -- whereas, according to the Oil
and Gas Journal, the finding cost of the next lowest company is $3.50 per
barrel of oil equivalent, and that of the world's biggest companies is over
$4.00." YPF's development costs, Leon continues, are in the
"AS FAR AS FINDING COSTS ARE
CONCERNED, YPF'S ARE THE LOWEST IN THE
INDUSTRY." NELLS LEON
***************************************************************************
* *
* Production manifolds at the head of the TransAndean oil pipeline. The *
* 106,000 barrels/day pipeline linking Puesto Hernandez, Argentina to *
* Concepcion, Chile, was completed, by YPF and partners, on schedule *
* and within budget as a cost of US$ 215 million. *
* *
***************************************************************************
11
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[PICTURE]
12
<PAGE> 101
[PICTURE]
13
<PAGE> 102
[PICTURE]
14
<PAGE> 103
area of $3.50 per barrel: "slightly higher than last year, because of the
characteristics of our new fields -- but still below international
standards."
As for lifting costs, Leon notes that those of YPF have been coming down
continuously. They were $6.78 per barrel in 1990, he points out, $4.75 in
1991, $4.18 in 1992, and $3.68 in 1993: "we were estimating $3.30 for
1994," he recalls, "but they actually came in at $3.00 -- and we're aiming
for less than $3.00 in '95."
- - To the question of prospects, Mateo Turic, Division Manager of Exploration,
says fields in Argentina are slightly better than those being found these
days in the US and Canada: "not a whole lot better, but slightly better --
we don't have a Groningen or a Prudhoe Bay, anyway not at present."
However, he adds, YPF does have some uncommonly exciting possibilities:
"for instance, Argentina has large areas with structures similar to those
off Brazil -- and the exciting aspect of this is that there was no
production offshore Brazil twenty years ago, and that the producers there
are now among the world leaders in terms of completing wells and producing
at water depths of 3,000 feet and below."
- - On the topic of risks, Leon says YPF classifies its prospects as low,
medium, and high. "Where we're drilling in known fields, we classify our
prospects as either low or medium risk. Where we're drilling in new fields,
we classify them as high risk." At the moment, he concludes, YPF classifies
roughly 25% of its drilling as high risk, and roughly 75% as either low or
medium risk.
"Oil exploration is a business of risk," says Estenssoro. "But to sum up so
far," he continues, "increasing production and profits upstream is really
very simple and straightforward: all you have to do is find oil and produce
it efficiently; the more you produce, the more you raise profits."
***************************************************************************
* *
* At the Barrancas oil field, a worker prepares to start drilling at *
* one of the 75 drilling rigs employed by YPF in December 1994. To *
* expand production, YPF increased the average number of rigs drilling *
* to 60 in 1994 from 28 in 1993. *
* *
***************************************************************************
ENVIRONMENTAL CARE:
WHAT IS THE "PAYOUT"--FROM THE INVESTOR'S VIEWPOINT?
YPF pays particular attention to workplace safety and environmental care.
Improvements in these areas are among 1994 key achievements.
For example, YPF is reducing natural gas emissions, eliminating refinery
hydrocarbon effluents, and phasing out leaded gasoline.
Compared with leading international companies listed on the New York Stock
Exchange, YPF is among the four best companies in terms of exploration and
production lost-time accidents per million man-hours, and the best in terms
of number of accidents per million man-hours. In terms of hours lost due to
incidents and accidents, YPF refineries are now lower than international
oil company averages.
However, while the figures are impressive, what is more important is the
change in YPF's attitudes on environmental care. Not only is YPF striving
to reduce accidents and environmental damage, but to avoid them. For
instance, YPF's new safety manual, which is required reading for all
exploration and production employees, outlines work procedures and a new
safety philosophy. And the way YPF reinjects water used in the production
process not only eliminates dirty water emissions into rivers, but it also
increases the production from the reservoirs.
While processes such as this do contribute to YPF's profitability, it is
impossible to quantify all the benefits that accrue from safety and
environmental care. Two thought-provoking facts: one is that in the oil
industry the all-in cost of work related injuries varies between $10,000
and $25,000 per day in lost time per accident; the other is that
environmental damages in the past ten years have caused more than one large
oil company to shoulder major financial burdens. Improvement in these areas
matters because it's not only a social goal, it's also a financial goal.
15
<PAGE> 104
[BAR CHART]
NATURAL GAS: UPTRENDS IN PRICES AND PRODUCTION PROSPECTS
YPF is the major producer of natural gas in Argentina, and it enjoys a
strong position in the country's natural gas market -- a market which has
been growing at better than 5% a year. Additionally, prospects for natural
gas exports, by pipeline to neighboring countries, are in YPF management's
opinion "extremely promising."
When investors ask about the natural gas sector, YPF management has found,
they concentrate on just two questions: what are trends in prices? and what
are export prospects?
In both cases, says Oscar Mussini, Manager of YPF's Natural Gas Division,
the answers are "extremely promising."
- - In the price area, he reports, "we were getting a weighted average of $1.09
per million BTU in 1994, and we have contracts providing for higher prices
in 1995, and higher still in '96."
Behind these expected increases, Mussini explains, are two major factors.
First, the alternative to natural gas in Argentina is high-quality fuel
oil, which has recently been selling at a higher price. In the second
place, he continues, the wellhead price of gas in Argentina is lower than
in the US and Canada, and significantly lower than in Europe -- so even
with the expected increases, it is still an extremely economical fuel
source: given the facts that only 53% of homes in Argentina are connected
for gas, and that the remainder are paying much higher prices for their
fuels, YPF's prospects for increasing domestic sales are highly
encouraging.
"YPF'S LOW PRODUCTION COST MAKES OUR
NATURAL GAS AN ECONOMICALLY ATTRACTIVE
PROPOSITION TO NEARBY COUNTRIES." OSCAR MUSSINI
- - For exports, too, YPF's low production cost makes its natural gas an
economically attractive proposition to nearby countries. "We believe a gas
pipeline to Chile should be completed and operative in 1998," says
Estenssoro; two projects are under consideration, but YPF will be the major
gas supplier, whichever prevails. And a YPF export prospect that is even
more exciting, but for which, Estenssoro points out, the gas reserves have
not yet been proven and no contracts have yet been signed, is the huge
market in Brazil: the state of Sao Paulo
***************************************************************************
* *
* A natural gas dehydration station at Loma de La Lata gas field, *
* Neuquen, in removes water vapor from gas thus preventing operating *
* problems and allowing natural gas to meet pipeline/contract *
* specifications. *
* *
***************************************************************************
16
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[PICTURE]
17
<PAGE> 106
[PICTURE]
18
<PAGE> 107
[PICTURE]
***************************************************************************
* *
* The low temperature separation plant at Loma de La Lata gas field *
* removes natural gas liquids. Because natural gas liquids have greater *
* market values as liquid fuel or refinery feedstocks, they are *
* frequently separated and sold for higher value prices. *
* *
***************************************************************************
alone has an energy consumption almost equal to that of the whole of
Argentina.
Because of Argentina's exceptional potential for additional gas production
the Company believes that it will be feasible for YPF and other natural gas
producers to meet the demands of these new markets. For instance, says
Mussini, we believe the "Noroeste" (Northwest) basin, near the Bolivian
border, may well be very productive; "these are beautiful structures," he
enthuses, "you can even see them from a plane!" At the moment, adds
Estenssoro, this particular basin has proven gas reserves of around 4
trillion cubic feet: "if we and our partners can establish reserves there
of around 12 or 13 trillion cubic feet, we would be able to sell over 1
billion cubic feet a day to Sao Paulo for 25 years." This would make a
pipeline viable.
In the meanwhile, Mussini concludes, YPF's natural gas division is also
actively pursuing ways to cut costs. For example, "in summer, domestic
demand and transport expense are low, so we are analyzing the feasibility
of underground storage facilities near Argentina's main centers of
consumption -- which would allow us to bring gas in when costs are at their
lowest, and to sell when prices are firmer."
***************************************************************************
* *
* A worker prepares rig for gas drilling at YPF's largest gas field, *
* Loma de La Lata. Underground gas storage facilities are being studied *
* which would allow more gas to be produced during summer months, *
* stored, and sold during peak demand winter months at higher prices. *
* *
***************************************************************************
19
<PAGE> 108
[PICTURE]
20
<PAGE> 109
[PICTURE]
21
<PAGE> 110
REFINING AND MARKETING
(DOWNSTREAM): RAISING MARGINS,
AS WELL AS THROUGHPUT AND SALES
[BAR CHART]
With three wholly-owned refineries and 2,740 branded retail outlets in
Argentina, YPF's refining and marketing segment sold 275,000 barrels per
day of petroleum product, totaling revenues of approximately 2.75 billion,
and when added to crude oil sales to third Parties, obtained revenues of
close to Ps. 3.5 billion. Some 67% of these revenues were obtained
domestically, with the remainder coming from exports to Chile and Brazil
and other neighboring countries, and to world markets. 1994 operating
income increased to Ps. 279 million, up 92% from 1993 -- due to lower crude
oil costs and increased operating efficiencies.
With 1994 profits from refining and marketing almost doubling those of
1993, Refining and Marketing Vice President Eduardo Petazze says YPF in
1995 plans to cut costs and raise sales and margins in two principal ways:
- - At refineries, "a vigorous program to reduce expenses, and losses of both
energy and product."
- - In marketing, "by improving the level of YPF service, and the distribution
and quality of our products."
As one example of the ways in which the company is improving refinery
performance, YPF executives point to the technical assistance it is
obtaining from Chevron at its largest refinery, in La Plata: the program,
says Petazze, "will increase the efficiency and flexibility of the
refinery." We are doing a number of other things at our refineries to
improve their operation. Among our activities are programs to reduce
hydrocarbon losses and power consumption. In addition, we are instituting
new preventive maintenance programs, along with consolidating our control
rooms, optimizing control by computers and replacing analog instruments by
distributed digital.
To improve the product slate, during 1995, we will be producing both 100%
unleaded and higher octane gasoline. On the marketing side, he reports,
"our studies show that Argentine motorists attach great importance to
factors such as service, quality and the image and location of service
stations."
It is on these latter factors, therefore, that YPF is concentrating. For
example, says Strategic Planning Manager Anibal Sar, "we
[PICTURE]
22
<PAGE> 111
have remodeled or otherwise upgraded the appearance of 1,319 of our 2,740
stations, and we are building a large number of new ones -- 300, as a first
step!" Indeed many of these stations will have convenience stores and, in
1994, we signed an agreement to allow us to franchise the AM/PM convenience
stores throughout Argentina.
In addition, Sar says, YPF is doing some building to improve its share of
the profitable lubricants market: by the end of 1995, the company will have
constructed 30-35 oil change centers.
"WE HAVE REMODELED OR UPGRADED THE
APPEARANCE OF 1,319 OF OUR 2,740 STATIONS
...AND SIGNED AN AGREEMENT TO FRANCHISE
THE AM/PM CONVENIENCE STORES." ANIBAL SAR
On the product side, in a marketing first in Argentina, YPF recently
introduced different colors for its different grades of gasoline, thus
eliminating the possibility
***************************************************************************
* *
* High quality customer service is one of the hallmarks of YPF's new *
* retail service station image. *
* *
***************************************************************************
[PICTURE]
23
<PAGE> 112
[BAR CHART]
of adulteration. "We're enabling motorists to be sure that with YPF they
are getting the quality they pay for," says Petazze.
Where else can YPF sell more product at a good profit?
One of management's basic aims is to increase vertical integration,
Estenssoro observes. To do so, YPF is moving in three directions:
- - First, the CEO says, "we're getting more and more involved in
petrochemicals." In June, YPF acquired a 50% interest in Petroken S.A. -- a
polypropylene manufacturer with a production capacity of 100,000 tons per
year. "This industry promises rapid growth in Argentina," Estenssoro
continues: for instance, he notes, the use of plastics generally grows in
correlation with growth in per capita GDP; "we're expecting the country's
per capita GDP very nearly to double during the current decade, so the
consumption of plastics -- and of other petrochemical products -- should
also double."
- - The second area in which YPF is increasing vertical integration is in LPG.
"We have 70% of the wholesale market," Petazze says, "and with our purchase
of the AGIP distribution organization in Argentina we have 10% of the
retail market."
- - In the third place, YPF executives continue, the company will be increasing
vertical integration by making very significant increases in sales, and/or
profits on sales, outside Argentina. Leon notes that "when the new oil
pipeline opened to Chile, we started by pumping 40,000 barrels of crude a
day -- and we're now up to 65,000 barrels a day."
Shipped exports have also been rising rapidly, reports Enrique Perlbach,
Division Manager of Refining and Transportation -- and this year they
should prove more profitable as well. In 1994, he notes, they totaled Ps.
1.157 billion, which was up 36% from 1993 -- "but they consisted mostly of
crude, which of course we sold at world prices, and of component gasoline,
which was not particularly profitable"; by contrast, Perlbach concludes,
"this year we intend also to export a regular unleaded -- which should give
us a higher return."
"PRODUCING UNLEADED AND HIGH OCTANE
GASOLINES ALLOWS US TO CAPTURE HIGHER
MARGINS ON EXPORT SALES." ENRIQUE PERLBACH
Also auguring well for higher downstream returns, YPF believes, are the
prospects for growth, and for cost reductions, in the domestic market:
24
<PAGE> 113
- - The number of cars on the road in Argentina should increase even faster
than per capita GDP, company executives expect. As Perlbach observes, "our
domestic auto market is a long way from satisfaction, let alone saturation
-- where in Western Europe you have one car for every four people, in
Argentina we have one car for every seven people."
- - On the cost side, says Finance Vice President Cedric Bridger, one marketing
area that is promising in terms of savings is in our distribution plants.
"There is significant room for improvements in distribution plants which
have not yet reached the level of automation desired."
In the retail area, aren't there nonetheless risks?
YPF management is well aware of the potential dangers in the oil markets.
"If we raise prices unjustifiably -- or, obviously, if world prices come
down considerably and we do not reduce our own prices -- additional
competition will come in and eat into our market share," says Leon. That's
the way the market works, he continues "and that's one of the reasons why
we have to keep cutting costs -- to compete."
On the whole, though, says Petazze, "the barriers to entry into Argentina
are high." New competitors would need a very substantial investment to make
significant inroads, he maintains, so "while we might see more competition
in certain products such as lubes, and while Shell and Esso have been
strong in Argentina for a long time, it's difficult to envision new broad-
scale competition breaking in."
"WE HAVE A VIGOROUS REFINERY PROGRAM
TO REDUCE EXPENSES, REDUCE ENERGY AND
PRODUCT LOSSES AND IMPROVE THE FLEXIBILITY
OF OUR LARGEST REFINERY." EDUARDO PETAZZE
***************************************************************************
* *
* Laboratory analyst tests product quality at La Plata refinery. *
* *
***************************************************************************
[PICTURE]
25
<PAGE> 114
[PICTURE]
26
<PAGE> 115
CAN CAPITAL EXPENDITURES BE COMFORTABLY SUSTAINED? [Bar Chart]
An integral part of YPF's transformation, from an old-fashioned
state-owned and subsidized utility with a huge labor force into a lean
ultra-modern profit-driven corporation, has been a very considerable
expenditure of capital.
In the last three years, YPF has invested well over Ps. 3 billion in oil
and gas wells, plant, equipment, and modernization of existing facilities
-- and management confidently expects that such investment will continue.
In 1995, in fact, between exploration, production, refinery and plant
modification, and construction of new service stations, YPF will make
capital expenditures of the order of Ps. 1.8 billion -- and this brings up
a question which some security analysts are asking: how confident is the
company that it can finance all the capital expenditures it needs to meet
its very aggressive growth objectives?
Estenssoro responds to this question stating that YPF's 1994 cash flow,
from operating activities, was close to Ps. 1.4 billion."
Finance Vice President Bridger seconds this statement with details. "Even
for 1995," he reports, "when our 'cap ex' peaks, we will generate
internally a substantial part of the total we need." And as far as the
rest, he says, "it is still uncertain the impact of the Mexican peso crisis
on the ability of Latin American companies to borrow money in international
markets, but eventually our fundamental financial strength should prevail.
Even with the US$ 350 million we borrowed at the beginning of 1994, our
debt to capital ratio for the year was still below 22%."
"EVEN WITH THE $350 MILLION WE BORROWED AT
THE BEGINNING OF 1994, OUR DEBT TO CAPITAL
RATIO WAS STILL BELOW 22%." CEDRIC BRIDGER
***************************************************************************
* *
* YPF's new service station image was launched in May 1994 with the *
* opening of this service station in suburban Buenos Aires, complete *
* with AM/PM convenience store. *
* *
***************************************************************************
***************************************************************************
* *
* Next Page: *
* *
* Geophysicists study a seismic map and discuss possible sites for *
* exploration drilling. In 1994, YPF drilled 160 exploration wells and *
* replaced 180% of oil production based on revisions, extensions and *
* discoveries. *
* *
***************************************************************************
27
<PAGE> 116
[PICTURE]
28
<PAGE> 117
[PICTURE]
29
<PAGE> 118
A 5-MINUTE RESUME OF YPF'S PROSPECTS
From the preceding pages it is clear that YPF is growing on an extremely
broad front: increasing exploration; increasing production; improving
refining, and strengthening marketing; cutting costs, and raising returns.
The question that remains for shareholders and potential shareholders: what
does all this add up to -- in terms of investment prospects?
Asked to summarize the company from the investor's viewpoint, YPF
executives do so in two separate ways: what differentiates YPF from other
international oil companies; and what, in management's actual experience,
tends to impress investors.
In terms of differentiation, Estenssoro, Leon and Bridger point to the
following:
- - The first aspect of YPF that distinguishes it from other oil companies,
says Estenssoro, is the degree of its integration. "Few oil companies --
and particularly few oil companies our size -- are integrated to the extent
we are," he maintains, and (as discussed in this Report) "we are vigorously
integrating further." Along these lines, observes Bridger, YPF is one of
the very few oil companies in the world -- possibly the only one in the top
20 -- to get substantially all the oil it refines from its own production:
"That's a great advantage," he notes, "in terms of cost."
- - A second differentiating advantage in cost terms, Leon continues, is YPF's
low finding cost: as discussed earlier, this is less than half that of most
other major oil companies. "The company enjoys a vital comparative
advantage," he says, "from the fact that it is located in Argentina, where
an exceptionally large amount of potentially productive structures are
available to us for exploration."
- - The third differentiating advantage, Bridger continues, is the strength of
YPF's balance sheet. With its debt/capital ratio of less than 22%, Bridger
says, "there may be other oil companies that have even stronger capital
positions -- but there certainly aren't many of them."
"OUR STRENGTHS ARE FULL INTEGRATION,
LOW FINDING COSTS, FINANCIAL STRENGTH,
PRIME EXPLORATION PROSPECTS, DOMINANCE
IN AN EXPANDING REGION, AND QUALITY
MANAGEMENT." JOSE ESTENSSORO
Turning now to those aspects of YPF on which investors comment most often,
members of company management particularly note the following:
30
<PAGE> 119
- - Not only is YPF's exploration potential exceptional, says Leon, but so are
its actual exploration efforts. YPF's rig count is nearly triple in 1995
what it was in 1993, and, says Estenssoro, "if we hit our targets our
production from remaining properties at the end of 1995 should be almost
double what it was in 1991." This translates into higher revenues, of
course -- and, as detailed above, YPF is constantly improving its margins.
- - In the second place, Estenssoro continues, it strikes many investors that
YPF's geographical location ties in with its size and its resources to give
the company certain advantages that are probably unique. "We have a
dominant position in a fast-growing domestic market, and we can expand both
upstream and downstream activities into neighboring countries where
cultural similarities give us a substantial competitive advantage."
- - In the third place, Estenssoro concludes, "the final question that concerns
many investors, even though they're too polite to ask it, refers to the
quality and continuity of management."
The answer, he continues, "is that we have proven with the transformation
and restructuring processes our management's ability to work as a team. I
myself will stay on as long as I'm required, and something that struck many
of the analysts who came down to our seminar in October was the quality of
the next tier of our management: several of them said they were impressed
not only by the people at the second level of YPF, but also by the fact
that we were happy to present them -- something, the analysts say, that
relatively few companies are willing to do."
To sum up, YPF's top executives then turn to the company's targets and
objectives:
- - "We set our targets very high," says Estenssoro. Any investor or investment
organization that
***************************************************************************
* *
* Investments are being completed at the La Plata refinery to produce *
* the higher value products -- unleaded and high octane gasoline. *
* *
***************************************************************************
[PICTURE]
31
<PAGE> 120
[PICTURE]
reviews YPF's performance over the past three years has to see that the
company keeps its promises, he believes: "before 1991, this company had a
huge body, with a small heart and a lot of fat; we have strengthened the
heart and got rid of the fat, and we're now ready to compete with any
company in the oil business, under any conditions."
- - And Estenssoro concludes by going back to the basic objectives he sets for
YPF: "we're raising production and reserves, we're increasing revenues, and
we're improving productivity." One way or another, he believes, "this
translates into what investors are really seeking: profits -- and
prospects."
A QUALTITY STAFF --
WITH AN INTERNATIONAL
ORIENTATION
YPF prides itself on the quality of its personnel throughout all levels of
the company and on the fact that uncommonly high percentages of YPF
personnel have a truly international outlook on, and experience of, the oil
business.
These characteristics begin at the top and spread throughout the company.
For instance, CEO Jose Estenssoro was formerly president of Hughes Tool
Company; Finance Vice President Cedric Bridger, also a Hughes alumnus, was
General Manager for Brazil and Vice President for Latin America of the
Texas-based company; and Upstream Vice President Marcelo Guiscardo spent 14
years with Exxon, working in a number of senior positions.
As might be expected, these executives received much of their training and
experience abroad -- as have many other YPF people at all senior levels of
the company.
During 1994 the company signed high-level training contacts not only with
MIT, but also with the Harvard Business School and the University of Texas
at Austin. The object is to widen and deepen the knowledge of YPF people
about the newest thinking in management generally, and about the petroleum
business in particular. Programs in conjunction with the Harvard Business
School, for instance, will include executive development and strategic
planning, while those with the University of Texas will cover Upstream
technology and management training.
To further encourage employee development through international contacts
and concepts, YPF frequently invites members of the faculties of leading
foreign institutions to lecture and lead workshops at company headquarters
in Buenos Aires. For instance, meetings of this type in 1994 included:
Conferences at which professors from the University of Texas discussed,
respectively, the application of technology to reservoir characteristics,
and the maximization of conventional recovery from mature oil and gas
fields;
A workshop at which professors from the Harvard Business School discussed
strategy as a component of competitive advantage for business, and the
application of these concepts to the current needs of YPF.
"ENGLISH SPOKEN" --
A HIGH PRIORITY
To ensure that staff obtain maximum benefit from such activities, YPF puts
considerable emphasis on knowledge of English. Most senior executives are
fluent in the language and 70% of YPF middle managers have reached a high
level of proficiency in it.
YOUNG PEOPLE,
CONTINUITY OF
MANAGEMENT
Two other features of YPF today merit comment:
One is the age of many managers holding very important positions -- in their
early 40s; other senior executives are in the age group between 45 and 59;
and of the 37 men and women at the corporate level of YPF, only five are 60
or older.
The other is the strength of the staff in general and at the Vice
Presidential level in particular. As this report demonstrates YPF people
are of a quality equal to or higher than, their counterparts at any other
international oil company -- and this fact not only fosters YPF's cohesion
and continuity, but it also enhances the company's performance and future
prospects as well.
***************************************************************************
* *
* Above: Increasing oil production by greater use of secondary recovery *
* techniques, a drilling operator perforates one of the 126 water *
* injection wells at the Chihuido de la Sierra Negra oil field in *
* Neuquen. *
* *
***************************************************************************
32
<PAGE> 121
DIRECTORS AND OFFICERS
[PICTURE]
Carlos de la Vega* Miguel Madanes* Mario L. Pineiro*
Hector A. Domeniconi* Mario E. Vazquez+ Ernst Schneider*
Rodolfo A. Diaz* Bayless Manning* Luis A. Prol*
Roberto J.A. Dormal Bosch+ Angel Cirasino*
James R. Lesch*
Nells Leon,
Executive Vice President*
Jose A. Estenssoro, President*
* BOARD OF DIRECTORS
+ STATUTORY AUDIT COMMITTEE
(SUPERVISORY COMMITTEE)
Missing from picture: Carlos Priani +
33
<PAGE> 122
HOW SUSTAINABLE IS ARGENTINA'S
"ECONOMIC MIRACLE"?
A massive new sign over the entrance to Argentina's venerable Central Bank
building makes an unequivocal statement: the bank's purpose is "to preserve
the value of the currency."
The economic recovery of Argentina over the last few years is the
result of several factors:
- The first is based on a 1991 law called the "Convertibility Law"
which obligates the Central Bank to fully support the Argentine peso, with
gold, dollars and international negotiable instruments, and to sell US
dollars on demand at a fixed rate of one peso per dollar.
If the government has to sell dollars, the money supply shrinks,
reducing the risk of inflation. And the law prevents the government from
printing money to finance a deficit. Argentina could if it wanted meet the
EC's "Maastricht" conditions.
- Another important aspect of Argentina's recovery is fiscal
dicipline. Whereas during the 1980s the budget deficit averaged 9% of GDP,
for the last two years the program has produced a surplus.
- The third cornerstone of the recovery program is deregulation and
the liberalization of trade: since 1991 the government has been exposing
Argentine business to international competition -- reducing import tariffs
from an average of around 50% to around 10%, and eliminating a maze of
non-tariff barriers.
- The fourth cornerstone is privatization: Argentina has engaged in an
extraordinary program of privatization -- which
[PICTURE]
***************************************************************************
* *
* Many avenues converge at the Plaza De La Republica in downtown Buenos *
* Aires. *
* *
***************************************************************************
34
<PAGE> 123
has produced more than $20 billion in proceeds to the government, and
eliminated the cost of numerous government bureaucratic requirements.
[PICTURE]
Argentina has not only privatized its oil, gas, electrical, and steel
industries, but also its ports, its rail networks, and its telephone and
subway systems. In the near future it will privatize its post office, mint,
and airports.
35
<PAGE> 124
[BAR CHART]
[PICTURE]
***************************************************************************
* *
* The Bolsa de Comercio de Buenos Aires where YPF ordinary shares trade *
* under the ticker symbol YPF. YPF shares began trading on June 29, *
* 1993 following the successful privatization of the company by the *
* Government of Argentina. Today, YPF is a public company with nearly *
* 60% ownership by private investors. *
* *
***************************************************************************
The results of these policies have been, in macroeconomic terms, remarkable:
- - First and foremost, Argentina's inflation rate has been dropping from
frightening levels to those of the US and Western Europe, and it should
remain there. Consumer prices rose 3.9% in 1994.
- - Second, low inflation and increased competitiveness have brought strong
economic growth. After declining at 1% a year in the 1980s, GDP has been
growing at 6% or more, in real terms, since 1991. For 1994, the increase
was 6.0%, and independent economists outside Argentina estimate that, other
things being equal, it should continue to grow at between 4% and 6% a year
for the rest of this century.
What "other things" have to be equal -- what could go wrong? The principal
risks, again as outsiders see them, are two:
- - The "political" risk. Unemployment is undeniably high and this breeds
concern about a possible weakness of governmental resolve.
- - Import controls. While exports are rising, the growth of the economy has,
not surprisingly, led to large inflows of capital goods and a rising trade
deficit. The concern, says a leading US "think tank," is that political
leaders could be badgered into a reimposition of protectionist measures,
which would create shortages and price pressures, and hinder growth.
Balanced against these risks are the Convertibility Law mentioned earlier,
and the public's memories
36
<PAGE> 125
of hyperinflation. These factors make a relaxation of monetary stringency
highly improbable.
Therefore, the commitment to monetary stability and balanced budgets makes
the risks in the Argentine economy considerably less than those of most
"emerging" countries -- while its prospects for growth are considerably
greater.
ARGENTINA
[MAP]
[BAR CHART]
37
<PAGE> 126
[PICTURE]
38
<PAGE> 127
[PICTURE]
39
<PAGE> 128
YPF SOCIEDAD ANONIMA
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(in millions of pesos except where noted) 1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES BY SEGMENT
- -----------------------------------------------------------------------------------------
Crude Oil and Natural Gas
- -----------------------------------------------------------------------------------------
To Unaffiliated Customers 676 792 777
- -----------------------------------------------------------------------------------------
To Affiliated Customers 25 29 -
- -----------------------------------------------------------------------------------------
To Refining and Marketing Segment 1,771 1,771 1,996
- -----------------------------------------------------------------------------------------
Total Crude Oil and Natural Gas 2,472 2,592 2,773
- -----------------------------------------------------------------------------------------
Refining and Marketing 3,503 3,369 3,317
- -----------------------------------------------------------------------------------------
Less Intersegment Sales (1,783) (1,771) (1,996)
- -----------------------------------------------------------------------------------------
Net Sales 4,192 4,190 4,094
=========================================================================================
REVENUES BY GEOGRAPHIC MARKET
- -----------------------------------------------------------------------------------------
Domestic
- -----------------------------------------------------------------------------------------
Crude Oil and Natural Gas 706 746 722
- -----------------------------------------------------------------------------------------
Petroleum Products and Others 2,329 2,596 2,644
- -----------------------------------------------------------------------------------------
Export
- -----------------------------------------------------------------------------------------
Crude Oil and Natural Gas 711 335 186
- -----------------------------------------------------------------------------------------
Petroleum Products 446 513 542
- -----------------------------------------------------------------------------------------
Net Sales 4,192 4,190 4,094
=========================================================================================
RESULTS BY BUSINESS SEGMENT
- -----------------------------------------------------------------------------------------
Exploration and Production 566 746 914
- -----------------------------------------------------------------------------------------
Refining and Marketing (1) 269 132 (106)
- -----------------------------------------------------------------------------------------
Corporate (127) (123) (254)
- -----------------------------------------------------------------------------------------
Operating Income 708 755 554
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Income on Equity Investments 22 8 4
- -----------------------------------------------------------------------------------------
Other Expenses, Net (142) (122) (48)
- -----------------------------------------------------------------------------------------
Financial and Holding
Income/(Losses), Net (40) (43) (77)
- -----------------------------------------------------------------------------------------
Net Income before the Renegotiation
of Long-Term Contracts and Sale of Areas
and Unusual and Extraordinary Losses 548 598 433
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Income from the Renegotiation of
Long-Term Contracts and Sale of Areas 1 224 -
- -----------------------------------------------------------------------------------------
Net Income before Unusual and
Extraordinary Losses 549 822 433
- -----------------------------------------------------------------------------------------
Unusual and Extraordinary Losses - (45) (162)
- -----------------------------------------------------------------------------------------
Net Income before Income and
Assets Tax 549 777 271
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Income and Assets Tax (11) (30) -
- -----------------------------------------------------------------------------------------
Net Income 538 747 271
=========================================================================================
- -----------------------------------------------------------------------------------------
Net Income per Share 1.52 2.12 0.77
=========================================================================================
Dividends per Share 2.01(*) 0.72 0.72
=========================================================================================
</TABLE>
(*) Includes 1.16 of one-time special dividend only for the government shares.
(1) Includes (10) and (13) of Intersegment in 1994 and 1993 respectively.
<TABLE>
<CAPTION>
(in millions of pesos except where noted) 1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING COST DETAILS
- -----------------------------------------------------------------------------------------
Purchased Crude Oil, Refined Products
and Others 348 512 559
- -----------------------------------------------------------------------------------------
Purchased Natural Gas 293 128 68
- -----------------------------------------------------------------------------------------
Operating Expenses 1,531 1,689 1,740
- -----------------------------------------------------------------------------------------
Depreciation, Depletion and
Amortization
- -----------------------------------------------------------------------------------------
Exploration and Production 547 443 523
- -----------------------------------------------------------------------------------------
Refining and Marketing 115 108 124
- -----------------------------------------------------------------------------------------
Total DD&A 662 551 647
=========================================================================================
Exploration Expenses 174 110 73
- -----------------------------------------------------------------------------------------
Selling Expenses 329 321 199
- -----------------------------------------------------------------------------------------
Administrative Expenses 147 124 254
- -----------------------------------------------------------------------------------------
Total Operating Costs 3,484 3,435 3,540
=========================================================================================
BALANCE SHEET SUMMARY
- -----------------------------------------------------------------------------------------
Current Assets 1,097 1,390 1,535
- -----------------------------------------------------------------------------------------
Noncurrent Assets 6,412 6,230 6,245
- -----------------------------------------------------------------------------------------
Current Liabilities 1,395 1,231 1,533
- -----------------------------------------------------------------------------------------
Noncurrent Liabilities 1,028 1,132 1,485
- -----------------------------------------------------------------------------------------
Shareholders' Equity 5,086 5,257 4,762
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Return on Shareholders' Equity (%) 10.58 14.21 5.69
- -----------------------------------------------------------------------------------------
Debt to Capital Ratio (%) 17.85 12.00 15.02
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Assets
- -----------------------------------------------------------------------------------------
Exploration and Production 3,995 3,772 3,776
- -----------------------------------------------------------------------------------------
Refining and Marketing (1) 2,824 2,974 3,286
- -----------------------------------------------------------------------------------------
Corporate and Other 690 874 718
- -----------------------------------------------------------------------------------------
Total 7,509 7,620 7,780
=========================================================================================
(1) In 1994 includes (47) of Intersegment Adjustment
- -----------------------------------------------------------------------------------------
Return on Assets (%) 7.17 9.80 3.48
- -----------------------------------------------------------------------------------------
CASH FLOW SUMMARY
- -----------------------------------------------------------------------------------------
Net Cash Flow from Operations 1,369 862 526
=========================================================================================
Net Cash Flow from Investments (1,205) (454) (334)
=========================================================================================
Net Cash Flow from Financing (187) (403) (231)
=========================================================================================
Net Cash Flow (23) 5 (39)
=========================================================================================
</TABLE>
40
<PAGE> 129
<TABLE>
<CAPTION>
(in millions of pesos except where noted) 1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED ASSETS ACQUISITION
- -----------------------------------------------------------------------------------------
Exploration and Production 1,034 881 569
- -----------------------------------------------------------------------------------------
Refining and Marketing 200 397 201
- -----------------------------------------------------------------------------------------
Corporate and Other 23 6 4
- -----------------------------------------------------------------------------------------
Total 1,257 1,284 774
=========================================================================================
CAPITAL AND EXPLORATION
EXPENDITURES
- -----------------------------------------------------------------------------------------
Exploration and Production 1,102 930 606
- -----------------------------------------------------------------------------------------
Refining and Marketing 200 397 201
- -----------------------------------------------------------------------------------------
Corporate and Other 23 6 4
- -----------------------------------------------------------------------------------------
Total 1,325 1,333 811
=========================================================================================
OTHER DATA
- -----------------------------------------------------------------------------------------
Gross Payroll and Benefits 292 346 439
- -----------------------------------------------------------------------------------------
Number of Employees at Year-End 5,839 7,514 13,225
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Common Shares Outstanding Year-End 353.0 353.0
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Stock Price per ADR ($)
- -----------------------------------------------------------------------------------------
High $29.625 $29.000 N/A
- -----------------------------------------------------------------------------------------
Low $20.375 $18.875 N/A
- -----------------------------------------------------------------------------------------
Closing $21.375 $26.000 N/A
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPERATING SUMMARY
1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXPLORATION AND PRODUCTION
- -----------------------------------------------------------------------------------------
Reserves of Crude Oil and Condensates -- millions of barrels
Proved Developed
- -----------------------------------------------------------------------------------------
Neuquen 389 378 387
- -----------------------------------------------------------------------------------------
Golfo San Jorge 186 210 189
- -----------------------------------------------------------------------------------------
Cuyana 93 88 80
- -----------------------------------------------------------------------------------------
Noroeste 18 29 34
- -----------------------------------------------------------------------------------------
Austral 19 14 21
- -----------------------------------------------------------------------------------------
Total 705 719 711
=========================================================================================
- -----------------------------------------------------------------------------------------
Reserves of Crude Oil and Condensates -- millions of barrels
Proved Undeveloped
- -----------------------------------------------------------------------------------------
Neuquen 148 105 116
- -----------------------------------------------------------------------------------------
Golfo San Jorge 154 157 185
- -----------------------------------------------------------------------------------------
Cuyana 28 17 15
- -----------------------------------------------------------------------------------------
Noroeste 2 3 0
- -----------------------------------------------------------------------------------------
Austral 8 4 2
- -----------------------------------------------------------------------------------------
Total 340 286 318
=========================================================================================
- -----------------------------------------------------------------------------------------
Reserves of Natural Gas -- millions of cubic feet
Proved Developed
- -----------------------------------------------------------------------------------------
Neuquen 6,128 6,380 7,148
- -----------------------------------------------------------------------------------------
Golfo San Jorge 73 57 67
- -----------------------------------------------------------------------------------------
Cuyana 22 12 19
- -----------------------------------------------------------------------------------------
Noroeste 514 535 374
- -----------------------------------------------------------------------------------------
Austral 427 351 411
- -----------------------------------------------------------------------------------------
Total 7,164 7,335 8,019
=========================================================================================
- -----------------------------------------------------------------------------------------
Reserves of Natural Gas -- millions of cubic feet
Proved Undeveloped
- -----------------------------------------------------------------------------------------
Neuquen 1,171 1,669 2,813
- -----------------------------------------------------------------------------------------
Golfo de San Jorge 42 46 61
- -----------------------------------------------------------------------------------------
Cuyana 4 2 6
- -----------------------------------------------------------------------------------------
Noroeste 58 39 4
- -----------------------------------------------------------------------------------------
Austral 85 38 15
- -----------------------------------------------------------------------------------------
Total 1,360 1,794 2,899
=========================================================================================
</TABLE>
[BAR CHART]
41
<PAGE> 130
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXPLORATION AND PRODUCTION
continued
- -----------------------------------------------------------------------------------------
Production of Crude Oil, Condensate
and NGLs -- thousands of barrels per day
- -----------------------------------------------------------------------------------------
Neuquen 201 167 144
- -----------------------------------------------------------------------------------------
Golfo San Jorge 102 87 82
- -----------------------------------------------------------------------------------------
Cuyana 31 32 31
- -----------------------------------------------------------------------------------------
Noroeste 5 5 13
- -----------------------------------------------------------------------------------------
Austral 6 8 7
- -----------------------------------------------------------------------------------------
Total 345 299 277
=========================================================================================
- -----------------------------------------------------------------------------------------
Production of Natural Gas -- millions
of cubic feet per day
- -----------------------------------------------------------------------------------------
Neuquen 944 1,062 1,038
- -----------------------------------------------------------------------------------------
Golfo San Jorge 24 41 77
- -----------------------------------------------------------------------------------------
Cuyana 6 6 11
- -----------------------------------------------------------------------------------------
Noroeste 4 29 102
- -----------------------------------------------------------------------------------------
Austral 60 87 123
- -----------------------------------------------------------------------------------------
Total 1,038 1,225 1,351
=========================================================================================
- -----------------------------------------------------------------------------------------
Crude Oil Deliveries -- thousands of
barrels per day 350 315 308
=========================================================================================
Natural Gas Sales -- millions of
cubic feet per day 1,538 1,828 1,767
=========================================================================================
- -----------------------------------------------------------------------------------------
Other Selected Data
- -----------------------------------------------------------------------------------------
Average Price Crude Oil
(transfer price) -- $ per barrel 12.90 14.51 16.80
- -----------------------------------------------------------------------------------------
Average Sales Price
Natural Gas -- $ per thousand cubic feet 1.14 1.01 1.01
- -----------------------------------------------------------------------------------------
Average Lifting Cost -- $ per
barrel oil equivalent 3.00 3.68 4.18
- -----------------------------------------------------------------------------------------
Average Development Cost -- $ per
barrel oil equivalent 3.50 3.30 2.40
- -----------------------------------------------------------------------------------------
Average Finding Cost -- $ per
barrel oil equivalent 1.95 .70 .60
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Gross Wells Drilled
- -----------------------------------------------------------------------------------------
Exploratory
- -----------------------------------------------------------------------------------------
Oil 36 27 13
- -----------------------------------------------------------------------------------------
Gas 6 2 3
- -----------------------------------------------------------------------------------------
Dry 67 33 19
- -----------------------------------------------------------------------------------------
Total 109 62 35
=========================================================================================
- -----------------------------------------------------------------------------------------
Development
- -----------------------------------------------------------------------------------------
Oil 806 469 505
- -----------------------------------------------------------------------------------------
Gas 24 8 19
- -----------------------------------------------------------------------------------------
Dry 49 27 37
- -----------------------------------------------------------------------------------------
Total 879 504 561
=========================================================================================
- -----------------------------------------------------------------------------------------
Net Wells Drilled
- -----------------------------------------------------------------------------------------
Exploratory
- -----------------------------------------------------------------------------------------
Oil 35 23 13
- -----------------------------------------------------------------------------------------
Gas 5 - 3
- -----------------------------------------------------------------------------------------
Dry 66 32 19
- -----------------------------------------------------------------------------------------
Total 106 55 35
=========================================================================================
- -----------------------------------------------------------------------------------------
Development
- -----------------------------------------------------------------------------------------
Oil 724 386 415
- -----------------------------------------------------------------------------------------
Gas 17 5 17
- -----------------------------------------------------------------------------------------
Dry 44 26 32
- -----------------------------------------------------------------------------------------
Total 785 417 464
=========================================================================================
</TABLE>
[PIE CHART] [PIE CHART]
42
<PAGE> 131
YPF SOCIEDAD ANONIMA
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
REFININING AND MARKETING
- -----------------------------------------------------------------------------------------
Refinery Capacity -- thousands of barrels per day
- -----------------------------------------------------------------------------------------
La Plata 180 200 200
- -----------------------------------------------------------------------------------------
Lujan de Cuyo 120 120 120
- -----------------------------------------------------------------------------------------
Plaza Huincul 25 25 25
- -----------------------------------------------------------------------------------------
Total 325 345 345
=========================================================================================
- -----------------------------------------------------------------------------------------
Refinery Throughput -- thousands of barrels per day
- -----------------------------------------------------------------------------------------
La Plata 121 160 174
- -----------------------------------------------------------------------------------------
Lujan de Cuyo 105 117 115
- -----------------------------------------------------------------------------------------
Plaza Huincul 20 23 21
- -----------------------------------------------------------------------------------------
Total 246 300 310
=========================================================================================
Refinery Crude Oil Runs 239 289 297
=========================================================================================
- -----------------------------------------------------------------------------------------
Refined Products Sold -- thousands of barrels per day
- -----------------------------------------------------------------------------------------
Diesel fuel 88.9 110.7 118.0
- -----------------------------------------------------------------------------------------
Gasoline 81.4 95.5 107.2
- -----------------------------------------------------------------------------------------
Jet fuel 11.0 10.2 8.8
- -----------------------------------------------------------------------------------------
Kerosene 4.4 6.0 7.0
- -----------------------------------------------------------------------------------------
Lubricants 1.9 2.0 2.0
- -----------------------------------------------------------------------------------------
Base oils 0.7 0.8 0.5
- -----------------------------------------------------------------------------------------
Other products 86.4 89.9 84.6
- -----------------------------------------------------------------------------------------
Total 274.7 315.1 328.1
=========================================================================================
- -----------------------------------------------------------------------------------------
Export
- -----------------------------------------------------------------------------------------
Crude Oil -- thousands of barrels per day 130.9 60.0 30.1
- -----------------------------------------------------------------------------------------
Refined Products -- thousands of
barrels per day 61.0 69.2 67.9
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Number of Retail Service Stations
- -----------------------------------------------------------------------------------------
Buenos Aires 1,074 1,052 N/A
- -----------------------------------------------------------------------------------------
Sante Fe 297 301 N/A
- -----------------------------------------------------------------------------------------
Cordoba 345 342 N/A
- -----------------------------------------------------------------------------------------
Northeast 313 313 N/A
- -----------------------------------------------------------------------------------------
Northwest 192 197 N/A
- -----------------------------------------------------------------------------------------
South 241 238 N/A
- -----------------------------------------------------------------------------------------
West 278 272 N/A
- -----------------------------------------------------------------------------------------
Total Argentina 2,740 2,715 N/A
=========================================================================================
- -----------------------------------------------------------------------------------------
Number of Company Owned
Retail Service Stations 14 32 N/A
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
LPG Sales -- thousands of barrels 15,581 15,155 9,455
- -----------------------------------------------------------------------------------------
Crude Oil Pipelines -- miles 1,111 1,111 1,111
- -----------------------------------------------------------------------------------------
Product Pipelines -- miles 738 738 1,597
- -----------------------------------------------------------------------------------------
OTHER
- -----------------------------------------------------------------------------------------
Chemical Revenues -- millions of pesos
(Petroken S.A.) 20 N/A N/A
- -----------------------------------------------------------------------------------------
</TABLE>
YPF S.A. acquired 50% of Petroken S.A. (June 1994)
- --------------------------
OTHER SELECTED
INFORMATION
ARGENTINE ECONOMIC INDICATORS
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
GDP (%) * 6.00 6.00 8.70
- -----------------------------------------------------------------------------------------
Peso/Dollar Exchange Rate 0.99 0.99 0.99
- -----------------------------------------------------------------------------------------
Wholesale Price Index (%) * 5.90 0.10 3.20
- -----------------------------------------------------------------------------------------
Consumer Price Index (%) * 3.90 7.40 17.50
- -----------------------------------------------------------------------------------------
Inflation factor used to restate to
1994 year-end 1.000 1.059 1.059
- -----------------------------------------------------------------------------------------
</TABLE>
* Source: Economy Ministry
[PIE CHART]
43
<PAGE> 132
[PICTURE]
44
<PAGE> 133
FINANCIAL INFORMATION
- -------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 46
CONDITION AND RESULT OF OPERATIONS
- -------------------------------------------------------------------------
BALANCE SHEETS 58
- -------------------------------------------------------------------------
INCOME STATEMENTS 59
- -------------------------------------------------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 60
- -------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS 61
- -------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 62
- -------------------------------------------------------------------------
SUPPLEMENTAL OIL AND GAS DISCLOSURES 85
- -------------------------------------------------------------------------
EXHIBITS 88
- -------------------------------------------------------------------------
SCHEDULES -- CONSOLIDATED FINANCIAL STATEMENTS 97
- -------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 106
- -------------------------------------------------------------------------
STATUTORY AUDIT COMMITEE'S REPORT 107
(SUPERVISORY COMMITTEE)
***************************************************************************
* *
* Photo Left: *
* *
* YPF began trading on the New York Stock Exchange on June 29, 1993 *
* after its successful initial public offering. YPF trades under the *
* ticker symbol, YPF. *
* *
***************************************************************************
45
<PAGE> 134
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This information should be read together with the Financial Statements of
the Company and Notes thereto. Such Financial Statements and Notes have
been prepared in accordance with generally accepted accounting principles
in Argentina ("Argentine GAAP"), which differ in certain respects from
generally accepted accounting principles in the United States ("US GAAP").
Note 18 of the Notes to the Company's Financial Statements provides a
description of the principal differences between Argentine GAAP and US
GAAP, as they relate to the Company, Note 19 provides the effect of the
significant differences on net income and shareholders' equity and Notes 20
and 22 provide certain additional disclosures required under US GAAP.
----------------------------------------------------------------------------
OVERVIEW
During the periods discussed below, YPF's business underwent important
changes that significantly affect the period-to-period comparability of its
financial results. Prior to 1991, the oil and gas industry in Argentina was
completely dominated by Yacimientos Petroliferos Fiscales Sociedad del
Estado (the "Company's Predecessor"), a state owned company that operated
in a completely regulated environment. Beginning in 1991, the Company
commenced a transformation program (the "Transformation Plan") that
included dispositions of reserves and other assets in accordance with
government policies intended to create competition in the oil and gas
industry and in furtherance of the Company's strategic program designed to
make YPF more competitive and enhance profitability. Largely as a result of
these dispositions, which included the transfer to third parties of
interests in important oilfields, YPF's proved oil and gas reserves
declined from 4.1 billion barrels of oil equivalent ("BOE") at January 1,
1991 to 2.5 at January 1, 1995, and natural gas production fell from 619
billion cubic feet ("Bcf") in 1991 to 379 Bcf in 1994 (365 Bcf from
properties held by YPF at January 1, 1995). Crude oil production in 1994,
however, was 126 million barrels (120 million barrels from properties held
by YPF at January 1, 1995) compared to 127 million barrels in 1991,
reflecting YPF's efforts to improve crude oil production in its remaining
properties. See "--Oil and Gas Reserves and Production".
In addition, YPF's new management initiated a program of cost reductions
that included reducing the number of employees from over 51,000 (including
approximately 15,000 personnel under contract) at January 1, 1991 to
approximately 5,800 at January 1, 1995, excluding approximately 3,500
former employees who provide part-time services to the Company pursuant to
contractual arrangements between companies formed by such former employees
and the Company. The cost of using third party contractors to provide
services previously under-taken by the Company's employees partially offset
the decline in payroll expenses. The Company believes that the reduction in
employees has significantly reduced the cost structure of the Company
without adversely affecting the ability of the Company to generate
revenues.
YPF's operations are affected by changes in oil prices and the Argentine
economy. Over the period discussed below, the price of oil internationally
and in the domestic market fluctuated significantly. The average transfer
price per barrel of oil for YPF (which reflects the local market price) was
U.S.$16.80 for 1992, U.S.$14.51 for 1993 and U.S.$12.90 for 1994. The
average sales price per barrel of West Texas Intermediate crude oil ("WTI")
was U.S.$20.55, U.S.$18.44 and U.S.$17.18 for 1992, 1993 and 1994,
respectively. Since deregulation, the difference between the market price
for crude oil in Argentina and the price of WTI has been primarily due to
freight costs and relative quality. The difference between the average
transfer price of oil for YPF and WTI during each period varies according
to the volume of the crude oil delivered in each transference location; for
example, as the volume of Neuquen crude has increased, the gap has widened,
because of its distance to market. In December 1993, the price of WTI hit a
five-year low of approximately U.S.$14 per barrel; by the end of 1994, the
price of WTI had recovered to U.S.$17.77 per barrel. The volatility in the
sales price of oil during the three-year period was in part due to the
current excess of international oil availability over demand and the
disarray of OPEC. Future changes in international oil prices will continue
to affect the results of YPF.
Natural gas markets were deregulated in Argentina effective as of May 1,
1994. YPF has negotiated medium-term agreements with the eight distribution
companies. These agreements provide for the sale of natural gas for a
period of five years and establish prices that vary according to each
production basin in which the natural gas originates and the season in
which the sale occurs. YPF believes that the relevant statutes and
regulations require ENARGAS, the regulatory agency that approves the gas
prices charged to consumers by the distribution companies, to pass through
contract prices automatically, except where they are the product of
non-competitive conditions. If such approval is obtained by the
distribution companies, YPF anticipates an average price for its natural
gas sales of about U.S.$1.20 per MMbtu for 1995.
The Argentine economy has undergone dramatic changes in recent years. Since
early 1991, when the government instituted a set of economic reforms known
as the "Convertibility Plan", inflation declined dramatically and growth
increased to levels above those in most industrialized nations. The
following table sets forth the rate of inflation, as measured by the
general level wholesale price index ("GLWPI"), the rate of devaluation of
the peso relative to the dollar and the rate of real Argentine gross
46
<PAGE> 135
YPF SOCIEDAD ANONIMA
domestic product ("GDP") growth for each of the last three years.
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inflation -- Wholesale Price Index 5.8% 0.1% 3.2%
Currency devaluation/revaluation 0.0% 0.0% 0.0%
GDP growth 6.0%(1) 6.0% 8.7%
====================================================================================
</TABLE>
(1) Estimated by the Ministry of Economy and Public Works and Services.
In accordance with Argentine GAAP, all financial information contained in
the Company's Financial Statements has been price-level restated using
GLWPI to recognize the effects of inflation. Financial information for 1992
through 1994 has been expressed in constant pesos as of December 31, 1994.
See Note 2 of Notes to Financial Statements. Certain of the Company's
products and costs are priced by reference to international prices. Because
these prices are typically denominated in dollars, period-to-period
comparisons of sales revenues and costs of sales, as restated in constant
pesos, have been, and in the future could be, affected when the rate of
Argentine inflation differs from the rate of devaluation of the peso
against the dollar. For example, if volumes of products sold and prices
expressed in dollars for the period being compared are the same, but the
rate of devaluation of the peso has been lower than the rate of Argentine
inflation as measured by the GLWPI, the related dollar-linked revenues when
expressed in constant pesos will decline from one period to the next.
Conversely, if the rate of devaluation has exceeded the rate of inflation,
such revenues expressed in constant pesos will increase from one period to
the next.
The Company's results of operations are somewhat seasonal because demand
for natural gas and refined products is typically lowest in the first
quarter, which includes Argentina's summer months, and is generally highest
in the third quarter, which includes Argentina's winter months.
============================================================================
RECENT EVENTS
Renegotiation of TOTAL Contract
Until February 1994, YPF was a party to a service contract with TOTAL
Austral S.A. and its partners (the "TOTAL Partners") relating to certain
oil and gas fields offshore Tierra del Fuego ("the TOTAL Service
Contract"). This contract required the Company to take or pay for certain
quantities of natural gas through 2026 at contract prices that
significantly exceeded the previously regulated price of U.S.$0.97 per
MMbtu. A final settlement, effective February 1994, replaced the TOTAL
Service Contract with certain new agreements (the "TOTAL Renegotiation").
The settlement relieved YPF of substantial losses on the gas purchase
contract but the settlement entailed a transfer of properties that resulted
in a loss of oil and gas production from the concessions and interests in
joint ventures transferred to the TOTAL Partners. Proved reserves
transferred to the TOTAL Partners, as of December 31, 1993, were 1,901 Bcf
of natural gas and 52 million barrels of crude oil. See Note 15.a of Notes
to Financial Statements.
Commencement of Oleoducto Trasandino
On February 15, 1994, the Company commenced crude oil transportation
services through the Oleoducto Trasandino, a pipeline from Puesto Hernandez
in the Neuquen basin in Argentina across the Andes to Concepcion, Chile.
The capacity of the pipeline has been increased to 106,000 barrels per day.
The quantity of crude oil transported through the pipeline has steadily
increased since service began, and the pipeline transported an average of
80,300 barrels per day in December 1994, with YPF supplying an average of
60,250 barrels per day during such period. ENAP, the national oil company
of Chile, is obligated to purchase a minimum of 40,000 barrels per day to
supply its Concepcion refinery; the remainder is being exported through the
port of Concepcion. YPF, ENAP and Inter-Rio Holdings Establishment own and
manage the pipeline, with YPF owning a 57.75% interest. See Note 15.c of
Notes to Financial Statements.
Sale of Rio Neuquen Field
During May 1994, the Company agreed to sell its Rio Neuquen field as
required by the Argentine Government as a condition of YPF's privatization
in July 1993 for the purpose of increasing competition among producers of
natural gas within the country. The Company received several bids for the
Rio Neuquen field, and the winning bid was almost U.S.$161. The Company
transferred a 90% interest in this field in May 1994, and the remaining 10%
was transferred when the Argentine Government authorized the transfer of
100% of the concession in August 1994. In 1993, the field produced 890,000
barrels of oil and condensate and 21.5 Bcf of natural gas. Proved reserves
associated with this field were 10 million barrels of oil and 238 Bcf of
gas as of January 1, 1994. The proceeds of the sale were retained by the
Company and used for general corporate purposes. The Company recognized a
gain, for financial reporting purposes, of Ps.67 million from this
transaction in the second quarter of 1994.
Amoco Settlement
On January 1, 1995, YPF completed the transactions called for in the
renegotiation of its Service Contract with Amoco Argentina relating to the
Cerro Dragon/Anticlinal Grande field in the Golfo San Jorge basin (the
"Amoco Settlement"). As a result of such renegotiation, YPF will retain a
12.2% interest in the Cerro Dragon/Anticlinal Grande production, and will
annex to the
47
<PAGE> 136
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
contract two small adjacent fields. YPF will retain the obligation to pay
provincial royalties on 100% of the production from the combined areas. In
return, YPF will be relieved from the obligation to pay Amoco's federal
taxes related to its share of the production in this concession area--an
obligation which was a provision of the original contract first entered
into in 1958. At that time, YPF was a state-owned company, and contractors
with state-owned companies, such as Amoco, were exempt from taxes arising
from such contracts. Upon YPF's privatization in 1993, Amoco lost this
exemption, and YPF's potential exposure for taxes and royalties under this
contract, which ran until 2013, could have become substantial. See Note
15.c of Notes to Financial Statements.
Proved reserves associated with these properties were 50 million barrels of
crude oil and condensate and 5.3 Bcf of natural gas as of January 1, 1995;
production attributable to these interests in 1994 was 5.7 million barrels
of crude oil and condensate and 0.5 Bcf of natural gas. YPF accrued a loss,
for financial reporting purposes, of Ps.66 million in the second quarter of
1994 from transactions comprising the Amoco Settlement. See Note 15.c of
Notes to Financial Statements.
Purchase of 50% Interest in Petroken
On June 17, 1994, the Company purchased a 51% equity interest in Petroken
Petroquimica Ensenada S.A. ("Petroken") from IPAKO S.A. for a total
purchase price of U.S.$42 million and concurrently sold a 1% equity
interest to Shell Compania Argentina de Petroleo S.A. ("Shell Argentina"),
resulting in each of YPF and Shell Argentina owning a 50% equity interest
in Petroken. Petroken owns and operates a petrochemical plant that
produces polypropylene and other products. The plant has a capacity to
produce 100,000 tons of polypropylene on an annual basis. In connection
with this transaction, YPF assumed certain guarantees given in favor of
creditors of Petroken with respect to approximately Ps.39 million of
liabilities that are expected to be paid out of Petroken's cash flow. YPF
will also reimburse IPAKO S.A. in an amount equal to the face value of any
government bonds that Petroken may receive related to the tax loss
carryforwards attributable to fiscal years prior to March 31, 1991, up to a
maximum of U.S.$2.2 million. In connection with this transaction, IPAKO
assigned to YPF approximately U.S.$6 million of claims of IPAKO against
Petroken and YPF entered into a long-term agreement with Petroken providing
for YPF to supply Petroken with propylene. YPF is currently one of
Petroken's principal suppliers of propylene. Shell Argentina will continue
to manage the plant. YPF believes that the acquisition of this equity
interest in Petroken will strengthen the Company's position in the
petrochemical market by allowing it to vertically integrate into higher
margin products.
Regulatory Action Relating to Natural Gas Contracts
YPF's contracts with the gas distribution companies provided for the
initiation of a U.S.$1.25 per MMbtu well-head price payable to YPF for its
Neuquen basin natural gas in January 1995. YPF has received payments based
on this new price from almost all of the distribution companies even though
ENARGAS the regulatory agency that approves the gas prices charged to
consumers by the gas distribution companies, approved the pass-through of a
price of only U.S.$1.15 per MMbtu by the gas distribution companies for
January and February 1995. YPF believes that the relevant statutes and
regulations require ENARGAS to pass through contract prices automatically,
except where they are the product of non-competitive conditions, which have
not been alleged here. The distribution companies are contractually
obligated to pursue all available regulatory and judicial remedies to
require ENARGAS to restore the contract price for January and February
1995. Accordingly, the Company is negotiating the impact of the ENARGAS
decision with the distribution companies that have already paid the
contract prices and analyzing actions to be taken with respect to the
distribution companies that have not paid, or may not pay in the future,
prices established in the contracts.
Tender Offer for Common Stock
of Maxus Energy Corporation
On February 28, 1995, the Company and Maxus Energy Corporation ("Maxus")
entered into an agreement pursuant to which YPF will make a tender offer to
purchase all of the Common Stock of Maxus, at U.S.$5.50 per share, and, if
more than 50% of the outstanding voting shares are tendered and certain
other conditions are satisfied, a merger with a subsidiary of the Company
will be effected, in which the remaining Maxus Common Stock will be
exchanged for the same U.S.$5.50 per share. Maxus' Board of Directors has
approved the tender offer and the merger and has recommended that common
stock-holders accept the tender offer. Maxus' preferred stock will remain
outstanding.
The tender offer for all of Maxus Common Stock commenced in early March
1995. YPF has received a commitment letter from The Chase Manhattan Bank
N.A. to arrange, underwrite and syndicate financings of up to U.S.$800
million for the purchase. From this amount up to U.S.$600 million would be
Maxus debt following the proposed merger and is expected to be cancelled in
part by the application of U.S.$100 million of Maxus cash on hand and from
loans totaling U.S.$500 million to Maxus Midcontinent and Indonesian
subsidiaries. The acquisition indebtedness and such loans will be
guaranteed in full by YPF. In addition, under the Merger Agreement, in the
event that Maxus is unable to meet its obligations as they come due,
whether at
48
<PAGE> 137
YPF SOCIEDAD ANONIMA
maturity or otherwise, including preferred stock dividend and redemption
payments, YPF has agreed for a period of nine years following the
consummation of the merger to capitalize Maxus in an amount necessary to
permit Maxus to meet such obligations. This obligation is limited to the
amount of debt service obligations under the acquisition loans or the
refinancing loans, and would be reduced by the amount of any capital
contributions received by Maxus after the consummation of the merger and
the net proceeds of any sale by Maxus of common stock or non-redeemable
preferred stock after the merger. It is also contemplated that YPF shall
guarantee existing debentures and notes issued by Maxus for approximately
U.S.$1,000 million upon effectiveness of the merger. The tender offer, the
merger and the financing are subject to various conditions, including that
at least a majority of Maxus' voting stock be tendered.
============================================================================
OIL AND GAS RESERVES AND PRODUCTION
Historical Reserves and Production
The following table sets forth YPF's estimated proved reserves of crude oil
and natural gas for the years ended December 31, 1994, 1993 and 1992. YPF's
reserve estimates for such dates were audited by Gaffney, Cline and
Associates, independent petroleum engineers ("Gaffney, Cline"). The reserve
estimates set forth below were prepared in accordance with Rule 4-10 of
Regulation S-X of the Securities and Exchange Commission. All of YPF's
proved reserves are located in Argentina.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------
(MILLIONS OF BARRELS)
<S> <C> <C> <C>
Estimated proved crude oil reserves(1)(2)
Developed 705 719 711
Undeveloped 340 286 318
------------------------------------------------------------------------------------
Total 1,045 1,005 1,029
(BILLIONS OF CUBIC FEET)
Estimated proved natural gas reserves(1)(2)
Developed 7,164 7,335 8,019
Undeveloped 1,360 1,794 2,899
------------------------------------------------------------------------------------
Total 8,524 9,129 10,918
(MILLIONS OF BARRELS)
Crude oil production(1)(2) 126 109 101
(BILLIONS OF CUBIC FEET)
Natural gas production(1)(2) 379 447 493
------------------------------------------------------------------------------------
</TABLE>
(1) See Note 22 Oil and Gas Disclosures (Unaudited) of Notes to Financial
Statements. Crude oil and gas reserves and production amounts are
stated before making any deductions for royalties and include
condensate and natural gas liquids. Royalties are accounted for as a
cost of production and are not deducted in determining net sales. See
Note 3.g of Notes to Financial Statements.
(2) All information relating to the Company's oil and gas production has
been determined in accordance with Rule 4-10 of the Securities and
Exchange Commission and Statement of Financial Accounting Standards
No. 69, and such amounts may differ from actual production amounts and
actual deliveries of oil or gas.
Reserves and Production Restated to Remove Impact of Property Transfers
Related to the YPF Privatization and Transformation Plan
The following table sets forth certain information regarding oil and gas
reserves and production for the years ended December 31, 1994, 1993 and
1992. Such information relates only to interests in properties held by YPF
at January 1, 1995 (the "Remaining Properties"), and therefore excludes
information relating to properties sold prior to such date. The Company
prepared such table by eliminating information regarding fields, or
interest in fields, sold at any time prior to such date. Such table was
developed from reserve data prepared in accordance with Rule 4-10 of
Regulation S-X of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------
(MILLIONS OF BARRELS)
<S> <C> <C> <C>
Estimated proved crude oil reserves(1)(2)(3)
Developed 705 671 655
Undeveloped 340 275 304
------------------------------------------------------------------------------------
Total 1,045 946 959
(BILLIONS OF CUBIC FEET)
Estimated proved natural gas reserves(1)(2)(3)
Developed 7,164 7,169 7,217
Undeveloped 1,360 1,719 1,777
------------------------------------------------------------------------------------
Total 8,524 8,888 8,994
(MILLIONS OF BARRELS)
Crude oil production(1)(2)(3) 120 101 90
(BILLIONS OF CUBIC FEET)
Natural gas production(1)(2)(3) 365 373 393
------------------------------------------------------------------------------------
</TABLE>
(1) See Note 22 Oil and Gas Disclosures (Unaudited) of Notes to Financial
Statements. Crude oil and gas reserves and production amounts are
stated before making any deductions for royalties and include
condensate and natural gas liquids. Royalties are accounted for as a
cost of production and are not deducted in determining net sales. See
Note 3.g of Notes to Financial Statements.
(2) All information relating to the Company's oil and gas production has
been determined in accordance with Rule 4-10 of the Securities and
Exchange Commission and Statement of Financial Accounting Standards
No. 69, and such amounts may differ from actual production amounts and
actual deliveries of oil or gas.
(3) Does not include reserves or production for any period attributable to
the following properties, which were transferred to third parties in
connection with the privatization of the Company and the
Transformation Plan:
(i) The properties transferred in February 1994, in connection with
the TOTAL Renegotiation. Reserves attributable to these fields of
approximately 52 million and 23 million barrels of crude oil and
condensate and approximately 1,901 Bcf and 1,632 Bcf of natural gas
have been eliminated from the reserve estimates for December 31, 1993
and 1992, respectively. Crude oil production related to YPF's interest
that was transferred was approximately 0.3 million barrels during
January and February 1994, and 3 million and 2 million barrels for
1993 and 1992, respectively. Natural gas production related to YPF's
interest that was transferred was approximately 7 Bcf during January
and February 1994, and 53 Bcf and 40 Bcf for 1993 and 1992,
respectively.
(ii) The Rio Neuquen field that was transferred in August 1994.
Reserves attributable to this field of approximately 10 million and 11
million barrels of crude oil and condensate and approximately 238 Bcf
and 284 Bcf of gas have been eliminated from the reserve estimates for
December 31, 1993 and 1992, respectively. Crude oil production related
to YPF's interest that was transferred was approximately 0.4 million
barrels for the period during which the property was owned by YPF
during 1994, and approximately 1 million barrels for each of 1993 and
1992. Natural gas production related to YPF's interest that was
transferred was approximately 7 Bcf for the period during which the
property was owned by YPF during 1994, and approximately 21 Bcf and 28
Bcf for 1993 and 1992, respectively.
49
<PAGE> 138
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
(iii) Properties covered by the Amoco Settlement that were transferred
effective as of January 1, 1995. Reserves attributable to these fields
of approximately 50 million, 49 million and 37 million barrels of
crude oil and condensate and approximately 5 Bcf, 3 Bcf and 8 Bcf of
gas have been eliminated from the reserve estimates as of December 31,
1994, 1993 and 1992, respectively. Crude oil production related to
YPF's interest that was transferred was approximately 6 million, 5
million and 5 million barrels for 1994, 1993 and 1992, respectively.
Natural gas production related to YPF's interest that was transferred
was approximately 0.5 Bcf, 0.3 Bcf and 0.4 Bcf for 1994, 1993 and
1992, respectively.
RESULTS OF OPERATIONS
The following table sets forth certain financial information as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
(PERCENT OF NET SALES) 1994 1993 1992
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0 100.0 100.0
Cost of sales (67.6) (68.7) (73.6)
------------------------------------------------------------------------------------
Gross profit 32.4 31.3 26.4
Administrative expenses (3.6) (3.0) (6.2)
Selling expenses (7.8) (7.7) (4.8)
Exploration expenses (4.1) (2.6) (1.8)
------------------------------------------------------------------------------------
Operating income 16.9 18.0 13.6
====================================================================================
</TABLE>
SEGMENT ANALYSIS
YPF's operations are organized into an Upstream Strategic Business Unit
("Upstream") for exploration and production activities and a Downstream
Strategic Business Unit ("Downstream") for refining, marketing and
transportation activities. Upstream sales to third parties include natural
gas sales and fees for services provided (primarily transportation, storage
and treatment). All crude oil produced by YPF or purchased from third
parties pursuant to risk or service contracts are sold from Upstream to
Downstream at a transfer price that reflects the Argentine market price.
Non-mandatory purchases of crude oil, and exports of crude oil, are made
directly by Downstream.
1994 COMPARED TO 1993
The Company
Net sales in 1994 were Ps.4,192 million compared to Ps.4,190 million in
1993. Upstream net sales decreased to Ps.2,472 million in 1994 (including
Ps.1,695 million of crude oil transferred to Downstream) from Ps.2,592
million in 1993 (including Ps.1,710 million of crude oil transferred to
Downstream), reflecting primarily a decrease in crude oil prices and
natural gas volumes, offset partially by the sale of a greater number of
barrels of crude oil. Downstream net sales during 1994 were Ps.3,503
million, an increase from net sales of Ps.3,369 million during 1993. This
net increase resulted from a 36% increase in the volume of crude oil
exports, and improved prices realized on sales of gas oil and premium
gasoline, offset partially by a decline in the volume of refined products
sold in the domestic and export markets and lower prices for crude oil
exports.
Cost of sales in 1994 was Ps.2,834 million compared to Ps.2,880 million in
1993, a 2% decrease. The decrease reflects a reduction in operating
expenses and reduced purchases of crude oil and refined products, offset
partially by higher depreciation costs. The reduction in operating expenses
was due to lower salary expenses and improved operating efficiencies. The
reduced purchases of crude oil and refined products was due to the
expiration of mandatory purchase contracts. Depreciation expenses
increased, corresponding with increased production of crude oil.
Operating income in 1994 was Ps.708 million compared to Ps.755 million in
1993, a decrease of 6%. This decrease reflects a 58% increase in
exploration expenses from Ps.110 million in 1993 to Ps.174 million in 1994.
Exploration activities during 1994 allowed the Company to replace proved
reserves of crude oil, based on revisions, extensions and discoveries, at a
rate of 179% of 1994 production. Administrative expenses increased by Ps.23
million primarily as a result of the inclusion of certain consultants' fees
relating to the installation of accounting and information systems as
administrative expenses in 1994.
The Company recognized a gain of Ps.67 million in the second quarter of
1994 from the sale of the Rio Neuquen field, which gain was offset by the
loss of Ps.66 million taken in the same quarter in connection with the
Amoco Settlement.
Income before unusual losses in 1994 was Ps.549 million compared to Ps.822
million in 1993, a decrease of 33%. Income before unusual losses in 1993
was favorably impacted by the TOTAL Renegotiation under which a reserve
established prior to 1991 was partially reversed leading to the recognition
of a Ps.224 million gain. Income before unusual losses in 1994 was also
affected by the inclusion in other expenses, net of Ps.36 million of
severance costs relating to employee terminations that were treated as an
ordinary expense during 1994 rather than an unusual expense as was the case
in 1993.
The Company did not experience any unusual gains or losses during 1994 but
realized unusual losses of Ps.45 million in 1993 due to expenses incurred
in connection with reductions in personnel and expenses associated with the
initial public offering of YPF Class D Shares and related transactions,
offset in part by net gains from the disposal of the Allen-Puerto Rosales
pipeline, the marine terminal facilities at Puerto Rosales, the San Lorenzo
and Dock Sud refineries, and a portion of YPF's tanker fleet.
As a result of the foregoing, net income before income and assets tax in
1994 was Ps.549 million (13% of net sales) compared to Ps.777 (19% of net
sales) in 1993, a decrease of 29%. Net income in 1994 was Ps.538 million
compared to Ps.747 million in 1993. During 1994, the Company accrued an
aggregate of Ps.11 million for its liability for the income and assets
50
<PAGE> 139
YPF SOCIEDAD ANONIMA
tax as compared to Ps.30 million during 1993. Under current law, YPF is
required to pay the greater of the income tax or the assets tax. The
Company did not accrue any liability for income taxes in either year due to
the existence of income tax loss carryforwards. See "--Taxation".
Upstream Strategic Business Unit
Net sales for Upstream in 1994 were Ps.2,472 million compared to Ps.2,592
million in 1993, a decrease of 5%. The slight decrease was due primarily to
a Ps.56 million reduction in natural gas sales to third parties, a Ps.49
million reduction in sales of other products and services to third parties
and to Downstream and a Ps.15 million decrease in intersegment sales of
crude oil to Downstream.
Sales of natural gas decreased to Ps.643 million in 1994 from Ps.699
million in 1993, due to lower demand and the sale of the Rio Neuquen field
in June 1994. Demand for natural gas was substantially reduced by a
combination of unusual weather conditions in Argentina in 1994. First,
Argentina experienced one of its warmest winters in many years, which
substantially reduced winter space heating requirements and residential
load. Second, heavy rain increased the supply of hydroelectric power, which
displaced electricity generated by gas-fired turbines, further reducing the
demand for natural gas. As a result of these factors, the volume of natural
gas sold during 1994 declined as compared to 1993. The reduced volume of
natural gas was offset in part by increases in gas prices from an average
of U.S.$0.97 per MMbtu for 1993 to an average of U.S.$1.09 per MMbtu for
1994.
The reduction in intersegment sales to Downstream was due primarily to a
decline in the average internal transfer price of crude oil, reflecting
lower international crude oil prices of U.S.$12.90 per barrel during 1994
as compared to U.S.$14.51 per barrel during 1993. Oil production from
properties held throughout both periods (excluding production relating to
interests in properties transferred in connection with the TOTAL
Renegotiation and the Amoco Settlement and excluding production relating to
the Rio Neuquen field sold in June 1994) increased to 120 million barrels
during 1994 compared to 101 million barrels during 1993. The increased
production primarily reflected the results of development drilling in the
Golfo San Jorge and the Neuquen basins and the removal of transportation
bottlenecks in the Neuquen basin by the commencement of crude oil
transportation services through the Oleoducto Trasandino in February 1994.
Operating income for Upstream was Ps.566 million in 1994 compared to Ps.746
million in 1993, a decrease of 24%. The decrease in operating income was
caused by the decline in revenues due to decreased natural gas sales,
falling crude oil prices and increased costs. Costs increased during 1994
to Ps.1,906 million from Ps.1,846 million, due principally to increased gas
purchases from third parties (primarily the TOTAL Partners), an increase in
depreciation expenses due to higher production and higher exploration
expenses due to greater exploration activity, offset in part by reduced
lifting costs.
Downstream Strategic Business Unit
Net sales in 1994 were Ps.3,503 million compared to Ps.3,369 million in
1993. This increase reflects a rise in export sales, principally of crude
oil, of approximately Ps.309 million, partially offset by a decline of
Ps.175 million in domestic market sales. Exports rose principally due to
the sale of greater volumes of crude oil, primarily to neighboring
countries, including Brazil, Chile, Paraguay and Uruguay. The decline in
domestic sales was principally due to lower sales of gasoline, diesel fuel,
fuel oil and jet fuel, offset partially by an improvement in prices of
premium gasoline and diesel fuel and an increase in sales of petrochemical
products. This decline reflects the extensive remodeling of YPF-branded
stations, and the Company's strategy to minimize production of low margin
products and to cease product purchases from certain refineries, including
refineries sold by YPF pursuant to the Transformation Plan, after the
expiration of existing contracts, due to low margins from resales of such
products.
Domestic gasoline and diesel fuel sales in 1994 decreased by Ps.110 million
as compared to 1993 as a result of decreased volumes in 1994 as compared to
1993, partially offset by an improvement in prices for premium gasoline and
diesel fuel. Domestic fuel oil sales declined due to a determination by the
Company to reduce production of fuel oil to permit the Company to produce
higher margin products and to make available a greater quantity of crude
oil for export.
Operating income for Downstream in 1994 was Ps.279 million compared to
operating income of Ps.145 million in 1993. Downstream operating income was
favorably affected by the increased volumes of crude oil exports, a slight
decrease of Ps.6 million in cost of sales and the increase in premium
gasoline and diesel fuel prices discussed above, offset by lower sales
volumes for gasoline, diesel fuel, fuel oil and jet fuel in the domestic
market and lower prices realized for crude oil exports. Selling expenses
decreased by 5%, primarily as a result of employee reductions. Although
Downstream increased the volume of crude oil purchased from Upstream by 11%
in 1994 as compared to 1993, cost of sales declined in 1994 primarily due
to the decline in the average internal transfer price for crude oil
(reflecting the decrease in the average daily price for WTI from U.S.$18.44
per barrel in 1993 to U.S.$17.18 per barrel in 1994).
51
<PAGE> 140
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Cost of sales of Downstream also benefited from a Ps.32 million decrease in
salary expenses resulting from employee reductions. This decrease in
salary expenses more than compensated for increases in contract expenses
associated with the Company's increased use of third party contractors by
Downstream.
1993 COMPARED TO 1992
The Company
Net sales in 1993 were Ps.4,190 million compared to Ps.4,094 million in
1992, an increase of 2%. Upstream net sales decreased to Ps.2,592 million
in 1993 (including Ps.1,710 million of crude oil transferred to Downstream)
from Ps.2,773 million in 1992 (including Ps.1,996 million of crude oil
transferred to Downstream), reflecting lower crude oil sales following the
disposition of certain oil producing fields and a decrease in crude oil
prices, offset partially by an increase in LPG sales to Downstream.
Downstream net sales during 1993 were Ps.3,369 million, increasing slightly
from net sales of Ps.3,317 million during 1992. This increase resulted from
an increase in export sales, which were largely offset by a decline in
Downstream domestic sales.
Cost of sales in 1993 was Ps.2,880 million compared to Ps.3,014 million in
1992, a 4% decrease. The decrease reflected a reduction in salary expenses
and the Company's efforts to improve operating efficiencies.
Operating income in 1993 rose Ps.755 million from Ps.554 million in 1992,
an increase of 37%. Selling expenses increased by Ps.122 million between
the two years as the Company added sales personnel and increased salaries
and advertising expenses. Exploration expenses increased by Ps.37 million
due to substantially greater exploration activities. Administrative
expenses declined Ps.130 million primarily as a result of a change in
expense allocation policy under which expenses of approximately Ps.79
million, formerly reflected as corporate administrative expenses, are now
included in the costs of sales and selling expenses for Upstream and
Downstream and in other expenses, net.
Income before unusual and extraordinary gains in 1993 was Ps.822 million
compared to Ps.433 million in 1992, an increase of 90%. Income before
unusual and extraordinary gains in 1993 was favorably impacted by the TOTAL
Renegotiation. The TOTAL Service Contract, in respect of which a reserve
against future losses was established prior to 1991, was renegotiated in
late 1993, resulting in the partial reversal of this reserve and the
recognition of a Ps.224 million gain. The remainder of the loss reserve has
been retained against YPF's obligation to pay the TOTAL Partners' taxes, if
any, on the property transfers that will occur due to the renegotiations,
if any taxes are payable, under a tax indemnity agreement between YPF and
the TOTAL Partners. See "--Liquidity and Capital Resources" and Note 15.a
of Notes to Financial Statements.
Unusual and extraordinary losses totaled Ps.45 million in 1993 compared to
Ps.162 million in 1992. Losses in 1993 reflected the expenses incurred in
connection with reductions in personnel and expenses associated with the
initial public offering of YPF Class D Shares and related transactions,
offset in part by net gains from the disposal of the Allen-Puerto Rosales
pipeline, the marine terminal facilities at Puerto Rosales, the San Lorenzo
and Dock Sud refineries, and a portion of YPF's tanker fleet.
As a result of the foregoing, net income before the income and assets tax
in 1993 was Ps.777 million (18.6% of net sales) compared to Ps.271 million
(6.6% of net sales) in 1992, an increase of 186%. Net income in 1993 was
Ps.747 million compared to Ps.271 million in 1992. During the third and
fourth quarters of 1993, the Company accrued an aggregate of Ps.30 million
for its liability for the assets tax. No such tax liability was accrued
during 1992. Under current law, YPF is required to pay the greater of the
income tax or the asset tax. The Company did not accrue any liability for
income taxes in 1993 due to the existence of income tax loss carryforwards.
See "--Taxation" and Note 3.g of Notes to Financial Statements.
Upstream Strategic Business Unit
Net sales in 1993 were Ps.2,592 million compared to Ps.2,773 million in
1992, a decrease of 7%. The decrease reflects a reduction of Ps.286 million
in intersegment sales of crude oil to Downstream, partially offset by a
substantial increase of approximately Ps.100 million in LPG sales to third
parties and to Downstream. The reduction in intersegment sales was due
primarily to a significant decline in the average internal transfer price
of crude oil, reflecting lower international crude oil prices and the loss
of production from significant oil producing fields in the Noroeste basin
sold in late 1992. Oil production from properties held throughout both
periods (including production relating to interests in properties
transferred to the TOTAL Partners in connection with the renegotiation of a
service contract) increased to 109 million barrels in 1993 compared to 98
million barrels during 1992.
Sales of natural gas remained essentially the same in 1993 (Ps.699 million)
as in 1992 (Ps.697 million). Gas production from properties held throughout
both periods (including production related to interests in properties
transferred to the TOTAL Partners in connection with the TOTAL
Renegotiation) declined by 14 Bcf, however, due to two factors: first,
above-average rainfall favored hydroelectric power generation during the
fourth quarter of 1993, which significantly reduced the sale of gas for
electrical generation; and second, natural gas liquids
52
<PAGE> 141
YPF SOCIEDAD ANONIMA
("NGLs") were included in natural gas sold to Gas del Estado in 1992,
whereas after the privatization of Gas del Estado at the end of 1992, YPF
began to strip NGLs out of the natural gas stream and sell the NGLs for its
own account (through ownership of the Loma de la Lata plant and a tolling
arrangement with the General Cerri plant). Removing the liquids reduces the
volume of the gas stream. The Company's sales in 1993 included
approximately 70 Bcf of gas that was purchased by the Company from third
parties at average purchase prices lower than the regulated sales price of
gas in effect during 1993.
Operating income of Ps.746 million in 1993 decreased 18% from Ps.914
million in 1992. The decrease in operating income was caused by a decline
in revenues partially offset by a decrease in costs. Costs decreased during
1993 to Ps.1,736 million from Ps.1,786 million, principally due to a
decline in depreciation expenses, reduced salary expenses resulting from
employee headcount reductions and lower royalties, offset in part by higher
exploration expenses due to substantially greater exploration activity,
increased gas purchases from third parties, the payment of certain amounts
associated with crude oil treatment, storage and shipments by truck and
train and an increase in certain other costs allocated to the Upstream unit
in 1993 that had previously been reflected as corporate administrative
expenses.
Downstream Strategic Business Unit
Net sales in 1993 were Ps.3,369 million compared to Ps.3,317 million in
1992. This small increase reflects an increase in export sales of
approximately Ps.120 million, due primarily to increased exports of crude
oil and LPG, offset by a decline of approximately Ps.68 million in domestic
sales, due principally to lower sales of diesel and fuel oil, the
production of which YPF reduced due to low margins. Reduced production of
these products permitted the increased production of higher margin products
and increased volumes of crude oil available for export. The increase in
export sales was principally due to sale of greater volumes of crude oil,
and, to a lesser extent, LPG and gasoline primarily to neighboring
countries, including Brazil, Chile and Paraguay.
Domestic gasoline sales in 1993 increased by Ps.72 million as compared to
1992 due to a weighted average price increase of 10.5% for its three
categories of gasoline. Volumes of domestic gasoline sales were essentially
the same in 1993 as in 1992 despite such price increase and the negative
effect on sales caused by disruption of service resulting from the
Company's extensive service station remodeling program.
Sales of LPG by Downstream in 1993 increased by approximately Ps.53 million
as compared with 1992. The increase was largely due to deregulation of the
LPG market and the privatization of Gas del Estado in late 1992. YPF now
sells directly to third parties all LPG produced at the field recovery
plants in addition to the LPG produced and stored at its refineries. In
addition, the Company acquired AGIP Argentina S.A. in November 1993 for a
purchase price of approximately U.S.$60 million, subject to certain
post-closing adjustments. AGIP Argentina S.A. (now operated under the name
YPF Gas S.A.) has an extensive LPG retail network which the Company has
used to integrate the production, distribution and marketing of LPG. The
addition of this LPG retail network did not have a significant effect on
Downstream's operating results for 1993 due to its acquisition late in the
year.
Operating income in 1993 was Ps.145 million compared to a loss of Ps.106
million in 1992. This improvement was due to a Ps.324 million reduction in
cost of sales and an increase of Ps.52 million in net sales, partially
offset by an increase of Ps.122 million in selling expenses. The increase
in selling expenses was due primarily to an increase in the sales force,
increased advertising and promotion expenses, higher transportation
expenses and an allocation of other selling expenses to Downstream in 1993
that had been previously reflected as corporate administrative expenses.
The decline in the cost of sales was primarily due to an approximately 10%
decline in the cost of crude feedstock. This decline, which reflected a 10%
decrease in average internal transfer prices for crude oil furnished by
Upstream, resulted primarily from the decrease in international oil prices
during the periods compared. The average daily price for WTI during 1993
was U.S.$18.44 as compared to U.S.$20.55 for 1992. During the fourth
quarter of 1993, the average daily price for WTI was approximately
U.S.$16.40.
Cost of sales of Downstream also benefited from a Ps.37 million decrease in
salary expense resulting from employee reductions, and a Ps.20 million
decrease in depreciation expenses resulting from the disposition of three
refineries, barges and certain other assets. These improvements in costs of
sales more than compensated for Ps.50 million in contract expenses
associated with the Company's increased use of third party contractors by
Downstream.
TAXATION
At December 31, 1994, the statutory income tax rate applicable to YPF was
30%. However, for 1992 through 1994, the Company paid no income tax due to
losses on a tax basis resulting from differences between reported income
and taxable income.
53
<PAGE> 142
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
As of December 31, 1994, the Company had accumulated net operating loss
carryforwards equal to Ps.1,043 million, which, based on a 30% tax rate,
resulted in a potential net unrecognized tax benefit of Ps.313 million. Of
this amount, Ps.35 million expires in 1996, Ps. 263 million expires in 1997
and Ps.15 million expires in 1998. See Note 3.g of Notes to Financial
Statements. In addition, the Company may be entitled to additional tax
benefits in future years under provisions in the Argentine tax laws which
provide that expense reserves give rise to a tax deduction at the time that
the corresponding write-off or payment is made rather than at the time they
are established. As of December 31, 1994, the temporary differences between
reported income under Argentine GAAP and taxable income for the Company
(including the tax loss carryforward) amounted to approximately Ps.1,300
million, which, based on a 30% tax rate, resulted in a potential net
unrecognized tax benefit of Ps.390 million.
Argentine companies are also subject to a 1% tax on total assets located in
certain provinces. This tax is effectively an alternative minimum tax,
because a company must pay the higher of its income tax or assets tax
liability. In 1992 and the six months ended June 30, 1993, the Company was
exempt from the assets tax pursuant to a decree of the National Executive;
however, effective July 7, 1993, the Company became subject to the assets
tax. Given the significant amount of its net operating tax loss
carryforwards, the Company was not required to pay income taxes for the
fiscal years ended December 31, 1993 and 1994 and therefore accrued Ps.30
million and Ps.11 million, respectively, for its liability for the assets
tax. Under a decree of the National Executive, the assets tax was abolished
for all companies with respect to fiscal years ending on or after June 30,
1995. Because the Company's fiscal year ends on December 31, YPF will not
accrue any assets tax liability for 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operating activities was Ps.1,369 million in 1994, as
compared to Ps.862 million in 1993, a 59% increase. This was primarily due
to smaller disbursement for employee terminations in 1994 (Ps.64 million)
than in 1993 (Ps.250 million), and a Ps.148 million prepayment of fuel
transfer taxes and other taxes in 1993. This prepayment accrued interest at
a monthly rate of 1% and was used to offset taxes liabilities in 1994.
Significant sources of cash in 1994 from investing and financing activities
included Ps.1,448 million from new borrowings and Ps.134 million from the
sale of the Rio Neuquen field. Significant sources of cash in 1993 from
investing and financing activities included Ps.481 million from new
borrowings and Ps.393 million from non-cash investments (principally from a
decrease of current investments from Ps.343 million at year-end 1992 to
Ps.12 million at year-end 1993, due principally to the sale of all pension
indebtedness consolidated bonds ("BOCONES") owned by the Company) and Ps.91
million from the sale, assignment or association of certain oil and gas
properties and other assets.
The principal uses of cash in 1994 included Ps.1,257 million for fixed
asset acquisitions (of which approximately Ps.1,200 million represented
capital expenditures), repayment of outstanding loans of Ps.1,048 million,
and a dividend payment of Ps.587 million. In addition, during 1994 the
Company expended Ps.64 million related to employee terminations. The
principal uses of cash in 1993 included Ps.866 million for fixed asset
acquisitions (of which approximately Ps.750 million represented capital
expenditures), Ps.707 million for repayment of outstanding loans (on a net
basis), Ps.250 million of disbursements for employee terminations and a
dividend payment of Ps.177 million.
Of the approximately Ps.1,200 million of capital expenditures in 1994,
approximately Ps.1,000 million represented Upstream capital expenditures
and approximately Ps.170 million represented Downstream capital
expenditures. In addition, the Company invested approximately Ps.90 million
in controlled companies in 1994, including Ps.42 million for the
acquisition of Petroken and Ps.24 million for companies formed to implement
YPF's service station modernization program. Upstream capital expenditures
related primarily to exploration and development costs, the majority of
which represented the drilling of development wells and workovers in the
Golfo San Jorge and Neuquen basins. Downstream capital expenditures
included approximately Ps.80 million to upgrade YPF-branded service
stations and for improvements to product terminals, Ps.44 million for
efficiency and other improvements at the La Plata Refinery, Ps.25 million
for efficiency and other improvements at the Lujan de Cuyo Refinery and
Ps.11 million related to capacity expansion and maintenance of pipelines.
Projected capital expenditures for 1995 include approximately Ps.1,500
million of projected Upstream capital expenditures and approximately Ps.240
million of projected Downstream capital expenditures.
The Upstream capital budget for 1995 includes approximately Ps.1,100
million to improve production through new development drillings, joint
venture participations, workovers and secondary recovery projects and
approximately Ps.350 million for exploration (of which, based on
experience, approximately Ps.80 million is expected to be capitalized).
Following the strategy of expanding YPF activities outside Argentina, the
Compa-
54
<PAGE> 143
YPF SOCIEDAD ANONIMA
ny's exploration budget for 1995 includes Ps.37 million for operations in
international areas in which YPF has interests.
The principal capital projects in Downstream for 1995 include approximately
Ps.85 million for efficiency and environmental projects at the Company's
refineries and plants (approximately Ps.41 million for the La Plata
Refinery, Ps.23 million for the Lujan de Cuyo Refinery and Ps.20 million
for the Petroquimica La Plata Plant), approximately Ps.93 million to
upgrade tanks and pumps and to improve the image of YPF-branded service
stations, and approximately Ps.34 million to improve terminals.
YPF has completed initial studies with respect to a broad range of
environmental projects in both the Upstream and Downstream businesses.
Capital expenditures associated with these projects, which are included in
the capital expenditure projections set forth above, are estimated at
approximately Ps.260 million over a three-year period ending December 31,
1997. In addition to such amounts, the Company is being and will be
required to remediate existing conditions caused by past operations. The
Company established a financial statement reserve in 1992 in an amount the
Company believes would cover the cost of remediating existing conditions
caused by operations in prior years. The balance of such reserve was Ps.21
million at December 31, 1994. A significant portion of the proposed
environmental program is dedicated to the La Plata Refinery.
Pursuant to shareholders' resolutions adopted in July 1993 and April 1994,
the Company paid six quarterly dividends, each in the amount of Ps.0.20 per
share, to shareholders of record on October 26, 1993, January 26, May 25,
August 24, November 23 of 1994 and February 22, 1995. In connection with
the privatization of the Company, the Argentine Government obtained an
agreement from the Company, which is reflected in the Company's Bylaws,
that the Company would pay to the Argentine Government a one-time special
dividend based upon the Company's net income for the six months ended June
30, 1993 and certain other factors, which dividend would not be paid to any
other shareholder of the Company. At the shareholders' meeting held on
April 29, 1994, the shareholders approved the payment of a special dividend
of Ps.410 million in satisfaction of the requirements of the By-laws. The
actual amount paid to the Argentine Government in respect of the special
dividend was approximately Ps.284 million as a result of an offset relating
to receivables owing to the Company from the Argentine Government. The
special dividend was paid to the Argentine Government in April 1994 after
its approval at the shareholders' meeting held on April 29, 1994. The
decrease in net worth during 1994 was substantially due to the payment to
the Argentine Government of such special dividend.
Certain of the Company's loan agreements include clauses whereby the
lenders must be informed prior to any material change in the course of
business of the Company, any disposal and/or sale of assets, or any other
event that materially changes the Company's economic or financial position.
A failure to observe these provisions would permit the lenders to suspend
disbursements, terminate the agreements and/or demand repayment of the
outstanding principal plus interest. Such lenders could also give notice of
an event of default if the Argentine Government, which has guaranteed such
loans, fails to pay its obligations as they become due. The Company has
never received a notice of an event of default.
Total debt outstanding at December 31, 1994, net of the Argentine
Government commitment to assume certain foreign financial debt, was
approximately Ps.1,105 million, consisting of short-term debt (including
the current portion of long-term debt) of Ps.464 million and long-term debt
of Ps.641 million. Of the total debt at December 31, 1994, approximately
Ps.770 million was denominated in dollars and Ps.325 million was
denominated in yen. In September 1993, the Company entered into a
yen-dollar currency swap transaction with respect to yen-denominated debt,
equivalent to U.S.$334 million at the time of the transaction, in order to
reduce the Company's exposure to the effects of fluctuations in exchange
rates of the yen in relation to the dollar. Of the Ps.641 million of
long-term debt at December 31, 1994, approximately Ps.160 million is due
over the next five years. The weighted average interest rate on the
Company's total debt at December 31, 1994 was approximately 8%.
In February 1994, the Company completed an offering of U.S.$350 million of
8% Negotiable Obligations. Of the net proceeds from such offering, the
Company has repaid Ps.192 million of less-favorable indebtedness and has
made capital expenditures of Ps.158 million. The Negotiable Obligations
were issued under an Indenture that contains certain covenants restricting,
among other things, creation of liens, engagement in sale and leaseback
transactions and sales of assets. The Company has also established a medium
term note program pursuant to which it may issue up to U.S.$500 million of
notes in one or more classes or series. See Note 4.g of Notes to Financial
Statements.
The Company expects to finance its 1995 capital expenditure budget through
cash from operations, the issuance of debt securities under the Company's
medium term note program and bank loans.
Since the devaluation of the Mexican peso in relation to the U.S. dollar in
December 1994 and the economic uncertainty in Mexico related to such event,
many Latin American companies have experienced difficulty borrowing money
on acceptable
55
<PAGE> 144
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
terms. Although the Company does not expect that this credit tightening
will affect its ability to implement its capital expenditure budget for
1995, a continuation of this credit situation over an extended period would
make it difficult for the Company to finance participation in other Latin
American privatizations, other future acquisitions or an increase in its
exploration and development budget in the future.
As of December 31, 1994, the net book value of the shareholders' equity was
Ps.5,086 million including a legal reserve of Ps.65 million in accordance
with Law 19,550 (the Argentine Corporation Law). At the shareholders'
meeting to be held on April 28, 1995, the Company's Board of Directors will
propose to increase such reserve by Ps.27 million.
US GAAP RECONCILIATION
The principal difference between the Company's net income under Argentine
GAAP and the Company's net income under US GAAP for the year ended December
31, 1994 is the effect of the charge under US GAAP related to the Employee
Stock Purchase Program, the change in the Company's accounting policy
regarding fixed assets recoverability, and the accounting under US GAAP for
deferred income tax.
Under US GAAP, the Company recognized compensation expense of Ps.132
million in connection with the transfer of Class C shares to employees,
which represented the difference between the purchase price for the shares
and the fair value of the shares at the measurement date in December 1994.
In the fourth quarter of 1994, the Company changed its accounting policy
regarding fixed assets recoverability for purposes of the reconciliation to
US GAAP, which resulted in a charge of Ps.72 million in December 1994.
Under Argentine GAAP, income tax expense is generally recognized based upon
the estimate of the current income tax liability to the Argentine tax
authorities; under US GAAP, deferred tax assets and liabilities are
recognized for differences between the financial and tax basis of assets
and liabilities at each reporting date. As of December 31, 1994, a net
deferred tax asset of Ps.192 million was recognized for US GAAP purposes.
See Notes 19, 20 and 22 of Notes to Financial Statements.
TRANSACTIONS WITH RELATED COMPANIES
The Company owns, directly or indirectly, approximately 100% of the stock
of three new companies formed during fiscal year 1994 to implement its
service station modernization program: Operadora de Estaciones de Servicio
S.A. ("OPESSA"), Servired YPF S.A. ("SERVIRED") and Sociedad Immobiliaria
Red Propia S.A. ("SIRPSA"). OPESSA acquires, sells, maintains and manages
commercial operations of YPF's gas stations. SIRPSA is a real estate
company engaged in the construction and installation of the Company's gas
stations and the convenience stores operating in the facilities. SERVIRED
is engaged in the construction and operation of convenience stores in gas
stations.
In the second quarter of 1994, YPF acquired 50% of Petroken Petroquimica
Ensenada S.A. ("Petroken"), a company that produces polypropylene. See "--
Recent Events."
In the first quarter of 1995, YPF Chile S.A. ("YPF Chile") and Petroleos
Trasandinos YPF S.A. ("Petroleos Trasandinos") commenced operations in
Chile, allowing YPF to enter the Chilean market. YPF Chile was formed to
make acquisitions and investments and Petroleo Trasandino is engaged in oil
and gas exploration and production. The Company is directly or indirectly
the holder of 100% of the stock of both companies.
YPF Exploration and Production Overseas Inc. is a wholly owned subsidiary
of YPF engaged in oil exploration and production in the Gulf of Mexico. The
company was formed in 1994.
YPF holds an interest of 57.75% in Oleoducto Trasandino (Argentina),
Oleoducto Trasandino (Chile) and A&C Pipeline Holding Co. Such companies
operate the Oleoducto Trasandino. See "--Recent Events."
The Company makes substantial sales and purchases to Refineria del Norte
S.A. ("Refinor") and Oleoducto del Valle S.A. ("Oldelval"). The
transactions with Refinor involve complementary products commercialized by
the Company. Oldelval's ownership of the pipeline originates the commercial
relation between YPF and such company.
The Company maintained all the investments that it carried at the beginning
of the fiscal year. The net income obtained from these investments during
1994 was Ps.22 million.
Among other purposes, the foregoing discussion and analysis is intended to
cover the reporting items required by the Argentine Corporation Law
(Article 66 of Law No. 19,550).
THE BOARD OF DIRECTORS
Buenos Aires, March 7, 1995
56
<PAGE> 145
YPF SOCIEDAD ANONIMA
FISCAL YEARS NUMBERS 18, 17 AND 16
BEGINNING ON JANUARY 1, 1994, 1993 AND 1992
Financial Statements as of December 31, 1994, 1993 and 1992
Avenida Presidente Roque Saenz Pena 777 - Buenos Aires
Principal business of the Company: exploration, development and production of
oil and natural gas and refining, marketing, transportation and distribution of
oil and petroleum products, and petroleum derivatives.
Date of registration with the Public Commerce Register: June 2, 1977.
Duration of the Company: through June 15, 2093.
Last amendment to the bylaws: June 15, 1993.
CAPITAL STRUCTURE AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
SUBSCRIBED, PAID-IN AND
AUTHORIZED FOR STOCK
EXCHANGE LISTING
(EXPRESSED IN ARGENTINE PESOS) (NOTE 7)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Book-entry shares of Common Stock, Argentine pesos 10 par value, 1 vote per share 3,530,000,000
========================================================================================================================
</TABLE>
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
57
<PAGE> 146
YPF SOCIEDAD ANONIMA
BALANCE SHEETS
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18)
<TABLE>
<CAPTION>
====================================================================================================================
AS OF DECEMBER 31, 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash 55 77 79
Investments (Note 4.a) 11 12 343
Trade receivables (Note 4.b) 529 456 492
Other receivables (Note 4.c) 230 462 219
Inventories (Note 4.d) 272 383 402
- --------------------------------------------------------------------------------------------------------------------
Total current assets 1,097 1,390 1,535
- --------------------------------------------------------------------------------------------------------------------
NONCURRENT ASSETS
Trade receivables (Note 4.b) 231 304 810
Other receivables (Note 4.c) 255 201 28
Investments (Note 4.a) 231 117 103
Fixed assets (Note 4.e) 5,640 5,546 5,304
Intangible assets (Exhibit B) 55 62 -
- --------------------------------------------------------------------------------------------------------------------
Total noncurrent assets 6,412 6,230 6,245
- --------------------------------------------------------------------------------------------------------------------
Total assets 7,509 7,620 7,780
====================================================================================================================
CURRENT LIABILITIES
Accounts payable (Note 4.f) 665 671 474
Loans (Notes 4.g and 11) 464 263 411
Salaries and social security 26 38 95
Taxes payable 98 131 273
Dividends payable 71 75 -
Reserves (Exhibit E) 71 53 280
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,395 1,231 1,533
- --------------------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES
Accounts payable (Note 4.f) 23 46 85
Loans (Notes 4.g and 11) 641 453 431
Taxes payable 249 344 405
Reserves (Exhibit E) 115 289 564
- --------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 1,028 1,132 1,485
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 2,423 2,363 3,018
SHAREHOLDERS' EQUITY
(PER CORRESPONDING STATEMENTS) 5,086 5,257 4,762
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 7,509 7,620 7,780
====================================================================================================================
</TABLE>
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
58
<PAGE> 147
YPF SOCIEDAD ANONIMA
STATEMENTS OF INCOME
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18, except for
per share and per ADS amounts in Argentine pesos as of the same date)
<TABLE>
<CAPTION>
====================================================================================================================
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 4,192 4,190 4,094
Cost of sales (2,834) (2,880) (3,014)
- --------------------------------------------------------------------------------------------------------------------
Gross profit 1,358 1,310 1,080
Administrative expenses (147) (124) (254)
Selling expenses (329) (321) (199)
Exploration expenses (174) (110) (73)
- --------------------------------------------------------------------------------------------------------------------
Operating income 708 755 554
Income on long-term investments in related companies 22 8 4
Other expenses, net (142) (122) (48)
Financial income (expense) and holding gains (losses), net:
Gains (losses) on assets (67) 128 (53)
Gains (losses) on liabilities 27 (171) (24)
Income from the renegotiation of long-term contracts and sale of areas 1 224 -
- --------------------------------------------------------------------------------------------------------------------
Income before unusual and extraordinary losses 549 822 433
Unusual and extraordinary losses, net - (45) (162)
- --------------------------------------------------------------------------------------------------------------------
Net income before income and assets tax 549 777 271
Income and assets tax (11) (30) -
- --------------------------------------------------------------------------------------------------------------------
Net income 538 747 271
====================================================================================================================
Earnings per share and per ADS (Note 2) 1.52 2.12 0.77
====================================================================================================================
</TABLE>
For supplemental information on statements of income, see Note 4.h.
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
59
<PAGE> 148
YPF SOCIEDAD ANONIMA
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18, except for
per share and per ADS amounts in Argentine pesos as of the same date)
<TABLE>
<CAPTION>
=================================================================================================================================
SHAREHOLDERS' CONTRIBUTIONS
------------------------------------ UNAPPROPRIATED TOTAL
SUBSCRIBED ADJUSTMENT TO LEGAL RETAINED SHAREHOLDERS'
CAPITAL CONTRIBUTIONS TOTAL RESERVE EARNINGS EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991 610 3,865 4,475 - 269 4,744
As decided by the Ordinary Shareholders'
meeting of:
- November 25, 1992:
Appropriation to legal reserve - - - 15 (15) -
Cash dividends ($0.72 per share and per ADS) - - - - (253) (253)
Net income for the year ended December 31, 1992 - - - - 271 271
- ---------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1992 610 3,865 4,475 15 272 4,762
- ---------------------------------------------------------------------------------------------------------------------------------
As decided by the Ordinary and Extraordinary
Shareholders' meetings of:
- June 11, 1993:
Capitalization of the Adjustment to
Contributions account 2,920 (2,920) - - - -
Appropriation to legal reserve - - - 13 (13) -
Cash dividends ($0.30 per share and per ADS) - - - - (105) (105)
- July 6, 1993:
Cash dividends ($0.42 per share and per ADS) - - - - (147) (147)
Net income for the year ended December 31, 1993 - - - - 747 747
- ---------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 3,530 945 4,475 28 754 5,257
- ---------------------------------------------------------------------------------------------------------------------------------
As decided by the Ordinary Shareholders'
meeting of:
- April 29, 1994:
Appropriation to legal reserve - - - 37 (37) -
Cash dividends ($0.84 per share and per ADS) - - - - (299) (299)
Special Dividend (Note 16) - - - - (410) (410)
Net income for the year ended December 31, 1994 - - - - 538 538
- ---------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 3,530 945 4,475 65 546 5,086
=================================================================================================================================
</TABLE>
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
60
<PAGE> 149
YPF SOCIEDAD ANONIMA
STATEMENTS OF CASH FLOWS
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18)
<TABLE>
<CAPTION>
========================================================================================================================
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 538 747 271
Adjustments to reconcile net income to net cash provided
by operating activities:
Unusual and extraordinary losses - 45 162
Income from the renegotiation of long-term contracts
and sale of areas (1) (224) -
Income on long-term investments in related companies (24) (7) (4)
Depreciation of fixed assets 688 571 665
Net book value of fixed assets retired 144 313 361
Increase in allowances for fixed assets 108 28 10
Net decrease in reserve for miscellaneous contingencies
and future losses on long-term contracts (38) (92) (76)
Net decrease in reserve for employee terminations (28) (250) (332)
Changes in assets and liabilities:
Trade receivables - 54 (343)
Other receivables (18) (292) (106)
Inventories 109 19 102
Accounts payable (72) 109 (62)
Salaries and social security (12) (57) (51)
Taxes payable (40) (203) (91)
Interest payable and other 15 101 20
- ------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 1,369 862 526
========================================================================================================================
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisitions of fixed assets (1,257) (866) (774)
Acquisitions of long-term investments and intangible assets (91) (75) (4)
Net proceeds on the assignment and or association of areas
and sale of other assets 134 91 444
Investments (non-cash and equivalents) - 393 (10)
Dividends from long-term investments 9 3 10
- ------------------------------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (1,205) (454) (334)
========================================================================================================================
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from loans 1,448 481 360
Payment of loans (1,048) (707) (344)
Dividends paid (587) (177) (247)
- ------------------------------------------------------------------------------------------------------------------------
Net cash flows used in financing activities (187) (403) (231)
========================================================================================================================
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (23) 5 (39)
Cash and equivalents at the beginning of years 84 79 118
- ------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at the end of years 61 84 79
========================================================================================================================
</TABLE>
For supplemental information on cash flows, see Note 12.
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
61
<PAGE> 150
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS
ENDED DECEMBER 31, 1994, 1993 AND 1992
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18, except for
per share and per ADS amounts in Argentine pesos or where otherwise indicated).
1 THE PROCESS OF TRANSFORMING THE COMPANY TO A COMMERCIAL BUSINESS AND THE
PRIVATIZATION PROCESS
The process of transforming YPF Sociedad Anonima (the "Company" or "YPF")
into a commercial business began on the effective date of Decree Number
2,778/90 (the "Transformation Decree") issued by the Executive Branch of
the Argentine government on January 1, 1991. Subsequently, in 1992, the
Argentine Congress passed Law Number 24,145 (the "YPF Privatization Law"),
which reaffirmed and provided the legal framework for the privatization of
the Company and the reorganization strategy established by the
Transformation Decree. As of December 31, 1993, YPF's restructuring process
was completed.
The transformation process included restructuring actions, principally
involving the focusing of the Company on its strategic operations and the
sale of assets not considered necessary for the Company's future
operations. The YPF Privatization Law also provided for the conversion of
the Company's producing fields and undeveloped properties into exploitation
(production) concessions and exploration permits under Law Number 17,319
(the "Hydrocarbons Law").
2 SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles in Argentina ("Argentine
GAAP") and the regulation of the Argentine Securities Commission ("CNV").
They also include certain reclassifications and additional disclosures that
allow, still complying with the regulations of the CNV, the financial
statements to conform more closely to the form and content required by the
Securities and Exchange Commission of the United States of America ("SEC").
Presentation of Financial Statements in Constant
Argentine Pesos
In accordance with the restatement methodology established in Technical
Resolution Number 6 of the Argentine Federation of Professional Councils in
Economic Sciences ("FACPCE") and current legislation, the financial
statements of the Company have been stated in constant Argentine pesos as
of the end of each year. All financial statement amounts have been
subsequently restated to December 31, 1994, constant Argentine pesos. This
restatement does not change the prior period statements in any way except
to update the reported amounts to constant Argentine pesos as of December
31, 1994. In accordance with these requirements, conversion factors derived
from the general level wholesale price index ("GLWPI") issued by the
National Institute of Statistics and Census ("INDEC") have been used to
arrive at the constant Argentine pesos financial statements.
The conversion factors used to restate the financial statements in constant
Argentine pesos as of the end of each year to December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED CONVERSION
--------------------------------------------------
<S> <C>
December 31, 1992 1.059
December 31, 1993 1.059
December 31, 1994 1.000
</TABLE>
Financial Instruments with Off-Balance Sheet Risk and Concentrations of
Credit Risk
In September 1993, the Company entered into a currency swap agreement with
the Chase Manhattan Bank ("Chase") that is intended to hedge a Japanese yen
borrowing through the exchange of U.S. dollars for Japanese yens at a fixed
rate of exchange of 105.65 Yen/US$. The principal amount of this currency
swap is 334 million U.S. dollars and the agreement runs through 2003. This
transaction does not imply the replacement of the original creditor or the
generation of any new liabilities.
During September and October 1994, the Company signed agreements with
Chase, Internationale Nederlanden Bank ("ING") and Morgan Guaranty Trust
Company ("Morgan") under which each bank will be responsible for 80%, 10%
and 10% respectively, of the currency swap originally entered into with
Chase.
Other than as stated in the previous paragraph, the Company has not used
financial instruments to manage its exposure to fluctuations in foreign
currency exchange rates or fluctuations in crude oil prices and,
accordingly, has not entered into other transactions that create
off-balance sheet risks associated with such financial instruments.
The Company provides credit in the normal course of business to refiners
and marketers of petroleum products, petrochemical companies, trading
companies for crude oil exports, retail customers, state owned entities and
agencies of the Argentine government and natural gas distributors.
Cash and Short Term Investments
In the statements of cash flows, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to
be cash and cash equivalents (Note 12).
Recognition of Revenue
Revenue is recognized on sales of crude oil, refined products and natural
gas, in each case, upon delivery to the customers.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 20 in the English translation.
62
<PAGE> 151
YPF SOCIEDAD ANONIMA
Joint Ventures (Uniones Transitorias de Empresas or "UTEs") and Foreign
Branches
The Company's interests in oil and gas related joint ventures involved in
exploration and in oil and gas extraction have been proportionately
consolidated, and foreign branches have been fully consolidated (Note 9).
Earnings Per Share
Earnings per share have been computed as if the Company's 353,000,000
shares were outstanding during each year.
3 VALUATION METHODS
The principal valuation methods used in the preparation of the financial
statements are as follows:
a) Cash, Trade and Other Receivables and Payables:
- - Amounts in Argentine pesos have been valued at nominal value, which
includes accrued interest through the end of each year, if applicable.
- - Amounts in foreign currencies have been valued at the relevant exchange
rates in effect as of each year end, including accrued interest, if
applicable. Additional information on assets and liabilities denominated in
foreign currency is presented in Exhibit G. Exchange differences have been
credited (charged) to current income.
If applicable, allowances have been made to reduce receivables to their
estimated realizable values.
b) Current Investments:
Short term investments:
- - Certificates of deposit in Argentine pesos have been valued at nominal
value, including accrued interest through the end of each year.
- - Certificates of deposit in foreign currency have been valued at the
exchange rates in effect as of the year end, including accrued interest
through the end of each year. The related detail is set forth in Exhibit G.
Government securities (Bonex and BOCONES) have been stated at market
prices, net of estimated sales costs or at estimated realizable value if no
representative market value exists, as of the end of each year.
c) Inventories:
- - Refined products for sale, products in process of refining and crude oil
have been valued at replacement cost as of the end of each year.
- - Materials, raw materials and packaging materials, prior to January 1, 1993,
have been valued at inflation-adjusted historical cost on a LIFO basis. As
of December 31, 1992, the excess of current cost over the LIFO cost of
these inventories was not significant. Effective January 1, 1993 the
Company changed to the FIFO basis of accounting. The effect of the change
did not have a material effect on unappropriated retained earnings or net
income.
If applicable, allowances have been made to reduce inventories to their
estimated realizable value.
d) Noncurrent Investments:
These include the Company's investments in controlled and related companies
as defined by Argentine Corporation Law (Article 33 of Law Number 19,550).
These investments are detailed in Exhibit C and have been valued using the
equity method.
Holdings in preferred shares have been valued at redemption value plus
equity in retained earnings, as defined in the respective bylaws which
establish that dividends are to be distributed 60% to preferred shares and
the remaining 40% pro-rata among all shares (common and preferred).
Adjustments have been recorded to the carrying amount of investments if the
equity adjusted carrying value of the investment exceeds its estimated
realizable value. The equity of foreign investments have been converted
into Argentine pesos at the exchange rate prevailing at the end of each
year.
In addition, adjustments have been made to conform the accounting policies
of the investees to those of the Company. No events have come to
management's attention that would indicate a change in the financial
position and/or results of operations of related companies as of December
31, 1994 that might have a significant impact on the valuation of these
investments as of that date.
The Company maintains a reserve for the full amount of its 60% investment
in Agroquimica Latinoamericana S.A., since recovery of the cost of this
investment is doubtful.
During the year ended December 31, 1992, the Company established the
following corporations: Oleoducto Trasandino (Argentina) S.A., Oleoducto
Trasandino (Chile) S.A., Refineria del Norte S.A., Oleoductos del Valle
S.A. and Ebytem S.A.
English translation of the financial statements originally issued in
Spanish, except for the inclusion of notes 18, 19 and 20 in the English
translation.
63
<PAGE> 152
During 1993, YPF organized A&C Pipeline Holding Company, Transportes
Maritimos Petroleros S.A., Terminales Maritimas Patagonicas S.A. and YPF
USA Inc. and acquired 99.99% of the shares of Agip Argentina S.A.
(currently YPF Gas S.A.). YPF also completed the sale of its 49% interest
in Interpetrol S.A. and the Company's shareholdings in Petroquimica Bahia
Blanca S.A. and Petroquimica General Mosconi S.A.I.C. were assigned to the
Ministry of Defense. The Company did not receive any proceeds from the
assignment. Consequently, the amounts recorded as investments were written
off, together with the related reserves.
In addition, during the year ended December 31, 1994, YPF organized the
companies Servired YPF S.A., Sociedad Inmobiliaria Red Propia S.A.,
Operadora de Estaciones de Servicios S.A., YPF Exploration and Production
Overseas Inc., YPF Chile S.A. and Petroleos Transandinos YPF S.A., and
acquired 50% of Petroken Petroquimica Ensenada S.A.
As of and for the years ended December 31, 1994 and 1993, the Company
presented supplemental consolidated financial statements as part of the
basic financial statements (Schedule I). Since the full amount of the
investment in Agroquimica Latinoamericana S.A. had been reserved, and on
December 31, 1992 the Company's investments in its other controlled
companies were not material, the Company did not present supplemental
consolidated financial statements as part of the basic financial statements
as of December 31, 1992.
e) Fixed Assets:
Fixed assets have been valued at acquisition cost, restated to year end
constant Argentine pesos, less related accumulated depreciation. For those
assets to be sold, assigned or associated with third parties, an allowance
to reduce the carrying value to estimated realizable value has been
recorded, if applicable.
Beginning on January 1, 1994, for those assets whose construction requires
an extended period of time, financing costs generated by related
liabilities, net of the effect of inflation on such liabilities, have been
capitalized. This capitalization has been made in accordance with Technical
Resolution Number 10 of the FACPCE, with General Resolution Number 195 of
the CNV and with Statement of Financial Accounting Standards Number 34 of
the Financial Accounting Standards Board of the United States of America.
The above mentioned change has not been applied retroactively due to its
immaterial effect in previous years.
Oil and Gas Producing Activities
- - The Company follows the "successful efforts" method of accounting for its
oil and gas exploration and production operations. Accordingly,
exploratory costs, excluding the costs of exploratory wells, have been
charged to expense as incurred. Costs of drilling exploratory wells,
including stratigraphic test wells, have been capitalized pending
determination as to whether the wells have found proved reserves which
justify commercial development. If such reserves are not found, the
drilling costs are charged to exploratory expenses.
- - Intangible drilling costs applicable to productive wells and to
developmental dry holes, as well as tangible equipment costs related to the
development of oil and gas reserves, have been capitalized.
- - The capitalized costs related to producing activities, including tangible
and intangible costs, have been amortized by field on the
unit-of-production basis by applying the ratio of produced oil and gas to
estimated recoverable proved and developed oil and gas reserves. The
Company's reserve estimates for December 31, 1994, 1993 and 1992 have been
audited by Gaffney, Cline & Associates, petroleum engineers.
- - Estimated future abandonment and plugging costs have been considered in
determining amortization and depreciation rates.
Other Fixed Assets
- - The Company's other fixed assets have been depreciated using the
straight-line method, with depreciation rates based on the estimated useful
life of each class of property.
- - Periodic maintenance and repairs to production installations carried out at
greater than annual frequency have been accounted for on the accrual basis
in order to allocate the expense in the corresponding period. Normal
maintenance and repairs to all other fixed assets have been charged to
expense as incurred.
Renewals, betterments and major repairs that materially extend the life of
properties are capitalized. As fixed assets are retired, the cost and
accumulated depreciation relating to the fixed asset is removed from the
balance sheet.
The Company capitalizes the costs incurred in limiting, neutralizing or
preventing environmental pollution only in those cases in which at least
one of the following conditions is met: (a) the expenditure improves the
safety or efficiency of an operating plant (or other productive asset); (b)
the expenditure prevents or limits environmental pollution at operating
facilities; or (c) the expenditures are incurred to prepare assets for sale
and do not raise the asset's carrying value above its estimated realizable
value.
- - The carrying value of the fixed assets, taken as a whole, does not exceed
their estimated realizable value.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
64
<PAGE> 153
YPF SOCIEDAD ANONIMA
f) Intangible Assets:
Goodwill represents the excess of the acquisition cost of the investment in
YPF Gas S.A. over its equity, which is similar to the fair value of net
assets acquired at the date of its acquisition, restated to year end
constant Argentine pesos. Goodwill has been disclosed net of the related
accumulated amortization. Amortization of this goodwill is provided over
its estimated useful life of 120 months.
g) Taxes and Royalties:
Income and Assets Tax
In practice these taxes are complementary, because the income tax is levied
on the tax year's actual taxable income and the assets tax is a minimum tax
imposed on the Company's potential income from its productive assets.
Consequently, the Company's tax payments will be the greater of the income
or assets tax liability.
No income tax has been provided due to the existence of income tax
carryforwards at the end of each fiscal year.
As of December 31, 1994, the Company's estimated net operating tax loss
carryforwards amounted to 1,043 approximately, all of which arose
subsequent to January 1, 1991, which computed at the current tax rate of
30% amounts to a possible future tax benefit of 313. Of this amount, 35
expires in 1996, 263 expires in 1997, and 15 expires in 1998.
Due to the issuance of Decrees Number 1924/91 and 1521/93 by the Executive
Branch of the Argentine government, the Company was exempt from the assets
tax until July 7, 1993, the completion date of the privatization. During
1994, the assets tax was repealed in most of the provinces in which YPF's
assets are located. For the remaining provinces, this tax will be repealed
for fiscal years ending on or after June 30, 1995.
The assets tax rate is 1%. The assets tax base comprises virtually all the
Company's assets except additions to fixed assets during the first
two-fiscal years from purchases, and noncurrent investments in Argentine
companies, as valued for tax purposes. Differences between the book value
and the tax value of the Company's assets are principally due to the
valuation allowances and reserves established by the Company, which are not
deductible for tax purposes until utilized or until the liability is paid.
Tax Amnesties
On July 2, 1993, the Company elected under the tax amnesty Decree Number
932/93 to pay 30 of tax in thirty installments. On February 3, 1994, this
tax liability was settled. This tax liability arose due to a change in the
methodology used by the Company in computing the VAT payable on sales of
natural gas and other items. The change in methodologies also results in a
similar balance of recoverable VAT. The Company has filed a request with
the DGI (the tax authorities) for either a refund or the establishment of a
right of offset of the VAT payable against other taxes owed to the DGI.
Royalties and Turnover Tax
A 12% royalty is payable on the estimated value at the wellhead of crude
oil production and the natural gas volumes effectively utilized. The
royalty expense is accounted for as a production cost. The estimated value
is calculated based upon the approximate sales price of the crude oil and
gas produced, less the costs of transportation, storage and treatment.
Sales, excluding exports, are subject to turnover tax at an average
effective rate of approximately 1.37%, 1.20% and 1.20% as of December 31,
1994, 1993 and 1992, respectively.
h) Allowances and Reserves:
Allowances and Reserves Related to Assets
Amounts have been provided in order to reduce the valuation of trade
receivables, other receivables, inventories, noncurrent investments and
fixed assets based on analysis of doubtful accounts or on the estimated
realizable value of these assets.
Reserves for Losses
Amounts have been provided for various contingencies involving the Company.
The estimated probable amounts recorded take into consideration the
probability of occurrence, based on management's expectations and on the
opinion of legal counsel. The reserves for future losses on long-term
contracts have been stated at net present value, using a 10% annual
discount rate (Note 15).
See Note 15 for the assumption of contingencies as of December 31, 1990 by
the Argentine government.
The movement of reserves and allowances is set forth in Exhibit E.
i) Shareholders' Equity Accounts:
These accounts have been stated in constant Argentine pesos as of the end
of each year, except for the "Subscribed capital" account which is stated
at its historical value. The adjustment required to state the balance in
constant Argentine pesos is disclosed in the "Adjustment to contributions"
account.
English translation of the financial statemnts originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
65
<PAGE> 154
j) Statements of Income Accounts:
All amounts have been restated in constant Argentine pesos as of the end of
each year, as follows:
- - Accounts accumulating monetary transactions throughout the year have been
restated by applying the conversion factors corresponding to the month of
accrual of the original transaction.
- - The charges for the depreciation and amortization of nonmonetary assets,
valued at historical cost, have been restated based on the GLWPI adjusted
amounts of such assets.
- - Holding gains (losses) on inventories and short-term investments in
government securities valued at current value are stated net of the effect
of the year's inflation on such inventories and short-term investments and
have been disclosed in the accounts "Holding gains (losses) on inventories"
and "Profits due to the sale and holding gains on BOCONES", respectively
(Note 4.j).
- - Income and financial costs have been disclosed net of the effect of general
inflation on the related assets and liabilities. The effect of inflation on
the remaining monetary assets and liabilities has been disclosed in the
account "Gains (losses) on exposure to inflation" (Note 4.j).
- - The income on long-term investments in controlled companies (except for
Agroquimica Latinoamericana S.A., which is fully reserved) and companies in
which a 50% interest is held, has been proportionately consolidated, based
on the Company's interest in income accounts of the financial statements of
such companies.
- - The income on long-term investments in other related companies has been
calculated on the basis of the income of the investee adjusted for inflation
and is disclosed in the account "Income on long-term investments in related
companies".
- - The Company has reflected the imputed financial interest components of
purchases and sales accrued during the years, if significant, as required by
Argentine GAAP, separately in "Financial income (expense) and holding gains
(losses), net".
Monetary assets and liabilities represent a claim to receive or an
obligation to pay a fixed sum without reference to future prices of
specific goods and services. Examples of monetary assets and liabilities
include cash, receivables, accounts payable, accrued expenses and loans.
Examples of nonmonetary assets and liabilities include inventories, fixed
assets and some reserves. In an inflationary environment, losses are
generated by holding monetary assets and gains are generated by holding
monetary liabilities.
4 ANALYSIS OF THE MAIN ACCOUNTS OF THE FINANCIAL STATEMENTS
Details regarding the significant accounts included in the accompanying
financial statements are as follows (as of or for the year then ended, as
applicable):
Balance Sheet Accounts
Assets
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
CURRENT NON CURRENT NON CURRENT NON
A) INVESTMENTS CURRENT CURRENT CURRENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-term investments 6 - 7 - 18(1) -
Government securities (Exhibit C) 5 - 5 - 325 64
Controlled and related companies (Exhibit C) - 233 - 119 - 243
Allowance for reduction in value of holdings in
controlled and related companies (Exhibit E) - (2) - (2) - (204)
- ------------------------------------------------------------------------------------------------------------------------------------
11 231 12 117 343 103
====================================================================================================================================
</TABLE>
(1) Investments with an original maturity of more than three months.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
66
<PAGE> 155
YPF SOCIEDAD ANONIMA
<TABLE>
<CAPTION>
================================================================================================================================
1994 1993 1992
------------------- -------------------- ----------------------
CURRENT NON CURRENT NON CURRENT NON
B) TRADE RECEIVABLES CURRENT CURRENT CURRENT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trade accounts receivable from the public sector 139 29 160 69 548 393
Trade accounts receivable from the private sector 541 - 488 - 355 -
Notes receivable (1) (2) 90 206 59 240 136 352
Controlled and related companies (Note 10) 9 - 5 - 12 125
- --------------------------------------------------------------------------------------------------------------------------------
779 235 712 309 1,051 870
Allowance for doubtful trade receivables (Exhibit E) (141) - (144) - (149) -
Allowance for the valuation of public sector receivables to
their estimated realizable value (Exhibit E) (109) (4) (112) (5) (410) (60)
- --------------------------------------------------------------------------------------------------------------------------------
529 231 456 304 492 810
================================================================================================================================
</TABLE>
(1) Current and noncurrent notes receivable include accrued interest as of
December 31, 1994, amounting to 38. Interest accrues at an annual rate
of Libor plus 4.8%.
(2) The maturities of noncurrent notes receivable as of December 31, 1994,
are as follows: 83 in 1996, 95 in 1997, 12 in 1998 and 16 in 1999.
<TABLE>
<CAPTION>
1994 1993 1992
-------------------- ------------------- -------------------
CURRENT NON CURRENT NON CURRENT NON
C) OTHER RECEIVABLES CURRENT CURRENT CURRENT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax credits and advances, and royalty refunds 105 16 210 - 52 -
Trade 42 - 66 - 52 -
From sale of BOCONES (1) 28 49 - 84 - -
Prepaid expenses 13 63 69 - 22 -
Controlled and related companies (Note 10) 5 4 5 - 2 -
Currency swap 3 23 - - - -
Compulsory saving (Note 16) - - 71 - 70 -
From sale of fixed assets (1) - 39 - 46 - -
Loans to clients 26 32 9 27 - -
Miscellaneous 65 29 32 44 35 28
- ------------------------------------------------------------------------------------------------------------------------------
287 255 462 201 233 28
Allowance for other doubtful accounts (Exhibit E) (57) - - - (14) -
- ------------------------------------------------------------------------------------------------------------------------------
230 255 462 201 219 28
==============================================================================================================================
</TABLE>
(1) These receivables accrue interest at an annual rate of Libor plus 4%
and 5%, respectively and the maturities of the noncurrent portion as of
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
From 1 to From 2 to From 3 to Over
2 years 3 years 4 years 4 years Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
From sale of fixed assets 10 9 8 12 39
From sale of BOCONES 49 - - - 49
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
D) INVENTORIES 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Refined products for sale 143 213 241
Products in process of refining 13 45 27
Crude oil 84 103 103
Materials 10 96 88
Raw materials and packaging materials 31 23 31
- ------------------------------------------------------------------------------------------------------------------------------------
281 480 490
Allowance for inventory obsolescence (Exhibit E) (9) (97) (88)
- ------------------------------------------------------------------------------------------------------------------------------------
272 383 402
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
E) FIXED ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net book value of fixed assets (Exhibit A) 5,694 5,708 5,788
Allowance for obsolescence of materials (Exhibit E) (31) (60) (196)
Allowance for unproductive exploratory drilling (Exhibit E) (19) (27) (11)
Allowance for fixed assets to be disposed of (Exhibit E) (4) (75) (277)
- ------------------------------------------------------------------------------------------------------------------------------------
5,640 5,546 5,304
====================================================================================================================================
</TABLE>
Liabilities
<TABLE>
<CAPTION>
1994 1993 1992
------------------- ------------------ ----------------------
CURRENT NON CURRENT NON CURRENT NON
F) ACCOUNTS PAYABLE CURRENT CURRENT CURRENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Trade 553 14 513 21 340 20
Controlled and related companies (Note 10) 28 - 23 - - -
Notes 10 2 16 11 23 20
Other 74 7 119 14 111 45
- ------------------------------------------------------------------------------------------------------------------------------------
665 23 671 46 474 85
====================================================================================================================================
</TABLE>
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
67
<PAGE> 156
<TABLE>
<CAPTION>
====================================================================================================================================
INTEREST
G) LOANS RATES (1) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current
Foreign financial debt
Bank of New York and others - interest - - 163 1,644
The Export Import Bank of Japan 5.25% 45 44 38
World Bank 8.25% 2 55 90
Currency swap 7.28% 2 5 -
Bank of Tokyo Ltd. - - - 34
Other creditors 4-7% 26 72 64
- ------------------------------------------------------------------------------------------------------------------------------------
75 339 1,870
Withholding taxes on interest 23 46 217
Less: Government commitment to assume interest on foreign financial debt
subject to the Brady Plan - Bank of New York and others - Law Number
23,526 (Note 11) - (208) (1,827)
Less: Government commitment to assume foreign financial debt - Law
Number 23,526 (Note 11) (50) (57) (118)
- ------------------------------------------------------------------------------------------------------------------------------------
48 120 142
Negotiable obligations - interest - 11 - -
Other bank loans 6.21-11.5% 405 143 269
- ------------------------------------------------------------------------------------------------------------------------------------
464 263 411
====================================================================================================================================
</TABLE>
(1) Interest rates as of December 31, 1994.
<TABLE>
<CAPTION>
INTEREST
RATES (1) MATURITY 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Noncurrent
Foreign financial debt
The Export Import Bank of Japan 5.25% 1996-2003 280 299 305
World Bank - - - 102 135
Currency swap 7.28% 1996-2003 - 18 -
Other creditors 8.85-9.74% 1996-2003 11 47 22
- ------------------------------------------------------------------------------------------------------------------------------------
291 466 462
Less: Government commitment to assume foreign
financial debt - Law Number 23,526 (Note 11) - (13) (31)
- ------------------------------------------------------------------------------------------------------------------------------------
291 453 431
Negotiable obligations 8% 2004 350 - -
- ------------------------------------------------------------------------------------------------------------------------------------
641 453 431
====================================================================================================================================
</TABLE>
(1) Interest rates as of December 31, 1994.
The maturities of the Company's noncurrent loans, net of the Government
commitment to assume foreign financial debt, as of December 31, 1994, are
as follows:
<TABLE>
<CAPTION>
FROM 1 TO 2 FROM 2 TO 3 FROM 3 TO 4 FROM 4 TO 5 OVER 5
YEARS YEARS YEARS YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans 39 40 40 40 482 641
====================================================================================================================================
</TABLE>
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
68
<PAGE> 157
YPF SOCIEDAD ANONIMA
The principal loans of the Company with restrictive covenants as of
December 31, 1994, are as follows:
a) Negotiable Obligations:
During the quarter ended March 31, 1994, the Company issued Negotiable
Obligations with a principal value of 350 million U.S. dollars. The
Negotiable Obligations were issued at 0.9977 of their principal value and
carry a fixed annual interest rate of 8%. The net proceeds from this issue
were partially used to prepay one of the outstanding loans owed to the
World Bank. The remaining proceeds from this issue were used to cancel
other bank loans and to finance investments and capital expenditures.
In connection with the issuance of the Negotiable Obligations, the Company
and its controlled companies have agreed to certain covenants, including
among others, to pay all current liabilities and not to create other
encumbrances that exceed 15% of total assets.
If the Company does not comply with any covenant, the trustee or the
holders of not less than 25% in aggregate principal amount of the
outstanding Negotiable Obligations may declare the principal and accrued
interest immediately due and payable.
b) The Export Import Bank of Japan: Financing of infrastructure projects.
If any of the following events take place, this bank may, at its option,
declare all the outstanding principal immediately due and payable, together
with interest and other charges:
- - If the Company were to withhold for 30 days the payment of principal or
interest,
- - If there exists the possibility the Company's assets might be distributed
among its creditors, or
- - If the Company were to dissolve itself and/or suspend its operations.
The loan agreement from the Export Import Bank of Japan contains provisions
governing events of default. The loan agreement requires the Company to
notify the Export Import Bank of Japan of transactions outside the ordinary
course of business that result in asset disposals that are material in
relation to the Company. Due to the privatization and transformation
process which the Company recently completed (Note 1), the Company has
received a permanent waiver from the Export Import Bank of Japan of this
covenant. In connection with the granting of this waiver, the Company has
agreed to retain its thirty percent interest in Refineria del Norte S.A.
("Refinor") and has agreed not to allow Refinor to dispose of its principal
operating assets during the life of the loan.
In addition, the Company's loan agreement with the Export Import Bank of
Japan contains events of default which can be triggered, upon notice by the
lender, when the Argentine government as guarantor on the loans, fails to
pay its obligations as they become due in an amount in excess of 15 million
U.S. dollars or stops payment of, or is unable to pay or requests that
payment of any of its indebtedness be deferred, postponed or rescheduled or
a moratorium is agreed, declared or imposed on the payment thereof. The
Company has not received any notice of an event of default under any of its
loan agreements.
Loans payable as of December 31, 1994, 1993 and 1992 denominated in foreign
currencies are detailed in Exhibit G. Information regarding the currency
swap that hedges the currency exposure to the devaluation of the dollar in
terms of the yens related to the Export Import Bank of Japan loan is
disclosed in Note 2.
c) Medium Term Notes Program:
The Ordinary Shareholders' Meeting of December 7, 1993, and the Board of
Directors' Meetings of June 7, 1994, and July 6, 1994 approved a Medium
Term Notes Program not convertible into shares, for an amount of up to 500
million U.S. dollars. The covenants and main events of default are similar
to the ones referred to above for the 350 million U.S. dollars Negotiable
Obligations due 2004. The proceeds of these offerings will be used to
refinance liabilities, invest in working capital and in fixed assets in the
Argentine Republic, especially in environmental projects, and in controlled
and related companies for the same purposes.
The Board of Directors' Meeting of February 6, 1995, approved the issuance
of Negotiable Obligations for an amount of 300 million U.S. dollars,
corresponding to the program mentioned above. Interest and principal
payments will be made out of the proceeds from the exports of oil under
certain long-term contracts.
Statements of Income Accounts
H) PROPORTIONAL CONSOLIDATION:
As discussed in note 3.j, the income on long-term investments in controlled
companies (except for Agroquimica Latinoamericana S.A., which is fully
reserved) and companies in which a 50% interest is held, has been
proportionately consolidated net of intercompany transactions. This change
in presentation has been applied retroactively for comparative purposes.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
69
<PAGE> 158
A breakdown of the statements of income between YPF and proportionately
consolidated companies ("Other"), net of intercompany transactions, is as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
YPF OTHER TOTAL YPF OTHER TOTAL YPF OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales (Note 13) 4,128 64 4,192 4,188 2 4,190 4,094 - 4,094
Cost of sales (Exhibit F) (2,791) (43) (2,834) (2,879) (1) (2,880) (3,014) - (3,014)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 1,337 21 1,358 1,309 1 1,310 1,080 - 1,080
Administrative expenses (Exhibit H) (136) (11) (147) (123) (1) (124) (254) - (254)
Selling expenses (Exhibit H) (328) (1) (329) (320) (1) (321) (199) - (199)
Exploration expenses (Exhibit H) (170) (4) (174) (110) - (110) (73) - (73)
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 703 5 708 756 (1) 755 554 - 554
Income on long-term investments in
related companies 24 (2) 22 7 1 8 4 - 4
Other expenses, net (Note 4.i) (140) (2) (142) (122) - (122) (48) - (48)
Financial income (expense) and
holding gains (losses), net:
Gains (losses) on assets (Note 4.j) (65) (2) (67) 128 - 128 (53) - (53)
Gains (losses) on liabilities (Note 4.j) 25 2 27 (171) - (171) (24) - (24)
Income from the renegotiation of long-
term contracts and sale of areas
(Note 4.k) 1 - 1 224 - 224 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Income before unusual and
extraordinary losses 548 1 549 822 - 822 433 - 433
Unusual and extraordinary losses, net
(Note 4.l) - - - (45) - (45) (162) - (162)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before income and assets tax 548 1 549 777 - 777 271 - 271
Income and assets tax (10) (1) (11) (30) - (30) - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 538 - 538 747 - 747 271 - 271
====================================================================================================================================
Earnings per share and per ADS
(Note 2) 1.52 - 1.52 2.12 - 2.12 0.77 - 0.77
====================================================================================================================================
</TABLE>
I) OTHER EXPENSES, NET:
<TABLE>
<CAPTION>
Income (Expense)
- --------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Health plan:
Contributions 11 22 46
Cost of services provided (29) (92) (121)
- --------------------------------------------------------------------------------
Net (18) (70) (75)
Severance payments and other personnel
expenses (58) - -
Research and development expense - (7) (15)
Miscellaneous (64) (45) 42
- --------------------------------------------------------------------------------
(140) (122) (48)
================================================================================
</TABLE>
See Note 14 for further discussion of the health plan.
J) FINANCIAL INCOME (EXPENSE) AND HOLDING GAINS (LOSSES), NET:
<TABLE>
<CAPTION>
Income (Expense)
- --------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gains (losses) on assets:
Interest 60 71 37
Exchange differences (26) - (12)
Profits due to the sale and
holding gains on BOCONES - 53 -
Gains (losses) on exposure to
inflation (47) 2 (28)
Holding gains (losses) on
inventories
(Exhibit F) (52) 2 (50)
- --------------------------------------------------------------------------------
(65) 128 (53)
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INCOME (EXPENSE)
- --------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gains (losses) on liabilities:
Interest (93) (120) (79)
Exchange differences 74 (58) 24
Gains on exposure to inflation 44 7 31
- --------------------------------------------------------------------------------
25 (171) (24)
- --------------------------------------------------------------------------------
(40) (43) (77)
================================================================================
</TABLE>
K) INCOME FROM THE RENEGOTIATION OF LONG-TERM
CONTRACTS AND SALE OF AREAS (NOTE 15):
<TABLE>
<CAPTION>
INCOME (EXPENSE)
- --------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Renegotiation of Amoco contract
(Exhibit E) (66) - -
Sale of Rio Neuquen area 67 - -
Renegotiation of TOTAL contract
(Exhibit E) - 224 -
- --------------------------------------------------------------------------------
1 224 -
================================================================================
</TABLE>
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
70
<PAGE> 159
YPF SOCIEDAD ANONIMA
L) UNUSUAL AND EXTRAORDINARY LOSSES, NET:
<TABLE>
<CAPTION>
INCOME (EXPENSE)
- ----------------------------------------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UNUSUAL
Restructuring plan - employee terminations
related to the privatization of YPF - (65) (161)
Gain on assignment and/or establishment of
joint operations in areas in accordance with
the Oil Deregulation Decrees and related
Law and net gain on sale of assets in
accordance with Transformation Decree (1). - 33 96
Write-down of fixed assets to be sold or
contributed to joint ventures to their
estimated realizable value in accordance
with the YPF Privatization Law - - (41)
Other - (13) (35)
- ----------------------------------------------------------------------------------------------------------
- (45) (141)
- ----------------------------------------------------------------------------------------------------------
EXTRAORDINARY
Write-off of receivable arising from a request
for funds by the Secretary of Energy to pay
governmental expenses under the Argentina
Plan - - (12)
Adjustment of investments in related
companies due to the transfer of the
ownership in these companies to the
Argentine government, without
compensation to YPF - - 8
Write-down of trade receivables from
public sector companies due to the
consolidation Decrees and the
privatization of state enterprises - - (4)
Other - - (13)
- ----------------------------------------------------------------------------------------------------------
- - (21)
- ----------------------------------------------------------------------------------------------------------
- (45) (162)
==========================================================================================================
</TABLE>
(1) The Company recorded these transactions as described below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net proceeds (i) - 138 444
Cost - (105) (348)
- --------------------------------------------------------------------------------------------------------------
Gain on sale and/or association of areas and
sale of other assets - 33 (ii) 96 (iii)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(i) Net of 30% of the contribution to the Social Security System.
(ii) Refers to the sale of the 70% interest in Oleoductos del Valle S.A.,
Ebytem S.A. and Transportes Maritimos Petroleros S.A., the sale of
its 49% interest in Interpetrol S.A. and the sale of Dock Sud and San
Lorenzo refineries.
(iii) Refers to the transfer of the 70% interest in Santa Cruz II, Tierra
del Fuego, Aguarague and Palmar Largo areas, and the sale of the 70%
interest in Refineria del Norte S.A.
5 RESTRICTED ASSETS AND GUARANTEES GIVEN
As of December 31, 1994, the Company has deposited Government securities in
respect to guarantees amounting to 5. In addition, to guarantee the
performance of certain contracts, the Company has delivered promissory
notes in the amount of 25 and has furnished a guarantee of 6 in favor of
Perupetro as of December 31, 1994.
YPF has assumed guarantees in the amount of 39 given in favor of the
creditors of Petroken Petroquimica Ensenada S.A. ("Petroken"), due to
YPF's acquisition in June 1994 of 50% of this company's shares. In
addition, Petroken may not pay dividends if it does not maintain certain
ratios; and the Petroken shares that YPF owns cannot be sold without the
prior authorization of the International Finance Corporation, due to loans
given by this entity to Petroken.
Since October, 1993, the Company has pledged the shares representing its
interest in Oleoducto Trasandino (Argentina) S.A., Oleoducto Trasandino
(Chile) S.A. and A&C Pipeline Holding Company to secure a portion of
certain loans given to the first two companies by Banco Rio de la Plata
S.A. of 126. In addition, the Company has granted a security interest in
the transportation concession for the pipeline within Argentina to secure a
portion of the same loans mentioned above. The Company is the guarantor of
the loans.
6 ENVIRONMENTAL MATTERS
Management of YPF believes that the Company's operations are in substantial
compliance with Argentine laws and regulations currently in effect relating
to the protection of the environment as such laws have historically been
interpreted and enforced. However, local, provincial and national
authorities are moving towards more stringent enforcement of applicable
laws and to the adoption of environmental standards comparable in many
respects to those in effect in the United States and in countries within
the European Union.
Future capital expenditures related to the Company's environmental, health
and safety program are expected to total 260 over three years, starting in
1995. Expenditures related to the remediation of existing conditions caused
by past operations were fully provided for at December 31, 1994.
The estimates underlying such provision are based on the Company's existing
remediation program. Future legislative and technological changes may cause
a re-evaluation of the estimates. From evidence currently available,
Management does not believe these changes would have a significant impact
on the
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18,19 and 20 in the English translation.
71
<PAGE> 160
YPF SOCIEDAD ANONIMA
Company's financial position, although changes in projected expenditures as
a result of changes in Management's plans or in Argentine laws and
regulations could affect results of operations in any given year.
7 CAPITAL STOCK
In accordance with the Company's By-laws, approved by the Ordinary and
Extraordinary Shareholders' Meeting of June 11, 1993, the Company's
subscribed capital was increased from 610 to 3,530 and is represented by
353,000,000 book entry shares of common stock, with a face value of
Argentine pesos 10. These shares are fully subscribed, paid in and
authorized for stock exchange listing. There has been no change in the
number of shares since the above mentioned date.
In connection with the Company's privatization and the initial public
offering of shares, the Company's shares were converted into four classes,
as detailed below:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Class A shares: Shares owned by the Argentine government.
- --------------------------------------------------------------------------------
Class B shares: Shares acquired by the Provinces.
- --------------------------------------------------------------------------------
Class C shares: Shares to be acquired by the Company's personnel,
in an amount of 10% of the Company's capital, at a
price of $19 per share. The sale price of these
shares will be paid with related dividend
distributions and 50% of the income generated by
profit sharing certificates issued under Law
23,696 (Note 16).
- --------------------------------------------------------------------------------
Class D shares: Shares sold to private investors.
- --------------------------------------------------------------------------------
</TABLE>
So long as any Class A shares remain outstanding, the affirmative vote of
such shares is required for: 1) mergers, 2) acquisitions of more than 50%
of the Company's shares in an agreed or hostile bid, 3) transfers of all
the Company's production and exploration rights or 4) the voluntary
dissolution of YPF. The last two items will also require prior approval by
the Argentine Congress.
The capital structure as of December 31, 1994, is as follows:
<TABLE>
- -------------------------------------------
<S> <C>
Class A shares 71,672,544
- -------------------------------------------
Class B shares 39,765,234
- -------------------------------------------
Class C shares 35,300,000
- -------------------------------------------
Class D shares 206,262,222
- -------------------------------------------
353,000,000
- -------------------------------------------
</TABLE>
8 PUBLIC SECTOR RECEIVABLES
As of December 31, 1992 negotiations with the principal public sector
customers were concluded, and agreements or statements recognizing debts
outstanding as of December 31, 1991, were signed with the important public
sector customers. The agreements discussed above included the transfers to
the Company of fixed assets owned by Gas del Estado and Petroquimica
General Mosconi S.A.I.C. which have been approved by the Ministry of
Economy and Public Works and Services. The Company is still pursuing the
necessary title transfer procedures.
As of December 31, 1994, the outstanding public sector receivables which
will be paid by the future awardees of government owned companies to be
privatized, in accordance with Resolution Number 2/94 issued by the
Secretary of Energy, amounted to 29.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
72
<PAGE> 161
YPF SOCIEDAD ANONIMA
9 FOREIGN BRANCHES AND PARTICIPATION IN JOINT VENTURES
As of December 31, 1994, the Company participated in the following
exploration and production joint ventures:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
OWNERSHIP DURATION
NAME AND LOCATION INTEREST OPERATOR THROUGH ACTIVITY
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Block 14(1) 25% Elf Hydrocarbures Equateur (3) Exploration and
Ecuador Production
- -------------------------------------------------------------------------------------------------------------------------
Vizcacheras 10% Astra C.A.P.S.A. 2016 Oil extraction
Mendoza
- -------------------------------------------------------------------------------------------------------------------------
El Huemul 30% Total Austral S.A. 2016 Oil extraction
Santa Cruz
- -------------------------------------------------------------------------------------------------------------------------
Puesto Hernandez 40% Compania Naviera Perez 2016 Oil extraction
Neuquen and Mendoza Companc S.A.C.F.I.M.F.A.
- -------------------------------------------------------------------------------------------------------------------------
El Tordillo 10% Tecpetrol S.A. 2016 Oil extraction
Chubut
- -------------------------------------------------------------------------------------------------------------------------
Santa Cruz I 30% Quintana Exploration Argentina S.A. 2016 Oil and gas extraction
Santa Cruz
- -------------------------------------------------------------------------------------------------------------------------
Magallanes "A" 50% Sipetrol S.A. 2016 Oil and gas extraction
Santa Cruz
- -------------------------------------------------------------------------------------------------------------------------
Santa Cruz II 30% Compania Naviera Perez 2017 Oil and gas extraction
Santa Cruz Companc S.A.C.F.I.M.F.A.
- -------------------------------------------------------------------------------------------------------------------------
Tierra del Fuego 30% Bridas S.A.P.I.C 2017 Oil and gas extraction
Tierra del Fuego
- -------------------------------------------------------------------------------------------------------------------------
Palmar Largo 30% Pluspetrol S.A. 2017 Oil and gas extraction
Formosa
- -------------------------------------------------------------------------------------------------------------------------
Aguarague 30% Ampolex S.A. 2017 Oil and gas extraction
Salta
- -------------------------------------------------------------------------------------------------------------------------
El Porton-Buta Ranquil 50% Mexpetrol Argentina S.A. 2017 Oil and gas extraction
Neuquen
- -------------------------------------------------------------------------------------------------------------------------
Aguada Pichana(2) 27.28% Total Austral S.A. 2017 Oil and gas extraction
Neuquen
- -------------------------------------------------------------------------------------------------------------------------
San Roque(2) 34.11% Total Austral S.A. 2017 Oil and gas extraction
Neuquen
- -------------------------------------------------------------------------------------------------------------------------
Acambuco(2) 45% YPF S.A.(4) 2016 Exploration and
Salta Production
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Joint venture that the Company participates in outside Argentina.
(2) Joint ventures formed in 1994.
(3) Discovery of commercially exploitable reserves, at which time the Company
will decide whether to sell the property or exploit the field.
(4) Upon completion of the exploration phase and reimbursement of certain YPF's
expenditures (without taking into account the minimum committed
expenditures), Bridas S.A.P.I.C. will become the operator of this joint
venture.
The Company's interest in the joint ventures ("UTEs"), except for Block 14
and Magallanes "A", have been consolidated line by line on the basis of the
Company's proportionate share in the assets, liabilities, income, costs and
expenses of the financial statements of such joint ventures. Additionally,
foreign branches have been fully consolidated line by line. For Block 14,
21, 20 and 16 as of December 31, 1994, 1993 and 1992, respectively, have
been included in other noncurrent receivables. In the case of Magallanes
"A" no amounts have been included because under the joint venture contract,
YPF's sole and exclusive contribution to the joint venture is the area with
the reserves, discoveries and technical information available, while
Sipetrol S.A. is to contribute the investments and the operation of the
joint venture and has six years within which to recover these expenditures
out of production; which will be distributed in equal parts between the
joint venturers.
The Company's share of the aggregate minimum committed investments for
these joint ventures is approximately 130.
In addition, the Company participates in the "Argentina Plan", a plan
whereby the Argentine government offers exploration concessions for a bid.
As of December 31, 1994, the Company had successfully bid by itself or with
other partners and received exploration permits for acreage in several
areas, having an interest between 20% and 100%. Investment commitments as
of December 31, 1994, were approximately 64.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
73
<PAGE> 162
YPF SOCIEDAD ANONIMA
The Company also entered into an agreement with another oil company to
carry out exploration efforts at the latter's expense in certain areas of
the Neuquen basin.
The Company has chosen to participate in hydrocarbon exploration and
production projects in certain areas of Bolivia, Peru and the Gulf of
Mexico; therefore, YPF established branches in Bolivia and Peru and a
subsidiary company in the United States of America (YPF Exploration and
Production Overseas Inc.) during the year ended December 31, 1994.
YPF S.A. (Bolivia Branch) entered into agreements with Yacimientos
Petroliferos Fiscales Bolivianos, to carry out the exploration and possible
association in the exploitation of two areas in Bolivia (Charagua and
Montero). In addition, YPF Exploration and Production Overseas Inc. entered
into association agreements with several oil companies, to carry out the
exploration and possible exploitation of the following areas in the Gulf of
Mexico: Blocks 71 and 148 (Eugene Island), Block 77 (East Cameron) and
Blocks 224 and 235 (Timbalier). Additionally YPF S.A. (Peru Branch) entered
into an agreement with Perupetro and Quintana Minerals Corporation (Peru
Branch) to carry out the exploration and possible exploitation of the area
Block 50 in Peru. As of December 31, 1994, investment commitments are
approximately 16.
In addition, the Company continues to assess certain existing prospects for
exploration, development, production and marketing operations in Chile,
Paraguay, Peru, Uruguay, Colombia and Algeria.
The assets and liabilities of the joint ventures and branches included in
each balance sheet account are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets 20 7 6
Noncurrent assets 128 79 45
- -------------------------------------------------------------------------------------------
Total assets 148 86 51
===========================================================================================
Current liabilities 28 21 17
Noncurrent liabilities 4 2 -
- -------------------------------------------------------------------------------------------
Total liabilities 32 23 17
===========================================================================================
</TABLE>
10 TRANSACTIONS AND BALANCES WITH CONTROLLED AND RELATED COMPANIES
The outstanding balances as of December 31, 1994, 1993 and 1992, from
transactions with controlled and related companies are as follows:
<TABLE>
<CAPTION>
TRADE RECEIVABLES
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
---------------------- ---------------------- --------------------
NON NON NON
CURRENT CURRENT CURRENT CURRENT CURRENT CURRENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTROLLED COMPANY:
YPF Gas S.A. 2 - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
RELATED COMPANIES:
Refineria del Norte S.A. 6 - 5 - - -
Petroken Petroquimica Ensenada S.A. 1 - - - - -
Interpetrol S.A. - - - - 12 -
Petroquimica General Mosconi S.A.I.C. - - - - - 120 (1)
- ------------------------------------------------------------------------------------------------------------------------------------
7 - 5 - 12 120
- ------------------------------------------------------------------------------------------------------------------------------------
9 - 5 - 12 120
====================================================================================================================================
</TABLE>
(1) This amount is net of 5 for an allowance to value public sector
receivables at estimated realizable value.
<TABLE>
<CAPTION>
OTHER RECEIVABLES
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
---------------------- --------------------- ------------------
NON NON NON
CURRENT CURRENT CURRENT CURRENT CURRENT CURRENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONTROLLED COMPANIES:
Sociedad Inmobiliaria Red Propia S.A. 2 - - - - -
Operadora de Estaciones de Servicios S.A. 1 - - - - -
YPF USA Inc. - 4 - - - -
YPF Gas S.A. - - 5 - - -
Oleoducto Trasandino (Argentina) S.A. - - - - 2 -
- ----------------------------------------------------------------------------------------------------------------------------------
3 4 5 - 2 -
- ----------------------------------------------------------------------------------------------------------------------------------
RELATED COMPANIES:
Transportes Maritimos Petroleros S.A. 1 - - - - -
Terminales Maritimas Patagonicas S.A. 1 - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
2 - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
5 4 5 - 2 -
==================================================================================================================================
</TABLE>
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
74
<PAGE> 163
YPF SOCIEDAD ANONIMA
<TABLE>
<CAPTION>
ACCOUNTS PAYABLES -- CURRENT
- -----------------------------------------------------------------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONTROLLED COMPANIES:
Oleoducto Trasandino (Argentina) S.A. 2 1 -
YPF Gas S.A. 2 - -
- -----------------------------------------------------------------------------------------------
4 1 -
- -----------------------------------------------------------------------------------------------
RELATED COMPANIES:
Refineria del Norte S.A. 9 5 -
Oleoductos del Valle S.A. 9 11 -
Ebytem S.A. 2 3 -
Transportes Maritimos Petroleros S.A. 2 3 -
Terminales Maritimas Patagonicas S.A. 2 - -
- -----------------------------------------------------------------------------------------------
24 22 -
- -----------------------------------------------------------------------------------------------
28 23 -
===============================================================================================
</TABLE>
The Company purchases and sells to controlled and related parties. The
prices of these transactions approximate the amounts charged by the Company
to unaffiliated third parties. The principal transactions with related
companies for the years ended December 31, 1994, 1993 and 1992, include the
following:
<TABLE>
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales
CONTROLLED COMPANY:
YPF Gas S.A. 16 1 -
- -----------------------------------------------------------------------------------------------
RELATED COMPANIES:
Refineria del Norte S.A. 73 57 -
Petroken Petroquimica Ensenada S.A.(2) 4 - -
Oleoductos del Valle S.A. 3 3 -
Transportes Maritimos Petroleros S.A. 1 - -
Terminales Maritimas Patagonicas S.A. 1 - -
Petroquimica General Mosconi S.A.I.C.(1) - 17 96
Interpetrol S.A.(1) - 100 245
- -----------------------------------------------------------------------------------------------
82 177 341
- -----------------------------------------------------------------------------------------------
98 178 341
===============================================================================================
Purchases and Expenses
CONTROLLED COMPANIES:
Oleoducto Trasandino (Argentina) S.A. 16 - -
Servired YPF S.A. 3 - -
Oleoducto Trasandino (Chile) S.A. 2 - -
YPF Gas S.A. 1 - -
Sociedad Inmobiliaria Red Propia S.A. 1 - -
Operadora de Estaciones de Servicios S.A. 1 - -
- -----------------------------------------------------------------------------------------------
24 - -
- -----------------------------------------------------------------------------------------------
RELATED COMPANIES:
Refineria del Norte S.A. 126 117 -
Oleoductos del Valle S.A. 48 35 -
Transportes Maritimos Petroleros S.A. 16 5 -
Ebytem S.A. 14 15 -
Terminales Maritimas Patagonicas S.A. 10 - -
Petroquimica General Mosconi S.A.I.C.(1) - 11 29
Interpetrol S.A.(1) - 5 33
- -----------------------------------------------------------------------------------------------
214 188 62
- -----------------------------------------------------------------------------------------------
238 188 62
===============================================================================================
</TABLE>
(1) These transactions occurred until these companies ceased to be related
companies.
(2) These transactions occurred since this company is related company.
11 FOREIGN FINANCIAL DEBT - LAW NUMBER 23,526
The Company's foreign financial debt consisted of three categories of debt,
as follows: debt incurred prior to December 31, 1986 with private sector
foreign lenders; debt incurred prior to December 31, 1986 with public
sector foreign lenders; and foreign financial debt incurred subsequent to
December 31, 1986.
For the private sector and public sector debt existing at December 31,
1986, the National Congress enacted Law Number 23,526 which provided that
the Argentine government would assume responsibility for all foreign debt
outstanding as of December 31, 1986, including interest and other debt
related expenses. Such assumption has resulted in an increase to
shareholders' equity which is included in the shareholders' contribution
account.
The Company has been formally released since April 7, 1993, from its
obligation with respect to the principal amount of the private sector
foreign debt incurred prior to December 31, 1986, the date when Argentina
formally entered the so called "Brady Plan". It has also been released with
respect to all of the related interest and accrued withholding taxes in the
last quarter of 1994. Management does not believe that any claim on
interest will occur in the future. If they occur, they will be assumed by
the Argentine government according to Law Number 23,526.
Since the Company had not been formally released from its obligations with
respect to the interest and related accrued withholding taxes that amounted
to 208 and 1,827 as of December 31, 1993 and 1992, they were included in
the current portion of the loans balance offset by the related government
commitment to assume interest on private foreign financial debt (Note 4.g).
The Company will not be formally released from its obligation by the
lenders with respect to the 50, 70 and 149 as of December 31, 1994, 1993
and 1992 of public sector debt and related withholding taxes existing at
December 31, 1986 which did not qualify for the Brady Plan. These amounts
are shown in the balance sheet offset by the government commitment to
assume foreign financial debt (Note 4.g).
12 ADDITIONAL INFORMATION ON THE STATEMENT OF CASH FLOWS
Cash payments for the income and assets tax and interest were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income and assets tax 17 25 12
Interest 55 30 46
- ------------------------------------------------------------------------------------------
72 55 58
==========================================================================================
Cash and cash equivalents include:
Cash 55 77 79
Investments (Note 2) 6 7 -
- ------------------------------------------------------------------------------------------
61 84 79
==========================================================================================
</TABLE>
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
75
<PAGE> 164
The principal financing and investing transactions not affecting cash, for
the years ended December 31, 1994, 1993 and 1992, consist of fixed assets
contributed to related companies, reserves for future losses on long-term
contracts, dividends pending payment, dividends offset against other
accounts receivable, credit sales of BOCONES and fixed assets, collection
of receivables in fixed assets and BOCONES, non-cash acquisition of
long-term investments and intangible assets, and social security and other
taxes payable offset against receivables from the Federal Treasury.
13 BUSINESS SEGMENT INFORMATION
The Company's primary business is the exploration and production of crude
oil and natural gas and the refining and marketing of petroleum products.
The Company's upstream operations include contractual purchases of gas and
purchases of crude oil arising from service contracts and concession,
obligations, and oil and gas producing activities. All of the Company's
upstream operations are conducted through the Exploration and Production
segment. All downstream operations are conducted through the Refining and
Marketing segment. The Company's other activities, not falling into these
categories, are grouped under the classification Corporate and Other, which
also includes corporate administration costs and corporate assets,
including cash.
During the second quarter of the year ended December 31, 1993, and as part
of the process of transforming the Company into a private sector business,
the management of the Company's business units decided to implement a new
cost allocation procedure, retroactive to January 1, 1993, to improve
management control and the earnings measurement of the business units. If
this change had been applied retroactively to January 1, 1992, it would
have resulted in a decrease of 79 in the expenses for Corporate and other,
increases of 21 in the expenses for the Exploration and Production segment,
24 for the Refining and Marketing segment and 34 for other expenses, net,
as of December 31, 1992.
Operating income (loss) and identifiable assets for each segment have been
determined after intersegment adjustments. Sales between business segments
are made at internal transfer prices established by YPF which approximate
Argentine market prices.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EXPLORATION REFINING CORPORATE
AND AND AND INTERSEGMENT
PRODUCTION MARKETING OTHER ADJUSTMENTS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Net sales to unaffiliated customers 676 3,354 - - 4,030
Net sales to affiliated customers 25 73 - - 98
Net intersegment sales 1,771 12 - (1,783) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total net sales 2,472 3,439 - (1,783) 4,128
====================================================================================================================================
Operating income (loss) 570 270 (127) (10) 703
Equity in income of controlled and related companies (4) 28 - - 24
Depreciation, depletion and amortization (1) 547 137 4 - 688
Acquisition of fixed assets 1,034 200 23 - 1,257
Identifiable assets 3,995 2,871 690 (47) 7,509
====================================================================================================================================
YEAR ENDED DECEMBER 31, 1993
Net sales to unaffiliated customers 792 3,218 - - 4,010
Net sales to affiliated customers 29 149 - - 178
Net intersegment sales 1,771 - - (1,771) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total net sales 2,592 3,367 - (1,771) 4,188
====================================================================================================================================
Operating income (loss) 746 146 (123) (13) 756
Equity in income of controlled and related companies - 7 - - 7
Depreciation, depletion and amortization 443 126 2 - 571
Acquisition of fixed assets 881 397 6 - 1,284
Identifiable assets 3,772 2,974 874 - 7,620
====================================================================================================================================
YEAR ENDED DECEMBER 31, 1992
Net sales to unaffiliated customers 777 2,976 - - 3,753
Net sales to affiliated customers - 341 - - 341
Net intersegment sales 1,996 - - (1,996) -
- ------------------------------------------------------------------------------------------------------------------------------------
Total net sales 2,773 3,317 - (1,996) 4,094
====================================================================================================================================
Operating income (loss) 914 (106) (254) - 554
Equity in income of controlled and related companies - 4 - - 4
Depreciation, depletion and amortization (1) 523 139 3 - 665
Acquisition of fixed assets 569 201 4 - 774
Identifiable assets 3,776 3,286 718 - 7,780
====================================================================================================================================
</TABLE>
(1) Net of accelerated depreciation
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
76
<PAGE> 165
YPF SOCIEDAD ANONIMA
Export revenues were 1,157, 848 and 728 in the years ended December 31,
1994, 1993 and 1992, respectively. Approximately 66% of the export sales
are to Central and South American countries with the balance split between
Europe and North America.
14 SOCIAL AND OTHER EMPLOYEE BENEFITS
The Company grants a series of benefits to its employees, the main features
of which are as follows:
a) Health Plan and Other Postretirement Benefits:
The Health Plan provided comprehensive medical coverage for the Company's
active employees, and in previous years provided coverage for pensioned and
retired employees. It was funded by the 3% statutory withholdings from the
compensation of all active employees, the 6% withholding on such
compensation the Company would be legally required to remit to the
Argentine government sponsored system if it did not have its own health
plan (both subject to a maximum per employee, and net of contributions to
the Administracion Nacional del Seguro de Salud) and, through April 1993
(when the Company announced that it would stop paying for pensioners' and
retirees' medical services), from a monthly contribution which the
Instituto Nacional de Servicios Sociales para Jubilados y Pensionados (the
"INSSJP", the Pensioners' Health Plan), made for each pensioner and retiree
covered by the Company's Health Plan. Plan revenues were recorded as they
accrue and the cost of benefits were recorded at the time the services were
provided.
As described in Note 4.i, the Health Plan was operating at a significant
loss, since the care of pensioners and retirees required more funds than
those contributed by the INSSJP. Since December 31, 1992, there have been
three events of significance with regard to the Health Plan. First, between
March, 1993, and April, 1994, the Company terminated the Health Plan for
retirees and pensioners as permitted under existing legislation.
Second, the Company has organized an independent Health Plan entity for the
benefit of the current employees and is taking the necessary steps to
transfer the corresponding services to this new entity. Consequently,
Management believes that the Company's contribution to the Health Plan
would not be higher than the 6% of each employee's compensation required by
current legislation.
Third, some retirees and pensioners have brought legal action against YPF,
demanding the restitution of the right to be covered by the Health Plan.
The courts hearing the cases handed down preliminary injunctions which YPF
complied with by delivery of provisory medical assistance certificates,
while filing an appeal with the higher court. During the second quarter of
1994, the Court of Appeals lifted part of those precautionary measures
prohibiting any change, which had been issued in response to pensioner's
claims demanding the restitution of the medical services. The Company's
Management and legal counsel, do not expect that this legal action will
have any significant adverse effect on the results of operations, as YPF
expects to transfer the resulting medical assistance costs to the INSSJP.
The Company had provided vacation benefits to retirees, pensioners and
their families through 1994. Starting in 1995, these benefits will no
longer be provided.
b) Management Bonus Program:
Payments to the covered employees are based on increases in the Company's
share price and in its income as disclosed in the plan. The program covers
the Company's principal group of executives.
c) Retirement Plan:
Effective March, 1995, the Company has established a defined contribution
retirement plan which provides benefits for each employee who elects to
join the plan. Each plan member will pay an amount between 2% and 9% of his
monthly compensation and the Company will pay an amount equal to that
contributed by each member. Retirement Insurance Companies will be
responsible for the administration of the funds. Management expects that
the Company's contribution will not exceed 5 a year.
The plan members will receive the Company's contributed funds before
retirement only in the case of voluntary termination, under certain
circumstances, and additionally in the case of death or incapacity. YPF has
the right to discontinue this plan at any time, without incurring
termination costs.
15 COMMITMENTS AND CONTINGENCIES
The Company has reviewed its contractual commitments and, for those which
will individually generate probable future losses and for which the future
payments are determinable, has recorded, at net present value using a 10%
annual discount rate, provisions for the losses.
The reserve required, including both the current and noncurrent portion,
for these contractual commitments, totalled 96, 223 and 518 as of December
31, 1994, 1993 and 1992, respectively, which are included in the reserve
for future losses on long-term contracts (Exhibit E). These balances
include the effect of:
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
77
<PAGE> 166
a. Contracts to Sell and Commitments to Purchase Oil and Gas: 54, 166 and
438 as of December 31, 1994, 1993 and 1992, respectively.
Decrees Number 1,055, 1,212 and 1,589 promulgated in 1989 under Laws Number
17,319 and 23,696, provided for the granting to private parties concessions
for 25 years, with the right to freely dispose of production, making
service contracts unnecessary, and mandated the Company to attempt to
convert its existing service contracts into concessions by negotiation.
Yacimientos Petroliferos Fiscales Sociedad del Estado (the "Predecessor
Company") had entered into an agreement with Total Austral S.A., Deminex
Argentina S.A. and Bridas S.A.P.I.C. (the "TOTAL partners") that required
the Company to pay for production of natural gas at a contractually
determined price which was in excess of current market prices. In November
1993, the Company and the TOTAL partners signed a definitive agreement
providing for the termination of the TOTAL contract and its replacement
with certain new agreements. The settlement was approved by the Executive
Branch of the Argentine government by Decree Number 214/94. The Company
agreed, among other conditions, to purchase variable amounts of gas, at a
contractually determined price, subject to a maximum quantity, to transfer
certain concessions and interests in joint ventures to the TOTAL partners,
and to indemnify the TOTAL partners for its Argentine income tax liability
or for any other tax levied on net or gross income that complements or
substitutes it, if applicable, that arise as a consequence of the
termination of the service contract. Management anticipates that, as a
consequence of these purchase agreements, no losses will be incurred.
As a consequence of the renegotiation of this agreement, certain reserves
established by the Company for losses to be incurred in connection with its
contract with the TOTAL partners were no longer required and were taken
into income in the fourth quarter of 1993. The net gain recognized as a
result of the renegotiation with the TOTAL partners was 224 in the fourth
quarter of 1993. As of December 31, 1994, the Company maintained reserves
adequate to cover the tax indemnity clause discussed above.
b. Conversion of Contracts: 42, 57 and 80 as of December 31, 1994, 1993 and
1992, respectively.
Under the majority of the renegotiated contracts, YPF has undertaken to
receive and transport crude oil owned by others and to render certain
ancillary services. In some cases, a percentage of the crude oil and gas
production will be assigned to YPF for consideration, while in other cases
no such consideration has been agreed.
c. Other Matters.
The Company and certain of its joint ventures have entered into agreements
wherein they have committed to ship liquid hydrocarbons through associated
pipelines to associated refining companies or to purchase certain volumes
of crude oil, natural gas or related products. Management does not
anticipate any losses under these agreements.
The Company has executed a long-term sales contract with ENAP (the Chilean
government-owned oil company) for the supply of Neuquen Basin crude oil to
Chile that began in 1994, and a transportation contract was also executed
with Oleoducto Trasandino (Argentina) S.A. and Oleoducto Trasandino (Chile)
S.A., which are controlled companies, to ship a minimum of 60,000 bl/day of
crude oil to Chile. The Company will be responsible for the payment of
transportation tariffs on its committed volumes, even if it does not
actually deliver such volumes.
The Company, together with four other Neuquen gas producers, also holds a
natural gas supply contract with ENAP and another chilean buyer (Chilectra
Metropolitana S.A.) which could begin in 1997, but will not become
effective until the successful completion of the pipeline from Neuquen to
Chile, and the related distribution system. There is no assurance that this
project will be completed, however a final decision is expected in 1995.
The Executive Branch of the Argentine government has to grant a
transportation concession in order to allow the gas pipeline construction
and operation in Argentine territory.
Management does not believe that losses will occur as a result of the
negotiations and commitments discussed in the preceding paragraphs.
In addition, in connection with the transformation of the Company, a
significant reduction in the work force has occurred, and the Company is
involved in litigation with certain former employees. The Company has
already established reserves for this contingency, and, therefore, in the
opinion of Management, based upon the opinion of outside labor counsel,
these lawsuits are not expected to have a material adverse effect on the
results of operations and financial position of the Company.
The Secretary of Energy required YPF to transfer to the Provinces of Rio
Negro and Neuquen, without compensation to the Company the ownership of
certain high tension lines and certain electric power transformer stations,
whose book values are not significant. Accordingly, YPF has asserted claims
for compensation for the lines and stations. Management has suggested that
YPF should offset the value of these assets against future dividends that
the Argentine government is entitled to as a shareholder of YPF. The
Company assigned the assets to the provinces in the first quarter of 1994.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
78
<PAGE> 167
YPF SOCIEDAD ANONIMA
YPF was party to a service agreement with Amoco Argentina Oil Company
("Amoco") signed in 1958 relating to the Cerro Dragon area in the Golfo San
Jorge basin. The service contract was converted in 1990 into a production
sharing contract (the "Amoco Contract"). Pursuant to the Amoco Contract,
YPF had a variable interest in production that ranged from 62% of the first
volumes produced in any given year, down to 20% of all volumes in excess of
a maximum.
The Amoco Contract included a clause requiring YPF to assume all taxes to
which Amoco would be liable relating to its activities in the contract area
and, in addition, requiring YPF to pay royalties on Amoco's production to
the Province of Chubut. In 1960 a law was passed providing that certain
contracts under which a state-owned entity assumed the Argentine taxes of
another party were to be construed as a tax exemption in favor of such
other party. The Amoco Contract would have expired in 1993, but in 1987 the
contract was revised and extended, including the tax clause, to 2013. As a
result of a May 1993 governmental decree dealing with the privatization of
YPF, Amoco's tax exemption expired upon the sale by the government of
shares in YPF's initial public offering, completed in July 1993. YPF paid
Amoco's royalties, and Amoco paid its income taxes on the Cerro Dragon
income corresponding to 1993 and made a claim to YPF for reimbursement of
the latter.
During the last quarter of 1994, YPF and Amoco signed a definitive
agreement providing for renegotiated terms for this contract. Under the
terms of the agreement, the present contract has been modified as follows:
(i) YPF's participation interest in Cerro Dragon area production is reduced
to 12.2%; (ii) two small areas (Cerro Tortuga-Las Flores and El Chulengo),
adjacent to the Cerro Dragon area, are incorporated to the contract in the
same terms as Cerro Dragon area; (iii) YPF maintains its obligation for
paying royalties on total production of all these areas; (iv) YPF will have
no liability in the future for Amoco's taxes, related to activity in the
contract areas. YPF has also entered into a 50% association agreement with
Amoco Andina Production Company ("Amoco Andina"), an Amoco subsidiary, for
the exploration and possible exploitation of two areas in the Neuquen
Basin.
YPF will reimburse Amoco's income taxes in relation with its activity in
the Cerro Dragon area from July, 1993 to December, 1994; and also will
indemnify Amoco and Amoco Andina for certain tax liabilities that may
eventually arise as a consequence of the agreement. YPF does not believe
that it would be required to pay any significant amount under this
indemnity, and accordingly has not established any reserve for this
purpose. This transaction became effective on January 1, 1995.
The net loss arising from the settlement was 66, and was charged to "Income
from the renegotiation of long-term contracts and sale of areas" in the
income statement. This charge principally represents the write down of
fixed assets of the areas of Cerro Tortuga-Las Flores and El Chulengo and
Amoco's income taxes for 1993 and 1994.
The YPF Privatization Law also provides for the assumption by the Argentine
government of certain liabilities of the Predecessor as of December 31,
1990. Under these provisions of the YPF Privatization Law, the Argentine
government has assumed:
- - Any receivable or payable arising from a cause of action or claim that
existed as of December 31, 1990, if the receivable or payable was not
reflected as such in the financial statements of the Predecessor as of that
date, audited by the General Auditing Office of Government Owned Companies
("SIGEP"); and
- - All contingencies, whether or not recognized in the Predecessor's financial
statements, caused by events or transactions that had occurred as of
December 31, 1990, provided there is a final decision regarding the
Company's liability for such contingency by a competent legal authority
regarding the Company's responsibility for such liability.
Under the terms of Decree Number 546/93, which implements the provisions of
the YPF Privatization Law, the assumption by the Argentine government of
the obligations described above which may have been or could be claimed in
court in lawsuits shall not extend to the court costs decreed in such
judgments as being payable by the Company insofar as they concern the fees
of attorneys-in-fact, lawyers, attorneys-at-law, expert witnesses or
technical consultants appointed by YPF for its defense, representation or
advisory services in the aforesaid proceedings. The Argentine government
will take charge of all the contractual obligations assumed by the Company
for the professionals who may represent or assist it in the court
proceedings referred to above, when such contracts stipulate fixed-sum or
staggered compensation or compensation payable periodically, whose full or
partial amount bears no relation to the amount of the claim or lawsuit or
the costs set by the court to be borne by the Company. In connection with
Decree Number 546/93, the Company is obligated to provide appropriate
notice to the government of any action against YPF.
As of December 31, 1994, claims aggregating approximately 700 and other
claims for unspecified amounts have been presented to the Company and the
government has been or is in the process of being formally notified of the
claims. On the basis of privatization legislation, the Company believes
that it will not be held ultimately responsible for any material amount of
these claims.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
79
<PAGE> 168
During 1994, the Company sold the Rio Neuquen field and the assets existing
in this area. The transfer of the concession for the exploitation of the
area was authorized by Decree Number 1,291/94 issued by the Executive
Branch of the Argentine government. The net gain on the sale of the Rio
Neuquen field amounted to 67 and is included under the caption "Income from
the renegotiation of long-term contracts and sale of areas" in the
statement of income.
16 RESTRICTIONS ON UNAPPROPRIATED RETAINED EARNINGS
In accordance with the provisions of Law Number 19,550, 5% of net income
for each year is to be appropriated to the legal reserve until such reserve
reaches 20% of the Company's capital (subscribed capital plus adjustment to
contributions). As of December 31, 1994, 27 will be appropriated to such
reserve.
As a consequence of the enactment of Law Number 23,696, the Company will
issue profit sharing certificates to its personnel, which will be
nontransferable and will become void upon termination of employment by the
Company, so as to distribute 0.25% of net income to the Company's
employees. Each active employee will receive in 1995 a number of profit
sharing certificates determined on the basis of his compensation, years of
service and dependents. The profit sharing vouchers, to be distributed in
1995 will entitle the employees to receive a distribution based on 1994's
net income. The employee compensation charge under this plan is 1 as of
December 31, 1994, and has been recorded in "Other accounts payable".
The Ordinary Shareholders' Meeting held on April 29, 1994, in accordance
with the provisions of YPF's Bylaws, approved the distribution of
Unappropriated Retained Earnings through a special dividend in an amount of
410 to the Argentine government. The special dividend referred to above was
partially offset against the compulsory saving receivable of 71, against a
royalty receivable of 36, and the related interest on these receivables of
19. The remaining balance was paid in cash.
17 STATUTORY BOOKS
The Company is organized into reporting units for both management and
accounting purposes. Previously, each of these reporting units had its own
journals and auxiliary books stamped and signed by the relevant competent
authorities. Between 1983 and 1989 the various reporting units stopped
using statutory books and switched to loose-leaf systems issued by computer
processes, although not all of the reporting units had obtained the
authorization to use the computer generated records from the relevant
control agencies in their jurisdiction.
Owing to its conversion from a state company into a commercial corporation
("Sociedad Anonima"), the Company applied to the "Inspeccion General de
Justicia" (the governmental regulatory agency of corporations) for
authorization to use mechanical accounting systems. Such authorization was
granted on March 31, 1993.
18 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
FOLLOWED BY THE COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The accompanying financial statements have been prepared in accordance with
Argentine GAAP which differ in certain respects from generally accepted
accounting principles in the United States of America ("U.S. GAAP"). These
differences are reflected in the approximations provided in Note 19 and
principally relate to the items discussed in the following paragraphs.
In addition, in accordance with General Resolution No. 195 of the
Comision Nacional de Valores (the "Argentine Securities Commission" or
"CNV") and also for the convenience of the readers, figures in U.S. Dollars
are to be presented. As of December 31, 1994, the financial statements
amounts in U.S. Dollars, determined by translating the Company's primary
financial statements originally issued in constant Argentine pesos and
price level adjusted at the current rate of exchange as of that date are
similar to those in pesos, since the exchange rate as of December 31, 1994,
is $1 = US$1.
Presentation of Consolidated Financial Statements
Under Argentine GAAP, the Company's financial statements serve as the
primary financial statements issued to shareholders, and consolidated
financial statements with condensed disclosures only supplement the
Company's primary financial statements. Under U.S. GAAP, consolidated
financial statement serve as the primary financial statements issued to
shareholders. As authorized by the CNV, in the primary statement of income,
YPF has proportionately consolidated the income on long-term investments in
controlled companies (except for Agroquimica Latinoamericana S.A., which is
fully reserved) and related companies in which a 50% interest is held.
While individual balances in the financial statements will vary due to
these different methods of presentation, there are no differences between
net income and shareholders' equity as presented in the Company
unconsolidated financial statements and the amounts for net income and
shareholders' equity presented in the consolidated financial statements.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
80
<PAGE> 169
YPF SOCIEDAD ANONIMA
Income Taxes
Under Argentine GAAP, income tax expense is generally recognized based upon
the estimate of the current income tax liability to the Federal Treasury.
When income and expense recognition for income tax purposes does not occur
in the same period as income and expense recognition for financial
statements purposes, the resulting temporary differences are not considered
in the computation of income tax expense for the year.
Under U.S. GAAP, the liability method is used to calculate the income tax
expense. Under the liability method, deferred tax assets or liabilities are
recognized for differences between the financial and tax basis of assets
and liabilities at the statutory rate and at each reporting date.
Foreign Debt Assumed by Government and Other Matters
As described in Note 4.g and 11, the Company was formally released in
April, 1993, from its obligations with respect to the principal amount of
its foreign debt arising from transactions with private sector foreign
lenders prior to December 31, 1986. It has also been released with respect
to all of the related interest and accrued withholding taxes in the last
quarter of 1994. The Company has not, however, obtained a release from the
public sector lenders with respect to foreign debt incurred prior to
December 31, 1986. The balances outstanding related to the accrued interest
and related withholding taxes on private foreign debt were 208 and 1,827 at
December 31, 1993 and 1992, respectively, and the balances related to the
public sector loans were 50, 70 and 149 at December 31, 1994, 1993 and
1992, respectively. The Argentine government has, through Law Number
23,526, assumed responsibility for these amounts. The Company has recorded
a receivable from the Argentine government, which offsets the related
balances, and a capital contribution related to this assumption of the
foreign debt.
Since the Company has not been formally released from 50 of its obligations
under these loans, under U.S. GAAP it is not appropriate to offset the
obligations with the receivable from the Argentine government. Under U.S.
GAAP, a receivable from a shareholder arising from a pending capital
contribution would be shown as a reduction in shareholders' equity. For
further discussion, see note 11.
Receivables prior to 1994 related to the compulsory saving and the royalty
payment (Note 16), represented receivables from a principal shareholder
related to a capital transaction and were excluded from the determination
of net income and shareholders' equity under U.S. GAAP.
Valuation of Inventories
As described in Note 3.c, the Company values its inventories of refined
products for sale, products in process of refining and crude oil at
replacement cost. Under U.S. GAAP, these inventories should be valued at
the lower of cost or realizable value.
Capitalization of Interest
Prior to January 1, 1993, Argentine GAAP did not require capitalization of
interest charges relating to the financing of major projects under
construction. Capitalization of such charges as part of the acquisition
cost of an asset is required under U.S. GAAP.
Marketable Securities
Under Argentine GAAP, marketable securities are stated at their current
market value. Gains or losses from changes in the market prices of the
investments are recognized currently in income.
Under U.S. GAAP, for the fiscal years beginning after December 15, 1993,
the accounting for investments is based upon fair value; however, if a
security is bought and will be sold in the near term the resulting
unrealized gains and losses during the holding period should be included in
earnings. If the security is bought and will be held as available for sale,
the unrealized gains and losses during the holding period should be
included as a separate component of shareholders' equity. The Company
adopted the provisions of SFAS 115 on January 1, 1994. Adoption of the
statement did not have a material effect on net income or shareholders'
equity as determined under U.S. GAAP. Prior to December 15, 1993, these
investments were carried at the lower of cost or market.
Impairment of Long-lived Assets
With respect to continuing operations, the Company has historically
followed a policy of analyzing the recoverability of its assets on an
overall basis. With respect to operations that were held pending sale or
disposal, the Company's policy was to record these assets at amounts that
did not exceed net realizable value. These policies were applied in the
preparation of its basic financial statements and for purposes of the
reconciliation to generally accepted accounting principles in the United
States ("U.S. GAAP") filed with the SEC.
In the fourth quarter of 1994, the Company changed its method of analyzing
recoverability solely for purposes of the reconciliation to U.S. GAAP. The
Company now aggregates its assets so that the discrete cash flows produced
by each group of assets may be separately analyzed. If the group of assets
is not expected to produce sufficient cash flows from operations (without
discounting and without considering financing costs)
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
81
<PAGE> 170
to support the carrying value of the assets, then an impairment is to be
recognized as a charge to income. The loss is computed by comparing the
fair value (including the effect of discounting future cash flows) to the
carrying value of the assets. The effect of this change in accounting
method for purposes of U.S. GAAP reconciliation was a charge of 72 in
December 1994.
Employee Stock Purchase Program
Argentine GAAP does not contain rules governing the accounting to be
followed by employers when a principal shareholder transfers shares to a
Company's employee. The accounting for such transactions under U.S. GAAP is
governed by Statement of the Accounting Principles Board No. 25
"Accounting for Stock Issued to Employees" ("APB 25") and by Accounting
Interpretation Bulletin No. 1 to APB 25.
As discussed in Note 7, 10% of the Company's capital stock represented by
Class "C" shares was designated by the Argentine Federal Government for use
in an Employee Stock Purchase Program ("ESPP"), as required by Law No.
23,696. To formalize the sale of ESPP shares, the General Transfer
Agreement ("GTA") among the employees, the Argentine Government and the
trustee bank was signed in December 1994 and set the percentage of shares
to be sold, number and price of the shares, and the manner and period of
payment. The Argentine Federal Government agreed to establish this ESPP for
the benefit of employees of YPF S.A. as of July 7, 1993 that remained
employees of the Company as of the date the GTA was signed. The GTA is
subject to the approval by a decree of the Federal Government.
Under the terms of the ESPP, the eligible employees will acquire the Class
"C" shares at the price paid by investors at the time of the Company's
privatization, therefore, the eligible employees will require their shares
at $19/share which is less than the fair value of the shares as of the
measurement date (December 1994). APB 25 requires the recognition of
compensation expense representing the difference between the purchase price
paid by the employees and the fair value of the shares at measurement date.
This expense has been reflected as an extraordinary item under U.S. GAAP,
since the establishment of the ESPP was directly related to the
privatization of YPF, and is an infrequent and unusual event unrelated to
the Company's ordinary activities.
Unusual and Extraordinary Gains (Losses)
Under U.S. GAAP, transactions may be considered to be extraordinary items
if they are both unusual in nature and of infrequent occurrence. The
presumption is that transactions should be accounted for as ordinary in the
statement of income unless the weight of evidence indicates the transaction
meets both of these criteria.
As disclosed in Note 4.l, the Company reported a series of "Unusual and
Extraordinary gains (losses)" during the two year period ended December 31,
1993, with the Unusual and Extraordinary items recognized during 1993 being
recorded in the period prior to the privatization in July. Virtually all of
these transactions can be considered to be extraordinary items under U.S.
GAAP, since they are a direct result of the Decrees and Laws issued by the
Argentine government establishing the privatization process, the
transformation of the Company from a state corporation to a commercial
corporation and the Argentine government's actions to deregulate the
country's oil and gas industry. The privatization process is by its nature
of infrequent occurrence and unusual. It is unrelated to the ordinary
activities of the Company and is a highly abnormal event. For further
information on the privatization process, see Note 1.
19 RECONCILIATION OF NET INCOME AND SHAREHOLDERS' EQUITY TO UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The following is a summary of the significant adjustments to net income for
each of the years in the three year period ended December 31, 1994, and to
shareholders' equity as of December 31, 1994, 1993 and 1992, which would be
required if U.S. GAAP had been applied instead of Argentine GAAP in the
financial statements.
<TABLE>
<CAPTION>
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income according to the financial
statements, Argentine GAAP 538 747 271
Increase (decrease) due to:
Unusual and extraordinary items - (33) 114
Cumulative effect of change in method -
Impairment of long-lived assets (Note 18) (72) - -
Deferred income taxes (Note 20.a) 192 - -
Other items, net 1 12 (92)
- ----------------------------------------------------------------------------------------------------------
Income before extraordinary items,
U.S. GAAP 659 726 293
Extraordinary items (Note 20.c) (132) 33 (114)
- ----------------------------------------------------------------------------------------------------------
Approximate net income in accordance with
U.S. GAAP 527 759 179
==========================================================================================================
Earnings per share and per ADS:
Approximate income before extraordinary
items 1.86 2.05 0.83
Extraordinary items (0.37) 0.10 (0.32)
- ----------------------------------------------------------------------------------------------------------
Approximate earnings per share and per ADS 1.49 2.15 0.51
==========================================================================================================
</TABLE>
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
82
<PAGE> 171
YPF SOCIEDAD ANONIMA
<TABLE>
<CAPTION>
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity according to the financial
statements, Argentine GAAP 5,086 5,257 4,762
Increase (decrease) due to:
Deferred income taxes (Note 20.a) 192 - -
Cumulative effect of change in method -
Impairment of long-lived assets (Note 18) (72) - -
Government assumption of interest on
private sector foreign debt (Note 11) - (208) (1,827)
Government assumption of
foreign financial debt (Note 11) (50) (70) (149)
Compulsory saving (Note 16) - (71) (70)
Royalty refunds (Note 16) - (36) (36)
Other items, net 9 8 (4)
- ----------------------------------------------------------------------------------------------------------
Approximate shareholders' equity in
accordance with U.S. GAAP 5,165 4,880 2,676
==========================================================================================================
</TABLE>
Other items, net include the effect of the valuation of inventory,
valuation of marketable securities and capitalization of interest as
described in Note 18.
With regards to significant balance sheet captions for YPF S.A. and
controlled companies as of December 31, 1994 and 1993, and for YPF as of
December 31, 1992, total assets as determined under U.S. GAAP were 7,854,
7,685 and 7,670, and the current portion of loans payable were 603, 570 and
2,356 as of December 31, 1994, 1993 and 1992, respectively.
20 ADDITIONAL U.S. GAAP DISCLOSURES (EXCEPT OIL AND GAS DISCLOSURES, SEE
NOTE 22)
The following information is presented on a U.S. GAAP basis for YPF. If
this additional information had been presented for YPF and its controlled
companies the difference would not be significant.
a) Income Taxes
Substantially all of the Company's income was earned in Argentina during
the three year period ended December 31, 1994.
The reconciliation of pre-tax income at the statutory rate, to the tax
expense presented in the financial statements for the years ended December
31, 1994, 1993 and 1992, computed in accordance with U.S. GAAP, is as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Approximate pre-tax income in accordance
with U.S. GAAP 335 759 179
Statutory tax rate 30% 30% 30%
- ----------------------------------------------------------------------------------------------------------
Statutory tax rate applied to pre-tax income 101 228 54
Permanent differences:
Special tax exemption for the sale of the
Company's assets included in the
transformation Decree 1 (10) 18
Restatement in constant money 139 - 3
Permanent differences arising from
U.S. GAAP adjustments 40 - 26
Reduction of valuation allowance for
temporary differences and tax loss
carryforwards (495) (215) (85)
Other, not individually significant 22 (3) (16)
- ----------------------------------------------------------------------------------------------------------
(192) - -
==========================================================================================================
</TABLE>
The tax effect of the significant differences between the book value and
the tax value of the Company's assets and liabilities and loss
carryforwards are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Tax loss carryforward 313 473 442
Differences between tax and accounting
basis of receivables 49 78 131
Inventory allowances 3 29 26
Fixed assets allowances 16 26 62
Differences between tax and accounting
basis of investments and intangibles 6 - -
Accounts payable and salaries accruals 16 22 87
Reserves 54 92 187
- ----------------------------------------------------------------------------------------------------------
457 720 935
DEFERRED TAX LIABILITIES
Differences between tax and accounting
basis of fixed assets (40) - -
- ----------------------------------------------------------------------------------------------------------
417 720 935
VALUATION ALLOWANCE (225) (720) (935)
- ----------------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSET 192 - -
==========================================================================================================
</TABLE>
A valuation allowance has been established for temporary differences, which
will result in future tax deductions, and for tax loss carryforwards to the
extent these tax assets are not considered to be realizable. In 1993 and
prior years a valuation allowance was established for the full amount of
the Company's net deferred tax assets, since the Company did not have a
positive operating history during the years when it was a state-owned
corporation. As a result of improved profitability following the Company's
privatization, the Company has determined that it is now probable that a
portion of the Company's net deferred tax assets will be realizable in the
future and has, consequently, reduced during 1994 the valuation allowance
established in prior years for its net operating loss carryforwards. As of
December 31, 1994, a net deferred tax asset of 192 was recognized and
approximates the amount expected to be realized in 1995.
b) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
83
<PAGE> 172
the fair value of each class of financial instrument for which it is
practicable to estimate:
Cash and Cash Equivalents
The carrying amount approximates fair values because of the short maturity
of those instruments.
Current Investments
The carrying value of these investments (government securities),
approximates the fair value determined by reference to quoted market prices
of the same or similar financial instruments.
Loans
The carrying amounts of loans approximates its fair value.
c) Extraordinary Items
The following is a description of the principal transactions considered to
be extraordinary items during the years ended December 31, 1994, 1993 and
1992:
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee stock purchase program (Notes 7
and 18) (132) - -
Gain on assignment and/or establishment
of joint operations in areas in accordance
with the Oil Deregulation Decrees and
related Law and net gain on sale of assets
in accordance with the Transformation
Decree (Note 4.1) - 33 96
Restructuring plan-employee terminations
related to the Privatization of YPF - - (161)
Write-down of fixed assets to be sold or
contributed to joint ventures to their estimated
realizable value in accordance with the
Privatization Legislation - - (41)
Write-off of receivable arising from a request for
funds by the Secretary of Energy to pay
governmental expenses under the Argentina Plan - - (12)
Adjustment of investments in related companies
due to the transfer of the ownership in these
companies to the Argentine government,
without compensation to YPF - - 8
Write-down of trade receivables from public sector
companies due to the consolidation decrees
and the privatization of state enterprises - - (4)
- ---------------------------------------------------------------------------------------------------------
(132) 33 (114)
=========================================================================================================
</TABLE>
d) Operating Income
Under U.S. GAAP, costs charged to income for the health care plan, research
and development, holding gains (losses) on inventories, severance payments
since January 1, 1993, amortization of goodwill and other items, which are
not individually significant, would have been deducted from or added to
operating income (loss). The following information is presented on a U.S.
GAAP basis for YPF S.A. and its controlled companies as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
EXPLORATION REFINING CORPORATE
AND AND AND INTERSEGMENT NET
PRODUCTION MARKETING OTHER ADJUSTMENTS AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Deduction) from or addition to
operating income
Year ended December 31, 1994 (18) (58) (20) (47) (143)
Year ended December 31, 1993 (4) 12 (135) - (127)
Year ended December 31, 1992 (44) (82) (20) - (146)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Approximate operating income as determined under U.S. GAAP and operating
income by business segment for each of the years presented was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
EXPLORATION REFINING CORPORATE
AND AND AND INTERSEGMENT NET
PRODUCTION MARKETING OTHER ADJUSTMENTS AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994 548 230 (147) (57) 574
Year ended December 31, 1993 742 156 (258) (13) 627
Year ended December 31, 1992 870 (188) (274) - 408
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Starting January 1, 1993, the Company decided that the Corporate unit would
be responsible for the health care expenses. In prior years, health care
expenditures were allocated to each business unit. Had the changed
methodology been applied retroactively, the operating income for Corporate
would have decreased approximately 56 for the year ended December 31, 1992,
and the operating income for Exploration and Production would have
increased 36 and 20 for Refining and Marketing for the year ended December
31, 1992.
21 SUBSEQUENT EVENTS
On February 28, 1995, the Company and Maxus Energy Corporation (Maxus)
entered into an agreement pursuant to which YPF will make a tender offer to
purchase all of the Common Stock of Maxus, at US$ 5.50 per share, and if
more than 50% of the outstanding voting shares are tendered, a merger with
a subsidiary of YPF S.A. will be effected, in which the remaining Maxus
Common Stock will be exchanged for the same US$ 5.50 per share. Maxus'
Board of Directors has approved the tender offer and the merger and has
recommended that stockholders accept the tender offer. Maxus' preferred
stock will remain outstanding.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
84
<PAGE> 173
YPF SOCIEDAD ANONIMA
The tender offer for all of Maxus Common Stock commenced in early March,
1995. YPF has received a commitment letter from The Chase Manhattan Bank
N.A. to arrange, underwrite and syndicate financings of up to US$ 800
million for the purchase. From this amount up to US$ 600 million would be
Maxus debt following the proposed merger which is expected to be cancelled
in part by the application of US$ 100 million of Maxus cash on hand and
from loans totaling US$ 500 million to Maxus Midcontinent and Indonesian
subsidiaries. The acquisition indebtedness and such loans will be
guaranteed in full by YPF. In addition, under the Merger Agreement, in the
event that Maxus is unable to meet its obligations as they come due,
whether at maturity or otherwise, including preferred stock dividend and
redemption payments, YPF has agreed for a period of nine years following
the consummation of the merger to capitalize the company in an amount
necessary to permit the company to meet such obligations. This obligation
is limited to the amount of debt service obligations under the acquisition
loans or the refinancing loans, and would be reduced by the amount of any
capital contributions received by the company after the consummation of the
merger and the net proceeds of any sale by the company of common stock or
non-redeemable preferred stock after the merger. It is also contemplated
that YPF shall guarantee existing debentures and notes issued by Maxus for
approximately US$ 1,000 million. The tender offer, the merger and the
financing are subject to various conditions, including that at least a
majority of Maxus' voting stock be tendered.
22 OIL AND GAS DISCLOSURES (UNAUDITED)
The following information is presented in accordance with Statement of
Financial Accounting Standards Number 69, "Disclosures About Oil and Gas
Producing Activities". As of December 31, 1994, substantially all of the
Company's oil and gas properties are located in Argentina. As discussed in
Note 2, amounts stated in Argentine pesos are expressed in terms of
constant Argentine pesos as of December 31, 1994.
Capitalized Costs
The following table sets forth the capitalized costs, along with the
related accumulated depreciation, depletion and amortization as of December
31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wells and related equipment and facilities 9,330 8,837 8,552
Support equipment and facilities 646 737 1,076
Uncompleted wells, equipment and
facilities 272 242 151
- -------------------------------------------------------------------------------------------------
Total capitalized costs 10,248 9,816 9,779
Accumulated depreciation, depletion,
amortization and valuation allowances (6,584) (6,213) (6,357)
- -------------------------------------------------------------------------------------------------
Net capitalized costs 3,664 3,603 3,422
=================================================================================================
</TABLE>
Costs Incurred
The following table sets forth the costs incurred during the years ended
December 31, 1994, 1993 and 1992, in the Company's oil and gas producing
activities:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exploration costs 298 150 77
Development costs 755 652 319
- ------------------------------------------------------------------------------------------
Total costs incurred 1,053 802 396
==========================================================================================
</TABLE>
Results of Operations from Oil and Gas Producing Activities
The following table includes only the revenues and expenses associated
directly with the Company's oil and gas producing activities. It does not
include any allocation of the Company's interest costs or corporate
overhead and, therefore, is not necessarily indicative of the contribution
to net earnings of the Company's oil and gas operations.
Differences between this table and the amounts shown in Note 13, "Business
Segment Information", for the exploration and production business unit
relate to additional upstream operations that do not arise from those
properties held by the Company, as reflected above.
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales to unaffiliated parties 454 653 630
Net transfers to affiliated parties 1,763 1,765 1,965
- ---------------------------------------------------------------------------------------------------------
Total net revenues 2,217 2,418 2,595
Production costs (915) (1,178) (1,128)
Exploration expenses (174) (110) (73)
Depreciation, depletion, amortization and
expense for valuation allowances (547) (443) (523)
- ---------------------------------------------------------------------------------------------------------
Pre-tax income from producing activities 581 687 871
Income tax expense (167) (215) (265)
- ---------------------------------------------------------------------------------------------------------
Results of oil and gas producing activities 414 472 606
=========================================================================================================
</TABLE>
Oil and Gas Reserves
Proved reserves represent estimated quantities of crude oil, including
condensate and natural gas liquids, and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed reserves are proved reserves that can
reasonably be expected to be recovered through existing wells with existing
equipment and operating methods.
Estimates of reserves were prepared by the Company using standard
geological and engineering methods generally accepted by the petroleum
industry and in accordance with the rules and regulations of the Securities
and Exchange Commission ("SEC"). The Company's reserve estimates for
December 31, 1994, 1993 and 1992 were audited by Gaffney, Cline &
Associates, petroleum engineers. The choice of method or combination of
methods employed in the analysis of each reservoir was
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
85
<PAGE> 174
determined by experience in the area, stage of development, quality and
completeness of basic data, and production history. There are numerous
uncertainties inherent in estimating quantities of proved reserves and in
projecting future rates of production and timing of development expenditures,
including many factors beyond the control of the producer. Reserve engineering
is a subjective process of estimating underground accumulations of crude oil
and natural gas that cannot be measured in an exact manner, and the accuracy of
any reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
of different engineers often vary. In addition, results of drilling, testing
and production subsequent to the date of an estimate may justify revision of
such estimate. Accordingly, reserve estimates are often different from the
quantities of crude oil and natural gas that are ultimately recovered. The
meaningfulness of such estimates is highly dependent upon the accuracy of the
assumption upon which they were based. The reserve estimates were subjected to
economic tests to determine economic limits. Such reserves are stated prior to
the payment of any royalties to the provinces in which the reserves are
located. Royalties are given effect in such economic tests as operating costs.
The estimates may change as a result of numerous factors including, but not
limited to, additional development activity, evolving production history, and
continued reassessment of the viability of production under varying economic
conditions.
The following tables reflect the estimated proved reserves of crude oil and
natural gas as of December 31, 1994, 1993 and 1992, and the changes therein:
<TABLE>
<CAPTION>
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS
(MILLIONS OF BARRELS)
- -------------------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped reserves
Beginning of year 1,005 1,029 881
Revisions of previous estimates 78 17 251
Extensions, discoveries and improved recovery 147 120 107
Sales of reserves in place (59) (52) (109)
Production for the year
Properties held at December 31, 1994 (120) (101) (90)
Properties sold during the years (6) (126) (8) (109) (11) (101)
- -------------------------------------------------------------------------------------------------------
End of year (1) 1,045 1,005 1,029
=======================================================================================================
Proved developed reserves
Beginning of year 719 711 796
End of year (2) 705 719 711
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes natural gas liquids of 85, 97 and 110, respectively.
(2) Includes natural gas liquids of 75, 85 and 92, respectively.
<TABLE>
<CAPTION>
NATURAL GAS
(BILLIONS OF CUBIC FEET)
- -------------------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped reserves
Beginning of year 9,129 10,918 13,807
Revisions of previous estimates (20) 63 (990)
Extensions and discoveries 31 496 124
Sales of reserves in place (237) (1,901) (1,530)
Production for the year (1)
Properties held at December 31, 1994 (365) (373) (393)
Properties sold during the years (14) (379) (74) (447) (100) (493)
- -------------------------------------------------------------------------------------------------------
End of year 8,524 9,129 10,918
=======================================================================================================
Proved developed reserves
Beginning of year 7,335 8,019 13,274
End of year 7,164 7,335 8,019
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes quantities which have been flared or vented.
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure is calculated as the excess of future cash inflows
from proved reserves less future costs of producing and developing the
reserves, future income taxes and a discount factor. Future cash inflows
represent the revenues that would be received from production of year-end
proved reserve quantities assuming the future production would be sold at
year-end prices. Future production costs include the estimated expenditures
related to production of the proved reserves plus any production taxes without
consideration of future inflation. Future development costs include the
estimated costs of drilling development wells and installation of production
facilities, plus the net costs associated with dismantlement and abandonment of
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
86
<PAGE> 175
YPF SOCIEDAD ANONIMA
wells, assuming year-end costs continue without consideration of future
inflation. Future income taxes were determined by applying statutory rates to:
future cash inflows less future production costs and less tax depreciation of
the properties involved. The present value was determined by applying a
discount rate of 10% per year to the annual future net cash flows.
The standardized measure does not purport to be an estimate of the fair market
value of the Company's proved reserves. An estimate of fair value would also
take into account, among other things, the expected recovery of reserves in
excess of proved reserves, anticipated changes in future prices and costs and a
discount factor representative of the time value of money and the risks
inherent in producing oil and gas.
The future net cash flow information as of December 31, 1992, presented below,
includes the effect of production of quantities of crude oil and natural gas
from properties owned by the Company, which were subject to a service contract
with a third party. This contract, as discussed in Note 15, required the
Company to pay the third party for services at a contractually determined price
which was in excess of the price which the Company ultimately received upon
subsequent sale of the production at market prices. Accordingly, future net
cash flows as of December 31, 1992, were reduced by negative cash flows, since
the Company was obligated to perform under this contract. As discussed in Note
15, this contract was renegotiated in 1993. Consequently, the negative cash
flows were reversed.
The following information has been determined on a basis which presumes the
year-end economic and operating conditions will continue over the periods
during which proved reserves would be produced. Neither the effects of future
pricing (including, for 1993 and 1992, deregulation of natural gas prices in
1994), nor expected future changes in technology and operating practices have
been considered.
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Future cash inflows 25,078 21,598 31,715
Future production costs (7,305) (6,351) (12,690)
Future development costs (1,885) (1,666) (1,927)
- ------------------------------------------------------------------------------------
Future net cash flows, before income taxes 15,888 13,581 17,098
Discount for estimated timing of future
cash flows (7,596) (7,478) (8,972)
- ------------------------------------------------------------------------------------
Present value of future net cash flows,
before income taxes 8,292 6,103 8,126
Future income taxes, discounted at 10%(1) (2,024) (1,607) (2,278)
- ------------------------------------------------------------------------------------
Standardized measure of discounted future
net cash flows (2) 6,268 4,496 5,848
====================================================================================
</TABLE>
(1) Future income taxes undiscounted are 3,860, 3,554 and 4,857 at December 31,
1994, 1993 and 1992, respectively.
(2) Includes the effect of negative cash flows of 503 as of December 31, 1992,
associated with production from a service contract that required payment
for production at prices in excess of current market prices.
Changes in the Standardized Measure of Discounted Future Net Cash Flows
The following table reflects the changes in standardized measure of discounted
future net cash flows for the years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning of year 4,496 5,848 5,748
Sales and transfers, net of production costs (1,302) (1,240) (1,467)
Net change in sales and transfer prices, net
of future production and development costs 1,122 (1,411) 481
Extensions, discoveries and improved
recovery, net of future production
and development costs 678 535 303
Changes in estimated future development costs (637) (266) (714)
Development costs incurred during the year
that reduced future development costs 755 652 319
Revisions of quantity estimates 229 76 154
Accretion of discount 610 813 709
Net change in income taxes (417) 671 (935)
Sales of reserves in place (188) (725) (439)
Changes in production rates (timing)
and other (1) 922 (457) 1,689
- ------------------------------------------------------------------------------------
End of year 6,268 4,496 5,848
====================================================================================
</TABLE>
(1) Includes a reversal of negative cash flows amounting to 381 at December 31,
1993, related to renegotiation of a service contract with TOTAL partners
during 1993 (Note 15).
/s/ ROBERTO J. A. DORMAL BOSH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of notes 18, 19 and 20 in the English translation.
87
<PAGE> 176
YPF SOCIEDAD ANONIMA
FIXED ASSETS EVOLUTION
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18).
EXHIBIT A
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994
-----------------------------------------------------------------------------------
COST DEPRECIATION
------------------------------------------------- ------------------------------
NET NET
AMOUNTS AT DECREASES AMOUNTS ACCUMULATED DECREASES
BEGINNING AND AT END AT BEGINNING AND
MAIN ACCOUNT OF YEAR INCREASES TRANSFERS OF YEAR OF YEAR TRANSFERS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land and buildings 813 6 (110) 709 388 (101)
Wells and related
equipment 8,837 - 493 9,330 5,838 (233)
Refinery equipment 2,238 - 60 2,298 1,180 (31)
Transportation equipment 690 - 7 697 401 (27)
Materials and equipment
in warehouse 334 377 (457) 254 1 (1)
Drilling and work in
progress 347 874 (857) 364 - -
Drilling and exploration
equipment 30 - (20) 10 23 (16)
Furniture, fixtures and
installations 79 - 4 83 45 (10)
Selling equipment 331 - 33 364 159 (10)
Other property 122 - (30) 92 78 (19)
- -----------------------------------------------------------------------------------------------------------------
Total 1994 13,821 1,257 (6) (877)(2) 14,201 8,113 (448)(2)
=================================================================================================================
Total 1993 14,676 1,284 (2,139) 13,821 8,888 (1,346)
=================================================================================================================
Total 1992 15,335 774 (1,433)(5) 14,676 8,567 (680)(5)
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994 1993 1992
----------------------------------------------------- ----- -----
DEPRECIATION
-----------------------------------------
ACCUMULATED NET NET NET
DEPRECIATION AT END OF BOOK BOOK BOOK
MAIN ACCOUNT RATE INCREASES YEAR VALUE VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land and buildings 2% 11 298 411 425 470
Wells and related
equipment (3) 684 6,289 3,041 2,999 2,908
Refinery equipment 4%-5% 85 1,234 1,064 1,058 981
Transportation equipment 4%-5% 21 395 302 289 493
Materials and equipment
in warehouse - - - 254 333 489
Drilling and work in
progress - - - 364 347 275
Drilling and exploration
equipment 10% 1 8 2 7 58
Furniture, fixtures and
installations 10% 8 43 40 34 29
Selling equipment 10% 27 176 188 172 50
Other property 10% 5 64 28 44 35
- ------------------------------------------------------------------------------------------------------------------
Total 1994 842 (1) 8,507 5,694
=================================================================================================================
Total 1993 571 8,113 5,708
=================================================================================================================
Total 1992 1,001 (4) 8,888 5,788
=================================================================================================================
</TABLE>
(1) Includes 154 of accelerated depreciation of the fixed assets in association
areas under U.T.E. contracts charged 116 to the reserve for future losses
on long-term contracts and 38 charged to Income (loss) from the
renegotiation of long-term contracts and sale of areas.
(2) Includes 40 of net book value charged to the reserve for future losses on
long-term contracts, 2 of net book value of assets contributed to related
companies, 220 charged to fixed assets allowances and 23 charged to Income
(loss) from the renegotiation of long-term contracts and sale of areas.
(3) Depreciation has been calculated according to the unit of production method
(Note 3.e).
(4) Includes 336 of accelerated depreciation of the fixed assets in association
areas under U.T.E. contracts.
(5) Includes 119 of net book value of the assigned fixed assets in secondary
areas. This adjustment was retroactively included in the allowance for
fixed assets to be disposed of.
(6) Includes 4 corresponding to capitalized interest generated by related
liabilities for those assets whose construction is extended in time
(Note 3.e).
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
88
<PAGE> 177
YPF SOCIEDAD ANONIMA
INTANGIBLE ASSETS
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18).
Exhibit B
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994
-------------------------------------------------------------------------------------------
COST AMORITIZATION
----------------------------------------------------------- ---------------------------
NET NET
AMOUNT DECREASES AMOUNT ACCUMULATED DECREASES
AT BEGINNING AND AT END AT BEGINNING AND
MAIN ACCOUNT OF YEAR INCREASES TRANSFERS OF YEAR OF YEAR TRANSFERS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Goodwill
YPF Gas S.A. 62 - - 62 - -
- -----------------------------------------------------------------------------------------------------------------------
Total 1994 62 - - 62 - -
=======================================================================================================================
Total 1993 - 62 - 62 - -
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Balance Sheets as of December 31, 1994 1993
------------------------------------------------- -----
Amortization
--------------------------------------
Accumulated Net Net
Depreciation at End Book Book
Main Account Increases Rate of Year Value Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Goodwill
YPF Gas S.A. 7 10% 7 55 62
- --------------------------------------------------------------------------------------------------
Total 1994 7 7 55
==================================================================================================
Total 1993 - - 62
==================================================================================================
</TABLE>
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
89
<PAGE> 178
YPF SOCIEDAD ANONIMA
INVESTMENTS IN SHARES, SECURITIES ISSUED AND
HOLDINGS IN OTHER COMPANIES
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18).
EXHIBIT C
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994
-------------------------------------------------------------
DESCRIPTION OF THE SECURITIES
-------------------------------------------------- INFLATION
ADJUSTED
FACE BOOK HISTORICAL
NAME OF ISSUER CLASS VALUE AMOUNT VALUE COST
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current Investments
Government Securities
BONEX 1989 Series US$ 100 73,899 5 --
BOCONES -- -- -- -- --
- -------------------------------------------------------------------------------------------------
5
=================================================================================================
Noncurrent Investments
Government Securities
BOCONES -- -- -- -- --
Controlled companies:
Agroquimica Share US$1,000 2,400 2 3
Latinoamericana S.A. Certificate
Oleoducto Trasandino Preferred Ps. 1 25,985,190 33 27
(Argentina) S.A.
Oleoducto Trasandino Preferred -- (2) 9,913,752 36 29
(Chile) S.A.
A&C Pipeline Common US$ 1 519,750 -- (6) --
Holding Co.
YPF Gas S.A. Common Ps. 1 1,799,999 19 86
YPF USA Inc. Common US$ 0.01 1,000 (4)(5) --
YPF Exploration and Common US$ 1 1,000 -- (6) --
Production Overseas Inc.
Servired YPF S.A. Common Ps. 1 11,999 1 1
Sociedad Inmobiliaria Common Ps. 1 11,999 4 3
Red Propia S.A.
Operadora de Common Ps. 1 11,880 20 21
Estaciones
de Servicios S.A.
YPF Chile S.A. Common -- (2) 1,000 -- (6) --
Petroleos Common -- (2) 1,000 -- (6) --
Transandinos YPF S.A.
- -------------------------------------------------------------------------------------------------
111 170
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994
---------------------------------------------------------------------------------
INFORMATION ON THE ISSUER
---------------------------------------------------------------------------------
LAST FINANCIAL
STATEMENTS ISSUED
-----------------
MAIN REGISTERED
NAME OF ISSUER BUSINESS ADDRESS DATE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Investments
Government Securities
BONEX -- -- --
BOCONES -- -- --
- ----------------------------------------------------------------------------------------------------------------
================================================================================================================
Noncurrent Investments
Government Securities
BOCONES -- -- --
- ----------------------------------------------------------------------------------------------------------------
Controlled companies:
Agroquimica Petrochemicals Casilla 8292 03/31/92
Latinoamericana S.A. La Paz -- Bolivia
Oleoducto Trasandino Oil transportation Sarmiento 778-P.4 12/31/94
(Argentina) S.A. by pipeline Capital Federal
Oleoducto Trasandino Oil transportation Ahumada 341 12/31/94
(Chile) S.A. by pipeline Santiago de Chile
A&C Pipeline Investment and P.O. Box 309 12/31/94
Holding Co. Finance Georgetown
Cayman Island
YPF Gas S.A. Hydrocarbon Av. Roque Saenz Pena 777 12/31/94
marketing Capital Federal
YPF USA Inc. Legal representation 1209 Orange Street 12/31/94
in USA Wilmington --
New Castle -- USA
YPF Exploration and Oil exploration and 5 Greenway Plaza Sec. 250 --
Production Overseas Inc. production Houston -- Texas 77046 -- USA
Servired YPF S.A. Construction and opera- Av. Roque Saenz Pena 777 12/31/94
tion of convenience stores Capital Federal
in gas stations
Sociedad Inmobiliaria Trade, construction and Av. Roque Saenz Pena 777 12/31/94
Red Propia S.A. measurement of real Capital Federal
estate properties for the
installation and exploita-
tions of gas stations
Operadora de Acquisition, subdivision, Av. Roque Saenz Pena 777 12/31/94
Estaciones repair and transfer and Capital Federal
de Servicios S.A. commercial management
of YPF's gas stations
YPF Chile S.A. Administration of the Gertrudis Echenique 30 12/31/94
investments acquisitions Piso 12o
and exploitation of Comuna Las condes
YPF S.A. in Chile Santiago de Chile
Petroleos Exploration and produc- Gertrudis Echenique 30 12/31/94
Transandinos YPF S.A. tion of oil and gas; refining Piso 12o
and marketing of oil and Comuna Las condes
petroleum derivatives Santiago de Chile
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994 1993 1992
----------------------------------------- ----- -----
INFORMATION ON THE ISSUER
-----------------------------------------
LAST FINANCIAL STATEMENTS
ISSUED
-----------------------------
INCOME HOLDING
(LOSS) IN
CAPITAL FOR THE CAPITAL BOOK BOOK
NAME OF ISSUER STOCK YEAR (1) EQUITY(1) STOCK VALUE VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current Investments
Government Securities
BONEX -- -- -- -- 5 --
BOCONES -- -- -- -- -- 325
- --------------------------------------------------------------------------------------------------------
5 325
========================================================================================================
Noncurrent Investments
Government Securities
BOCONES -- -- -- -- -- 64
- --------------------------------------------------------------------------------------------------------
Controlled companies:
Agroquimica 4 -- 2 60.00% 2 2
Latinoamericana S.A.
Oleoducto Trasandino 45 9 56 57.75%(4) 25 2
(Argentina) S.A.
Oleoducto Trasandino 48 12 63 57.75%(4) 21 2
(Chile) S.A.
A&C Pipeline -- -- -- 57.75% -- --
Holding Co.
YPF Gas S.A. 2 (6) 19 99.99% 7 --
YPF USA Inc. -- -- -- 100.00% -- --
YPF Exploration and -- -- -- 100.00% -- --
Production Overseas Inc.
Servired YPF S.A. -- -- 1 99.99% -- --
Sociedad Inmobiliaria -- -- 4 99.99% -- --
Red Propia S.A.
Operadora de -- (1) 20 99.00% -- --
Estaciones
de Servicios S.A.
YPF Chile S.A. -- -- -- 99.00% -- --
Petroleos -- -- -- 99.00% -- --
Transandinos YPF S.A.
- --------------------------------------------------------------------------------------------------------
55 6
- --------------------------------------------------------------------------------------------------------
</TABLE>
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
90
<PAGE> 179
YPF SOCIEDAD ANONIMA
EXHIBIT C (CONTINUED)
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994
------------------------------------------------------------
DESCRIPTION OF THE SECURITIES
-------------------------------------------------- INFLATION
ADJUSTED
FACE BOOK HISTORICAL
NAME OF ISSUER CLASS VALUE AMOUNT VALUE COST
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Related companies:
Refineria del Common Ps. 10 2,748,219 29 29
Norte S.A.
Oleoductos Common Ps. 10 3,302,229 21(3) 14
del Valle S.A.
Ebytem S.A. Common Ps. 10 816,071 4(3) 4
Transportes Maritimos Common Ps. 10 1,793,743 15(3) 13
Petroleros S.A.
Terminales Maritimas Common Ps. 10 430,800 3(3) 2
Patagonicas S.A.
Petroken Petroquimica Common Ps. 1 40,602,826 50(9) 45
Ensenada S.A.
Petroquimica General -- -- -- --(7) --
Mosconi S.A.I.C
Petroquimica Bahia -- -- -- --(7) --
Blanca S.A.
Interpetrol S.A. -- -- -- --(8) --
- ------------------------------------------------------------------------------------------------
122 107
- ------------------------------------------------------------------------------------------------
Total controlled and
related companies 233 277
- ------------------------------------------------------------------------------------------------
233 277
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994
---------------------------------------------------------------------------------
INFORMATION ON THE ISSUER
---------------------------------------------------------------------------------
LAST FINANCIAL
STATEMENTS ISSUED
-----------------
MAIN REGISTERED
NAME OF ISSUER BUSINESS ADDRESS DATE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Related companies:
Refineria del Refining Maipu 1-P.2o 09/30/94
Norte S.A. Capital Federal
Oleoductos Oil transportation Maipu 1-P. 5o 09/30/94
del Valle S.A. by pipeline Capital Federal
Ebytem S.A. Hydrocarbon Suipacha 268-P.11o 09/30/94
transportation Capital Federal
and storage
Transportes Maritimos Oil transportation Tucuman 744-P.11o 09/30/94
Petroleros S.A. by ship Capital Federal
Terminales Maritimas Oil storage and Maipu 942-P.19o 09/30/94
Patagonicas S.A. shipment Capital Federal
Petroken Petroquimica Petrochemicals Sarmiento 1230-P.6o 12/31/94
Ensenada S.A. Capital Federal
Petroquimica General Petrochemicals Peru 103-P.19o --
Mosconi S.A.I.C Capital Federal
Petroquimica Bahia Petrochemicals 25 de Mayo 555-P.9o --
Blanca S.A. Capital Federal
Interpetrol S.A. Oil marketing Sarmiento 811 --
Capital Federal
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Total controlled and related
Companies
- ----------------------------------------------------------------------------------------------------------------
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994 1993 1992
----------------------------------------- ----- -----
INFORMATION ON THE ISSUER
-----------------------------------------
LAST FINANCIAL STATEMENTS
ISSUED
-----------------------------
INCOME HOLDING
(LOSS) IN
CAPITAL FOR THE CAPITAL BOOK BOOK
NAME OF ISSUER STOCK YEAR (1) EQUITY(1) STOCK VALUE VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Related companies:
Refineria del 92 12 99 30.00% 31 29
Norte S.A.
Oleoductos 110 28 141 30.00% 16 --
del Valle S.A.
Ebytem S.A. 27 5 33 30.00% 3 --
Transportes Maritimos 60 3 62 30.00% 14 --
Petroleros S.A.
Terminales Maritimas 14 2 17 30.00% -- --
Patagonicas S.A.
Petroken Petroquimica 81 6 106 50.00% -- --
Ensenada S.A.
Petroquimica General -- -- -- -- -- 140
Mosconi S.A.I.C
Petroquimica Bahia -- -- -- -- -- 62
Blanca S.A.
Interpetrol S.A. -- -- -- -- -- 6
- ---------------------------------------------------------------------------------------------------------
64 237
- ---------------------------------------------------------------------------------------------------------
Total controlled and related companies 119 243
- ---------------------------------------------------------------------------------------------------------
119 307
=========================================================================================================
</TABLE>
(1) Stated in constant money as of the date of the investee's financial
statements.
(2) These shares have no face falue.
(3) Holding in Shareholders' equity, net of intercompany profits.
(4) Reflects the Company's interest in preferred stock.
(5) Holding in Shareholders' equity, net of adjustments to conform to YPF
accounting methods.
(6) No value is disclosed, due to book value is minor of $1 million.
(7) Transferred to Ministry of Defense in 1993.
(8) Sold during September, 1993.
(9) Holding in shareholders' equity, net of negative goodwill related to
the difference between the acquisition cost and its equity method cost,
which is similar to the fair value of net assets acquired at the date of
its acquisition. In addition, includes irrevocable contributions commitments
capitalized after June 30, 1994.
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
91
<PAGE> 180
YPF SOCIEDAD ANONIMA
ALLOWANCES AND RESERVES
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18).
EXHIBIT E
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994
---------------------------------------------------------
AMOUNT AT
BEGINNING
ACCOUNT OF YEAR INCREASE DECREASE TRANSFERS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Related to current assets:
For doubtful trade receivables 144 12 (2) (13)
For the valuation of public sector receivables
to their estimated realizable value 112 11 (21) 7
For other doubtful accounts - 52(11) (1) 6
For inventory obsolescence 97 - (90) 2
- --------------------------------------------------------------------------------------------------------------------------
353 75 (114) 2
- --------------------------------------------------------------------------------------------------------------------------
Related to noncurrent assets:
For the valuation of public sector receivables
to their estimated realizable value 5 - (1) -
For reduction in value of holdings in
controlled and related companies 2 - - -
For obsolescence of materials 60 - (27) (2)
For fixed assets to be disposed of 75 8(10) (79) -
For unproductive exploratory drilling 27 106 (114) -
- --------------------------------------------------------------------------------------------------------------------------
169 114 (221) (2)
- --------------------------------------------------------------------------------------------------------------------------
Total deducted from assets during 1994 522 189 (335) -
==========================================================================================================================
Total deducted from assets during 1993 1,409 141 (1,028) -
==========================================================================================================================
Total deducted from assets during 1992 2,508 223(3) (1,322)(4) -
==========================================================================================================================
Reserves for losses - current
For future losses on long-term contracts
(Note 15) 19 78(9) (81) 50
For employee terminations 33 36 (64) -
For miscellaneous contingencies (6) 1 - (1) -
- --------------------------------------------------------------------------------------------------------------------------
53 114 (146) 50
- --------------------------------------------------------------------------------------------------------------------------
Reserves for losses - noncurrent
For future losses on long-term contracts
(Note 15) 204 41(9) (165)(8) (50)
For miscellaneous contingencies (6) 85 9 (9) -
- --------------------------------------------------------------------------------------------------------------------------
289 50 (174) (50)
- --------------------------------------------------------------------------------------------------------------------------
Total included in liabilities during 1994 342 164 (320) -
==========================================================================================================================
Total included in liabilities during 1993 844 143(2) (645)(7) -
==========================================================================================================================
Total included in liabilities during 1992 1,078 267(1) (501)(5) -
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994 1993 1992
----------- ----------- -----------
AMOUNT AT AMOUNT AT AMOUNT AT
ACCOUNT END OF YEAR END OF YEAR END OF YEAR
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Related to current assets:
For doubtful trade receivables 141 144 149
For the valuation of public sector receivables
to their estimated realizable value 109 112 410
For other doubtful accounts 57 - 14
For inventory obsolescence 9 97 88
- ----------------------------------------------------------------------------------------------------------
316 353 661
- ----------------------------------------------------------------------------------------------------------
Related to noncurrent assets:
For the valuation of public sector receivables
to their estimated realizable value 4 5 60
For reduction in value of holdings in
controlled and related companies 2 2 204
For obsolescence of materials 31 60 196
For fixed assets to be disposed of 4 75 277
For unproductive exploratory drilling 19 27 11
- ----------------------------------------------------------------------------------------------------------
60 169 748
- ----------------------------------------------------------------------------------------------------------
Total deducted from assets during 1994 376
==========================================================================================================
Total deducted from assets during 1993 522
==========================================================================================================
Total deducted from assets during 1992 1,409
==========================================================================================================
Reserves for losses - current
For future losses on long-term contracts
(Note 15) 66 19 61
For employee terminations 5 33 219
For miscellaneous contingencies (6) - 1 -
- ----------------------------------------------------------------------------------------------------------
71 53 280
- ----------------------------------------------------------------------------------------------------------
Reserves for losses - noncurrent
For future losses on long-term contracts
(Note 15) 30 204 457
For miscellaneous contingencies (6) 85 85 107
- ----------------------------------------------------------------------------------------------------------
115 289 564
- ----------------------------------------------------------------------------------------------------------
Total included in liabilities during 1994 186
==========================================================================================================
Total included in liabilities during 1993 342
==========================================================================================================
Total included in liabilities during 1992 844
==========================================================================================================
</TABLE>
(1) Includes 53 charged to extraordinary gains (losses) and 161 to unusual
losses.
(2) Includes 65 charged to unusual losses.
(3) Includes 12 disclosed in extraordinary gains (losses), 41 in unusual
losses and 51 in gains (losses) on sale, and/or association of areas
and sale of other assets.
(4) Includes 8 disclosed in extraordinary gains (losses).
(5) Includes 40 charged to extraordinary gains (losses) and 42 to other
expenses net.
(6) Set up to cover probable amounts for pending lawsuits and other risks.
Estimated on the basis of available evidence, also taking into account
the probability of occurrence.
(7) Includes 224 charged to income (loss) from the renegotiation of
long-term contracts.
(8) Includes 116 and 40 charged to accelerated depreciation and net book
value of fixed assets retired, respectively.
(9) Includes 66 charged to income (loss) from the renegotiation of
long-term contracts and sale of areas.
(10) Includes 6 charged to income (loss) from the renegotiation of long-term
contracts and sale of areas.
(11) Includes an export refund of 34 netted against sales.
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
92
<PAGE> 181
YPF SOCIEDAD ANONIMA
COST OF SALES
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18).
EXHIBIT F
<TABLE>
<CAPTION>
============================================================================================================
BALANCE SHEETS AS OF DECEMBER 31, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inventories at beginning of year 480 490 562
Purchases for the year 628 631 597
Production costs (Exhibit H) 2,104 2,227 2,365
Holding gains (losses)(1) (52) 2 (50)
Net increase (decrease) in allowance for
inventory obsolescence (Exhibit E) (88) 9 30
Inventories at end of year (Note 4.d) (281) (480) (490)
- ------------------------------------------------------------------------------------------------------------
Cost of sales 2,791 2,879 3,014
============================================================================================================
</TABLE>
(1) Included in the income statement under Financial income (expense) and
holding gains (losses) (Note 4.j)
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
93
<PAGE> 182
YPF SOCIEDAD ANONIMA
FOREIGN CURRENCY ASSETS AND LIABILITIES
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18).
Exhibit G
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994, 1993 AND 1992
FOREIGN CURRENCY
AND AMOUNT EXCHANGE RATE IN BOOK VALUE
------------------------------------------- ARGENTINE PESOS AS OF
ACCOUNT 1992 1993 1994 AS OF 12-31-94 12-31-94
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash US$ 9 US$ 1 US$ 4 0.9990(1) 4
- -----------------------------------------------------------------------------------------------------------------------------
Investments
Short-term deposits US$ 7 US$ 5 US$ 5 0.9990(1) 5
Bonex - - US$ 5 US$ 5 0.9990(1) 5
- -----------------------------------------------------------------------------------------------------------------------------
10
- -----------------------------------------------------------------------------------------------------------------------------
Trade receivables
Accounts receivable US$ 142 US$ 105 US$ 148 0.9990(1) 148
Notes receivable US$ 128 US$ 52 US$ 86 0.9990(1) 86
Related companies US$ 11 - - - - - -
- -----------------------------------------------------------------------------------------------------------------------------
234
- -----------------------------------------------------------------------------------------------------------------------------
Other receivables US$ 41 US$ 61 US$ 17 0.9990(1) 17
- -----------------------------------------------------------------------------------------------------------------------------
Total current assets 265
- -----------------------------------------------------------------------------------------------------------------------------
NONCURRENT ASSETS
Trade receivables
Related companies US$ 86 - - - - - -
Notes receivable US$ 334 US$ 227 US$ 206 0.9990(1) 206
- -----------------------------------------------------------------------------------------------------------------------------
206
- -----------------------------------------------------------------------------------------------------------------------------
Other receivables US$ 27 US$ 162 US$ 107 0.9990(1) 107
- -----------------------------------------------------------------------------------------------------------------------------
Total noncurrent assets 313
- -----------------------------------------------------------------------------------------------------------------------------
Total assets 578
=============================================================================================================================
</TABLE>
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
94
<PAGE> 183
YPF SOCIEDAD ANONIMA
EXHIBIT G (CONTINUED)
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31, 1994, 1993 AND 1992
FOREIGN CURRENCY
AND AMOUNT EXCHANGE RATE IN BOOK VALUE
------------------------------------------------- ARGENTINE PESOS AS OF
ACCOUNT 1992 1993 1994 AS OF 12-31-94 12-31-94
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable US$ 158 US$ 414 US$ 399 1,0000(2) 399
- -----------------------------------------------------------------------------------------------------------------------------
Loans
Foreign financial debt US$ 1,423 US$ 266 US$ 30 1,0000(2) 30
Yen 27,838 Yen 6,067 Yen 4,500 0.0100(2) 45
Fr. Frs. 86 - - - - - -
DM 44 - - - - - -
Pounds 32 - - - - - -
Bel. Frs. 262 - - - - - -
ECU 16 - - - - - -
Lira 4,836 - - - - - -
Negotiable Obligations - - - - US$ 11 1,0000(2) 11
Other Bank loans US$ 255 US$ 135 US$ 397 1,0000(2) 397
- -----------------------------------------------------------------------------------------------------------------------------
483
Less: Government commitment to
assume foreign financial debt -
Law Number 23,526 (27)
- -----------------------------------------------------------------------------------------------------------------------------
456
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 855
- -----------------------------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES
Accounts payable US$ 19 US$ 10 US$ 2 1,0000(2) 2
- -----------------------------------------------------------------------------------------------------------------------------
Loans
Foreign financial debt US$ 139 US$ 157 US$ 10 1,0000(2) 10
Yen 37,129 Yen 31,685 Yen 28,000 0.0100(2) 280
Fr. Frs. 8 Fr.Frs. 6 Fr.Frs. 5 0.1876(2) 1
Negotiable Obligations - - - - US$ 350 1,0000(2) 350
- -----------------------------------------------------------------------------------------------------------------------------
641
Less: Government commitment to
assume foreign financial debt -
Law Number 23,526 -
- -----------------------------------------------------------------------------------------------------------------------------
641
- -----------------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 643
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,498
=============================================================================================================================
</TABLE>
(1) Buying exchange rate.
(2) Selling exchange rate.
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
95
<PAGE> 184
YPF SOCIEDAD ANONIMA
AND CONTROLLED COMPANIES
EXPENSES INCURRED
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - Note 2 and U.S. Dollars, exchange rate $1 to US$1 - Note 18).
EXHIBIT H
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF DECEMBER 31 1994 1993 1992
- ---------------------------------------------------------------------------------------------------- ------ -----
PRODUCTION ADMINISTRATIVE SELLING EXPLORATION
COSTS EXPENSES EXPENSES EXPENSES TOTAL TOTAL TOTAL
- ---------------------------------------------------------------------------------------------------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and social
security taxes 161 39 53 12 265 315 412
Fees and compensation
for services 10 33 16 - 59 38 14
Other personnel expenses 13 8 6 - 27 31 27
Taxes, charges and
contributions 8 - 2 - 10 19 52
Royalties and easements 264 - - - 264 288 323
Insurance 14 4 - - 18 16 12
Rental of real estate
and equipment 8 4 11 - 23 29 38
Survey expenses 3 - - 35 38 23 7
Depreciation of fixed assets 657 4 27 - 688 571 665
Industrial inputs, consumable
materials and supplies 165 2 10 1 178 213 209
Construction and other
service contracts 177 13 56 4 250 284 145
Preservation, repair and
maintenance 215 3 30 - 248 127 95
Contracts for the exploitation
of oil and gas areas 71 - - - 71 282 369
Unproductive exploratory
drillings - - - 106 106 61 36
Transportation, products
and charges 188 2 46 - 236 241 98
Allowance for doubtful
trade receivables - - 12 - 12 6 11
Publicity and advertising
expenses - 8 43 - 51 47 31
Fuel, gas, energy and
miscellaneous 150 16 16 12 194 189 347
- --------------------------------------------------------------------------------------------------------------------------
Total for the year ended
December 31, 1994 2,104 136 328 170 2,738
==========================================================================================================================
Total for the year ended
December 31, 1993 2,227 123 320 110 2,780
==========================================================================================================================
Total for the year ended
December 31, 1992 2,365 254 199 73 2,891
==========================================================================================================================
</TABLE>
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
96
<PAGE> 185
YPF SOCIEDAD ANONIMA
AND CONTROLLED COMPANIES
CONSILDATED BALANCE SHEETS
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 and U.S. Dollars, exchange rate $1 to US$1).
SCHEDULE I (1 OF 3)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash 58 82
Investments (Note 2.a) 23 13
Trade receivables (Note 2.b) 531 458
Other receivables (Note 2.c) 245 469
Inventories (Note 2.d) 274 386
- ----------------------------------------------------------------------------------------------------
Total current assets 1,131 1,408
- ----------------------------------------------------------------------------------------------------
NONCURRENT ASSETS
Trade receivables (Note 2.b) 231 304
Other receivables (Note 2.c) 259 209
Investments (Note 2.a) 122 64
Fixed assets (Note 2.e) 5,920 5,732
Intangible assets 62 67
- ----------------------------------------------------------------------------------------------------
Total noncurrent assets 6,594 6,376
- ----------------------------------------------------------------------------------------------------
Total assets 7,725 7,784
====================================================================================================
CURRENT LIABILITIES
Accounts payable (Note 2.f) 678 704
Loans (Note 2.g) 553 305
Salaries and social security 28 39
Taxes payable 101 131
Dividends payable 71 75
Reserves 72 55
- ----------------------------------------------------------------------------------------------------
Total current liabilities 1,503 1,309
- ----------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES
Accounts payable (Note 2.f) 26 48
Loans (Note 2.g) 692 497
Taxes payable 249 346
Reserves 119 294
- ----------------------------------------------------------------------------------------------------
Total noncurrent liabilities 1,086 1,185
- ----------------------------------------------------------------------------------------------------
Total liabilities 2,589 2,494
MINORITY INTEREST 50 33
SHAREHOLDERS' EQUITY 5,086 5,257
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 7,725 7,784
====================================================================================================
</TABLE>
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
97
<PAGE> 186
YPF SOCIEDAD ANONIMA
AND CONTROLLED COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 and U.S. Dollars, exchange rate $1 to US$1, except for per share and
per ADS amounts in Argentine pesos as of the same date)
SCHEDULE I (2 OF 3)
<TABLE>
<CAPTION>
=====================================================================================================
FOR THE YEARS ENDED DECEMBER 31, 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales 4,201 4,190
Cost of sales (2,841) (2,880)
- -----------------------------------------------------------------------------------------------------
Gross profit 1,360 1,310
Administrative expenses (Exhibit H) (148) (125)
Selling expenses (Exhibit H) (321) (321)
Exploration expenses (Exhibit H) (174) (110)
- -----------------------------------------------------------------------------------------------------
Operating income 717 754
Income on long-term investments 22 8
Other expenses, net (Note 2.h) (142) (122)
Financial income (expense) and holding gains (losses), net:
Gains (losses) on assets (Note 2.i) (68) 128
Gains (losses) on liabilities (Note 2.i) 29 (171)
Income from the renegotiation of long-term contracts and
sale of areas (Note 2.j) 1 224
- -----------------------------------------------------------------------------------------------------
Income before unusual losses 559 821
Unusual losses, net (Note 2.k) - (45)
- -----------------------------------------------------------------------------------------------------
Net income before income and assets tax 559 776
Income and assets tax (12) (30)
Minority interest (9) 1
- -----------------------------------------------------------------------------------------------------
Net income 538 747
=====================================================================================================
Earnings per share 1.52 2.12
=====================================================================================================
</TABLE>
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
98
<PAGE> 187
YPF SOCIEDAD ANONIMA
AND CONTROLLED COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 and U.S. Dollars, exchange rate $1 to US$1)
SCHEDULE I (3 of 3)
<TABLE>
<CAPTION>
=====================================================================================================
FOR THE YEARS ENDED DECEMBER 31, 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 538 747
Adjustments to reconcile net income to net cash
provided by operating activities
Minority Interest 9 (1)
Unusual losses - 45
Income from the renegotiation of long-term contracts
and sale of areas (1) (224)
Income on long-term investments (22) (8)
Depreciation of fixed assets 699 571
Depreciation of intangible assets 7 -
Net book value of fixed assets retired 149 313
Increase in allowances for fixed assets 108 28
Net decrease in reserve for miscellaneous contingencies and
future losses on long-term contracts (41) (92)
Net decrease in allowance for employee terminations (28) (250)
Changes in assets and liabilities:
Trade receivables - 54
Other receivables (17) (304)
Inventories 110 19
Accounts payable (110) 122
Salaries and social security (11) (57)
Taxes payable (37) (201)
Interest payable and other 8 102
- -----------------------------------------------------------------------------------------------------
Net cash flows from operating activities 1,361 864
- -----------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisitions of fixed assets (1,367) (1,011)
Acquisitions of long-term investments (37) (38)
Net proceeds on the assignment and or association of areas and
sales of other assets 134 91
Investments (non cash and equivalents) 1 393
Dividends from long-term investments 9 3
- -----------------------------------------------------------------------------------------------------
Net cash flows used in investing activities (1,260) (562)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS USED IN FINANCING ACTIVITIES
Minority investors' contributions in controlled
companies 7 29
Proceeds from loans 1,528 565
Payment on loans (1,062) (712)
Dividends paid (587) (177)
- -----------------------------------------------------------------------------------------------------
Net cash flows used in financing activities (114) (295)
- -----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (13) 7
Cash and equivalents at the beginning of year 89 82
- -----------------------------------------------------------------------------------------------------
Cash and equivalents at the end of year 76 89
=====================================================================================================
</TABLE>
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the financial statements originally issued in Spanish,
except for the inclusion of Notes 18, 19 and 20 in the English translation.
99
<PAGE> 188
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts expressed in millions of constant Argentine pesos as of December
31, 1994 - and U.S. Dollars, exchange rate $1 to US$1)
SCHEDULE 1
1 CONSOLIDATED FINANCIAL STATEMENTS
a) Consolidation policies
Following the methodology established in Technical Resolution No 4 of
the F.A.C.P.C.E., YPF has consolidated its balance sheets as of December
31, 1994 and 1993 and the related statements of income and cash flows for
each of the two years in the period ended December 31, 1994, with the
financial statements of those companies in which YPF has the number of
votes necessary to control corporate decisions ("YPF Group").
b) Financial statements used for consolidation
The consolidated financial statements, have been based upon the audited
financial statements of YPF Gas S.A. and its controlled company Comsergas
S.A. (Indirect Ownership: 62%), A&C Pipeline Holding Company and its
controlled companies Oleoducto Trasandino (Argentina) S.A. and Oleoducto
Trasandino (Chile) S.A. (Indirect Ownership: 57.75%) as of December 31,
1993; and the previously mentioned companies plus YPF USA Inc. and its
controlled company Roman Exploration Corp. (Indirect Ownership: 100%), YPF
Exploration and Production Overseas Inc., Servired YPF S.A., Sociedad
Inmobiliaria Red Propia S.A., Operadora de Estaciones de Servicios S.A.,
YPF Chile S.A. and Petroleos Transandinos YPF S.A. as of December 31,
1994.
With respect to Agroquimica Latinoamericana S.A., although the Company
has a majority position in this company, it has been consolidated as a
single amount because the Company has fully reserved for its investment in
this company.
c) Valuation methods
The financial statements of the controlled companies have been prepared
with valuation methods similar to those used by YPF in the preparation of
its own financial statements.
In addition to the valuation methods disclosed in the notes to the
YPF financial statements, the following additional valuation methods
have been applied in the preparation of the consolidated financial
statements:
Intangible assets:
Preoperating expenses have been valued at cost, restated to year-end
constant Argentine pesos, less related accumulated amortization
calculated over a five-year period. In the opinion of the Company's
management, future activities will generate sufficient revenues to recover
the costs incurred during the preoperating period.
d) Changes in companies comprising the YPF Group
During 1993 the Company organized YPF USA Inc. and A&C Pipeline Holding
Company, and acquired 99.99% of the shares of Agip Argentina S.A. (which
was renamed YPF Gas S.A. in December, 1993).
During the year ended December 31, 1994, the Company organized Servired
YPF S.A., Sociedad Inmobiliaria Red Propia S.A., Operadora de Estaciones
de Servicios S.A., YPF Exploration and Production Overseas Inc., YPF
Chile S.A. and Petroleos Transandinos YPF S.A.
2 ANALYSIS OF THE MAIN ACCOUNTS OF THE CONSOLIDATED FINANCIAL STATEMENTS
Details regarding the significant accounts included in the accompanying
consolidated financial statements are as follows (as of or for the period
then ended, as applicable):
Consolidated Balance Sheet Accounts
<TABLE>
<CAPTION>
Assets 1994 1993
----------------- -------------------
NON NON
A) INVESTMENTS CURRENT CURRENT CURRENT CURRENT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-term investments 18 - 8(1) -
Government securities (Exhibit C) 5 - 5 -
Controlled and related companies
(Exhibit C) - 124 - 66
Allowance for reduction in value
of holdings in
controlled and related companies - (2) - (2)
- -------------------------------------------------------------------------------------
23 122 13 64
=====================================================================================
</TABLE>
(1) Includes 1 of investments with an original maturity of more than
three months.
<TABLE>
<CAPTION>
1994 1993
----------------- --------------------
NON NON
B) TRADE RECEIVABLES CURRENT CURRENT CURRENT CURRENT
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trade accounts receivable from the
private sector 544 - 489 -
Trade accounts receivable from the
public sector 139 29 160 69
Notes receivable 92 206 60 240
Related companies 7 - 5 -
- -----------------------------------------------------------------------------------
782 235 714 309
Allowance for doubtful trade
receivables (142) - (144) -
Allowance for the valuation of public
sector receivables to their
estimated realizable value (109) (4) (112) (5)
- -----------------------------------------------------------------------------------
531 231 458 304
===================================================================================
</TABLE>
English translation of the consolidated financial statements originally issued
in Spanish, except for the inclusion of notes 18, 19 and 20 in the English
translation.
100
<PAGE> 189
YPF SOCIEDAD ANONIMA
AND CONTROLLED COMPANIES
<TABLE>
<CAPTION>
1994 1993
------------------ -----------------
NON NON
C) OTHER RECEIVABLES CURRENT CURRENT CURRENT CURRENT
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax credits and advances, and
royalty refunds 118 22 221 8
Trade 45 - 66 -
Prepaid expenses 13 64 69 -
From sale of BOCONES 28 49 - 84
Related companies 2 - - -
Currency swap 3 23 - -
Compulsory saving - - 71 -
From sale of fixed assets - 39 - 46
Loans to clients 26 32 9 27
Miscellaneous 67 30 33 44
- -----------------------------------------------------------------------------------
302 259 469 209
Allowance for doubtful other
receivables (57) - - -
- -----------------------------------------------------------------------------------
245 259 469 209
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
D) INVENTORIES 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
Refined products for sale 145 215
Products in process of refining 13 45
Crude oil 84 103
Materials 11 97
Raw materials and packaging materials 31 23
- ------------------------------------------------------------------------------------
284 483
Allowance for inventory obsolescence (10) (97)
- ------------------------------------------------------------------------------------
274 386
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
E) FIXED ASSETS 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net book value of fixed assets
(Exhibit A) 5,974 5,894
Allowance for obsolescense of
materials (31) (60)
Allowance for unproductive exploratory
drilling (19) (27)
Allowance for fixed assets to be
disposed of (4) (75)
- ------------------------------------------------------------------------------------
5,920 5,732
====================================================================================
</TABLE>
Liabilities:
<TABLE>
<CAPTION>
1994 1993
------------------ ------------------
NON NON
F) ACCOUNTS PAYABLE CURRENT CURRENT CURRENT CURRENT
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trade 568 14 541 23
Related companies 24 - 22 -
Notes 11 3 17 11
Other 75 9 124 14
- -----------------------------------------------------------------------------------
678 26 704 48
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994 1993
------------------ ------------------
INTEREST NON NON
G) LOANS RATES (1) MATURITY CURRENT CURRENT CURRENT CURRENT
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Foreign financial debt:
Bank of New York and others--interest - % - - - 163 -
The Export Import Bank of Japan 5.25% 1996-2003 45 280 44 299
World Bank 8.25% - 2 - 55 02
Currency swap 7.28% 1996-2003 2 - 5 18
Other creditors 4-9.74% 1996-2003 26 11 72 47
- ---------------------------------------------------------------------------------------------------
75 291 339 466
Withholding taxes on interest 23 - 46 -
Less: Government commitment to
assume interest on foreign
financial debt subject to the Brady
Plan--Bank of New York and
others--Law Number 23,526 - - (208) -
Less: Government commitment to assume
foreign financial
debt--Law Number 23,526 (50) - (57) (13)
- ------------------------------------------------------------------------------------------------------
48 291 120 453
- ------------------------------------------------------------------------------------------------------
Negotiable obligations (2) 8% 2004 11 350 - -
Other bank loans 6.21-12% 1996-2003 494 51 185 44
- ------------------------------------------------------------------------------------------------------
553 692 305 497
======================================================================================================
</TABLE>
(1) Interest rate as of December 31, 1994.
(2) Current portion corresponds to accrued interest.
English translation of the consolidated financial statements originally issued
in Spanish, except for the inclusion of notes 18, 19 and 20 in the English
translation.
101
<PAGE> 190
YPF SOCIEDAD ANONIMA
AND CONTROLLED COMPANIES
Consolidated Statements of Income Accounts
<TABLE>
<CAPTION>
INCOME (EXPENSE)
---------------------
H) OTHER EXPENSES, NET 1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Health Plan:
Contributions 11 22
Cost of services provided (29) (92)
- -----------------------------------------------------------------
Net (18) (70)
Severance payments and other
personnel expenses (58) -
Research and development expense - (7)
Miscellaneous (66) (45)
- -----------------------------------------------------------------
(142) (122)
=================================================================
</TABLE>
<TABLE>
<CAPTION>
INCOME (EXPENSE)
I) FINANCIAL INCOME (EXPENSE) AND ----------------
HOLDING GAINS (LOSSES), NET 1994 1993
- -------------------------------------------------------------
<S> <C> <C>
Gains (losses) on assets
Interest 60 71
Exchange differences (26) -
Profits due to the sale and
holding gains (losses) on BOCONES - 53
Gains (losses) on exposure to
inflation (50) 2
Holding gains (losses) on
inventories (52) 2
- -------------------------------------------------------------
(68) 128
- -------------------------------------------------------------
Gains (losses) on liabilities:
Interest (101) (120)
Exchange differences 85 (58)
Gains on exposure to inflation 45 7
- -------------------------------------------------------------
29 (171)
- -------------------------------------------------------------
(39) (43)
=============================================================
</TABLE>
<TABLE>
<CAPTION>
J) INCOME FROM RENEGOTIATION OF INCOME (EXPENSE)
LONG-TERM CONTRACTS AND ----------------
SALE OF AREAS 1994 1993
- --------------------------------------------------------------
<S> <C> <C>
Renegotiation of Amoco contract (66) -
Sale of Rio Neuquen area 67 -
Renegotiation of TOTAL contract - 224
- --------------------------------------------------------------
1 224
==============================================================
</TABLE>
<TABLE>
<CAPTION>
INCOME (EXPENSE)
----------------
K) UNUSUAL LOSSES, NET 1994 1993
- --------------------------------------------------------------
<S> <C> <C>
Restructuring plan--employee
terminations related to the
privatization of YPF - (65)
Gain on sale of assets in accordance
with Transformation Decree - 33
Other - (13)
- --------------------------------------------------------------
- (45)
==============================================================
</TABLE>
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the consolidated financial statements originally issued
in Spanish, except for the inclusion of notes 18, 19 and 20 in the English
translation.
102
<PAGE> 191
YPF SOCIEDAD ANONIMA
AND CONTROLLED COMPANIES
FIXED ASSETS EVOLUTION
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 - and U.S. Dollars, exchange rate $1 to US$ 1)
SCHEDULE I - EXHIBIT A
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------- -----
COST DEPRECIATION
------------------------------------------ ------------------------------------------
NET NET
AMOUNTS AT DECREASES AMOUNTS ACCUMULATED DECREASES ACCUMULATED NET NET
BEGINNING AND AT END AT BEGINNING AND AT END OF BOOK BOOK
MAIN ACCOUNT OF YEAR INCREASES TRANSFERS OF YEAR OF YEAR TRANSFERS INCREASES YEAR VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Land and buildings 825 16 (108) 733 393 (101) 11 303 430 432
Wells and related
equipment 8,837 - 493 9,330 5,838 (233) 684 6,289 3,041 2,999
Refinery equipment 2,238 - 60 2,298 1,180 (31) 85 1,234 1,064 1,058
Transportation equipment 695 9 238 942 407 (27) 30 410 532 288
Materials and equipment in
warehouse 334 377 (457) 254 1 (1) - - 254 333
Drilling and work in progress 513 950 (1,086) 377 - - - - 377 513
Drilling and exploration
equipment 30 - (20) 10 23 (16) 1 8 2 7
Furniture, fixtures and
installations 105 1 3 109 65 (11) 9 63 46 40
Selling equipment 331 - 33 364 159 (10) 27 176 188 172
Other property 135 14 (41) 108 83 (21) 6 68 40 52
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1994 14,043 1,367(4) (885)(2) 14,525 8,149 (451)(2) 853(1) 8,551 5,974
====================================================================================================================================
Total 1993 14,683 1,498(3) (2,138) 14,043 8,888 (1,346) 607(3) 8,149 5,894
====================================================================================================================================
</TABLE>
(1) Includes 154 of accelerated depreciation of the fixed assests in
association areas under U.T.E contracts charged 116 to the reserve for
future losses on long-term contracts and 38 charged to Income (loss)
from the renegotiation of long-term contracts and sale of areas.
(2) Includes 40 of net book value charged to the reserve for future losses
on long-term contracts, 2 of net book value of assets contributed to
related companies, 220 charged to fixed assets allowances and 23
charged to Income (loss) from the renegotiation of long-term
contracts and sale of areas.
(3) Includes 54 and 36 corresponding to fixed assets of YPF Gas S.A. at
the moment of acquisition (Note 1.d).
(4) Includes 4 corresponding to capitalized interest generated by related
liabilities for those assets whose construction is extended in time.
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the consolidated financial statements originally issued
in Spanish, except for the inclusion of notes 18, 19 and 20 in the English
translation.
103
<PAGE> 192
YPF SOCIEDAD ANONIMA
AND CONTROLLED COMPANIES
INVESTMENTS IN SHARES, SECURITIES ISSUED AND
HOLDINGS IN OTHER COMPANIES
(amounts expressed in millions of constant Argentine pesos as of December 31,
1994 and U.S. Dollars, exchange rate $1 to US$1)
SCHEDULE I - EXHIBIT C
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994
- -----------------------------------------------------------------------------------------------------------------------------------
INFORMATION ON THE ISSUER
----------------------------------------------
DESCRIPTION OF THE SECURITIES
------------------------------------ INFLATION
ADJUSTED
FACE BOOK HISTORICAL MAIN REGISTERED
NAME OF ISSUER CLASS VALUE AMOUNT VALUE COST BUSINESS ADDRESS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current Investments
Government Securities
BONEX 1989 Series US$100 73,899 5 - - -
- -----------------------------------------------------------------------------------------------------------------------------------
5
===================================================================================================================================
Noncurrent Investments
Controlled company:
Agroquimica Share US$1,000 2,400 2(2) 3 Petrochemicls Casilla 8292
Latinoamericana S.A. Certificate LaPaz-Bolivia
Related companies:
Refineria del Common Ps. 10 2,748,219 29 29 Refining Maipu 1 - P.2o
Norte S.A. Capital Federal
Oleoductos del Common Ps. 10 3,302,229 21(3) 14 Oil transportation Maipu 1 P.5o
Valle S.A. by pipeline Capital Federal
Ebytem S.A. Common Ps. 10 816,071 4(3) 4 Hydrocarbon Suipacha 268 - P.11o
transportation Capital Federal
and storage
Transportes Maritimos Common Ps. 10 1,793,743 15(3) 13 Oil Transportation Tucuman 744 P.11o
Petroleros S.A. by ship Capital Federal
Terminales Maritimas Common Ps. 10 430,800 3(3) 2 Storage and Maipu 942 - P.19o
Patagonicas S.A. shipment Capital Federal
Petroken Petroquimica Common Ps. 1 40,602,826 50(4) 45 Petrochemicals Sarmiento 1230 - P.6o
Ensenada S.A. Capital Federal
- ----------------------------------------------------------------------------------------------------------------------------------
124 110
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1993
----
INFORMATION ON THE ISSUER
---------------------------------------------------
LAST FINANCIAL STATEMENTS ISSUED
--------------------------------
INCOME HOLDING
(LOSS) IN
CAPITAL FOR THE CAPITAL BOOK
DATE STOCK YEAR(1) EQUITY(1) STOCK VALUE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current Investments
Government Securities
BONEX - - - - - 5
- ----------------------------------------------------------------------------------------------------------
5
==========================================================================================================
Noncurrent Investments
Controlled company:
Agroquimica 03/31/92 4 - 2 60.00% 2
Latinoamericana S.A.
Related companies:
Refineria del 09/30/94 92 12 99 30.00% 31
Norte S.A.
Oleoductos del 09/30/94 110 28 141 30.00% 16
Valle S.A.
Ebytem S.A. 09/30/94 27 5 33 30.00% 3
Transportes Maritimos 09/30/94 60 3 62 30.00% 14
Petroleros S.A.
Terminales Maritimas 09/30/94 14 2 17 30.00% -
Patagonicas S.A.
Petroken Petroquimicaon 12/31/94 81 6 106 50.00% -
Ensenada S.A.
- ----------------------------------------------------------------------------------------------------------
66
==========================================================================================================
</TABLE>
(1) Stated on constant money as of the date of the investor's financial
statements
(2) Not consolidated as fully covered by an allowance (Note 1.b).
(3) Holding on Shareholders' equity, net of intercompany profits.
(4) Holding in shareholders' equity, net of negative goodwill related to
the differences between the acquisition cost and its equity method
cost, which is similar to the fair value of net assets acquired at the
date of its acquisition. In addition, includes irrevocable
contributions commitments capitalized after June 30, 1994.
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the consolidated financial statements originally issued
in Spanish, except for the inclusion of notes 18, 19 and 20 in the English
translation.
104
<PAGE> 193
YPF SOCIEDAD ANONIMA
AND CONTROLLED COMPANIES
EXPENSES INCURRED
(amounts expressed in millions of constant Argentine pesos as of December
31, 1994 and U.S. Dollars, exchange rate $1 to US$1)
SCHEDULE I - EXHIBIT H
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 1993
- ------------------------------------------------------------------------------------------------------------------ -------
PRODUCTION ADMINISTRATIVE SELLING EXPLORATION
COSTS EXPENSES EXPENSES EXPENSES TOTAL TOTAL
- ------------------------------------------------------------------------------------------------------------------ -------
<S> <C> <C> <C> <C> <C> <C>
Salaries and social security taxes 173 46 58 12 289 317
Fees and compensation for services 11 34 16 - 61 38
Other personnel expenses 13 8 6 - 27 31
Taxes, charges and contributions 8 - 2 - 10 19
Royalties and easements 264 - - - 264 288
Insurance 14 4 1 - 19 16
Rental of real estate and equipment 8 4 11 - 23 29
Survey expenses 3 - - 39 42 23
Depreciation of fixed assets 669 4 28 - 701(1) 571
Industrial inputs, consumable materials and supplies 165 2 10 1 178 213
Construction and other service contracts 177 13 56 4 250 284
Preservation, repair and maintenance 216 3 31 - 250 127
Contracts for the exploitation of productive areas 71 - - - 71 282
Unproductive exploratory drillings - - - 106 106 61
Transportation, products and charges 188 2 29 - 219 242
Allowance for doubtful trade receivables - - 12 - 12 6
Publicity and advertising expenses - 8 42 - 50 47
Fuel, gas, energy and miscellaneous 163 20 19 12 214 189
- -------------------------------------------------------------------------------------------------------------------------------
Total for the year ended December 31, 1994 2,143 148 321 174 2,786
===============================================================================================================================
Total for the year ended December 31, 1993 2,227 125 321 110 2,783
===============================================================================================================================
</TABLE>
(1) Includes 2 corresponding to the acquisition of Petroken Petroquimica
Ensenada S.A.
/s/ ROBERTO J. A. DORMAL BOSCH /s/ JOSE A. ESTENSSORO
Roberto J. A. Dormal Bosch Jose A. Estenssoro
Statutory Auditor (Supervisory Committee) President and Chief Executive Officer
English translation of the consolidated financial statements originally issued
in Spanish, except for the inclusion of notes 18, 19 and 20 in the English
translation.
105
<PAGE> 194
YPF SOCIEDAD ANONIMA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF YPF SOCIEDAD ANONIMA:
We have audited the balance sheets of YPF SOCIEDAD ANONIMA (an Argentine
Corporation) as of December 31, 1994, 1993 and 1992, and the related statements
of income, changes in shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1994 and the notes 1 to 21 and
exhibits A, B, C, E, F, G and H, all expressed in constant Argentine pesos as
of December 31, 1994. We have also audited the consolidated balance sheets of
YPF SOCIEDAD ANONIMA and its controlled companies as of December 31, 1994 and
1993 and the related consolidated statements of income and cash flows for each
of the two years in the period ended December 31, 1994 and notes 1 and 2 and
exhibits A, C and H, which are presented as supplemental information in
Schedule I, all expressed in constant Argentine pesos as of December 31, 1994.
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 in Argentina which are in substantial agreement with those in the
United States of America. 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 of YPF SOCIEDAD ANONIMA referred to
above, present fairly, in all material respects, the financial position of YPF
SOCIEDAD ANONIMA as of December 31, 1994, 1993 and 1992, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in accordance with generally accepted accounting principles
in Argentina. In addition, in our opinion, the consolidated financial
statements of YPF SOCIEDAD ANONIMA and its controlled companies referred to
above present fairly, in all material respects, the consolidated financial
position of YPF SOCIEDAD ANONIMA and its controlled companies as of December
31, 1994 and 1993 and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1994, in accordance with
generally accepted accounting principles in Argentina.
As indicated in Note 18, on December 31, 1994 the Argentine peso to United
States dollar exchange rate was $1 to US$1; accordingly, there are no
differences between the financial statement amounts translated into U.S.
dollars, computed on the basis set forth in the second paragraph of Note 18,
and the amounts presented in the accompanying financial statements stated in
constant Argentine pesos.
Buenos Aires, Argentina PISTRELLI, DIAZ Y ASOCIADOS
March 7, 1995 C.P.C.E.C.F. T(o) 1 - F(o) 8
JOSE ANTONIO BUGALLO
JOSE ANTONIO BUGALLO
PARTNER
C.P.A., Buenos Aires University
C.P.C.E.C.F. To 60 - Fo 187
ARTHUR ANDERSEN LLP
Chicago, Illinois ARTHUR ANDERSEN LLP
March 7, 1995
English translation of the report originally issued in Spanish, except for the
omission of certain disclosures related to formal legal requirements for
reporting in Argentina and the addition of the last paragraph.
106
<PAGE> 195
YPF SOCIEDAD ANONIMA
STATUTORY AUDIT COMMTTEE'S REPORT
TO THE SHAREHOLDERS OF YPF SOCIEDAD ANONIMA:
Dear Sirs:
With regard to the contents of clause 5, article 294 of Law Number 19,550 and
the current requirements of the Buenos Aires Stock Exchange, we have examined
the inventory book and the balance sheet of YPF SOCIEDAD ANONIMA as of December
31, 1994 and the related statements of income, changes in shareholders' equity
and cash flows for the year then ended, and notes 1 to 21 and exhibits A, B, C,
E, F, G and H and the consolidated balance sheet of YPF SOCIEDAD ANONIMA and
its controlled companies as of December 31, 1994 and the related consolidated
statements of income and cash flows for the year then ended, and notes 1 and 2
and Exhibits A, C and H disclosed as supplementary information in Schedule I.
Our work was based on the audit performed by Pistrelli, Diaz y Asociados of the
documents referred to above, which resulted in the issuance of the report of
independent public accountants dated March 7, 1995 of Jose A. Bugallo, CPA (a
partner of the aforementioned firm) to which we refer.
We have also reviewed the related Directors' Report on which we have no
comments to make on matters falling within our competence.
In compliance with the requirements of the Buenos Aires Stock Exchange, we also
report that we have applied the procedures described in article 294 of Law
Number 19,550 as we considered necessary in the circumstances, and we have no
comments to make in this regard.
Buenos Aires, Argentina
March 7, 1995 for the Statutory Audit Committee
/s/ ROBERTO J. A. DORMAL BOSCH
ROBERTO J. A. DORMAL BOSCH
C.S. To 3 - Fo 25
Statutory Auditor
107
<PAGE> 196
YPF SOCIEDAD ANONIMA
CORPORATE INFORMATION
<TABLE>
<S> <C> <C> <C> <C>
CORPORATE OFFICE INVESTOR CONTACT
YPF S.A. For information about YPF, including a copy of the
Avenida Presidente Form 20-F, as filed with the Securities and Exchange
Roque Saenz Pena 777 Commission, write to:
1364 Buenos Aires, Argentina
IN ARGENTINA
ANNUAL MEETING
YPF S.A.
April 28th, 1995 Manager, Investor Relations
Sarmiento 299, Buenos Aires, Argentina Avenida Presidente
Roque Saenz Pena 777 - 4P Piso
REGISTRAR AND TRANSFER AGENT 1364 Buenos Aires, Argentina
Caja de Valores S.A. IN THE UNITED STATES
Sarmiento 299 P.B.
1353 Buenos Aires, Argentina YPF - U.S.A., Inc.
Manager, Investor Relations
INDEPENDENT AUDITORS 660 Madison Avenue
20th Floor
Pistrelli, Diaz & Asociados - New York, New York 10021-8405
Arthur Andersen
REGISTRAR AND TRANSFER AGENT
Stock Information DEPOSITARY AGENT FOR ADRS
DIVIDEND PAID
QUARTER HIGH LOW PER SHARE Bank of New York
(Pesos) 101 Barclay Street
----------------------------------------------------------- 22nd Floor - West
First Quarter 29.625 23.500 0.20 New York, New York 10286
-----------------------------------------------------------
Second Quarter 26.875 22.125 0.20
-----------------------------------------------------------
Third Quarter 26.875 23.625 0.20
-----------------------------------------------------------
Fourth Quarter 25.250 20.375 0.20
-----------------------------------------------------------
SHARES OUTSTANDING
AS OF DECEMBER 31, 1994:
353,000,000
</TABLE>
Photo Right:
Barrancas oil field, Mendoza
Designed and produced by Taylor & Ives, Inc., NYC
Photography by Stephen Wilkes,
except pages 36 and 44
Aldo Sessa - pages 34-35, 38-39
Illustration on top of page 20 by the students of
School No 10, Ricardo Gutierrez, in La Plata.
This painting is displayed at YPF.
Printed by Hennegan.
Financial section printed on recycled paper.
108
<PAGE> 197
YPF S.A.
BUENOS AIRES
ARGENTINA
[MAP]
<PAGE> 198
EXHIBIT E
AMENDMENTS TO MAXUS ENERGY CORPORATION'S
RESTATED CERTIFICATE OF INCORPORATION
ARTICLE FIFTH
It is proposed that ARTICLE FIFTH of the Certificate be amended as follows:
FIFTH. In furtherance of, and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized and empowered:
(a) To make and alter the By-Laws of the Corporation; provided,
however, that the By-Laws made by the Board of Directors under the powers
hereby conferred may be altered, changed, amended or repealed by the Board
of Directors or by the affirmative vote of the holders of a majority of
shares having voting power with respect thereto; and
(b) From time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation or any of them, shall be open to
inspection of stockholders; and no stockholder shall have any right to
inspect any account, book or document of the Corporation, except as
conferred by applicable law and subject to the rights, if any, of the
holders of any series of Preferred Stock.
The Corporation may in its By-Laws confer powers upon its Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
ARTICLE EIGHTH, SECTION 1
It is proposed that ARTICLE EIGHTH, SECTION 1 of the Certificate be amended
as follows:
EIGHTH. SECTION 1. Number, Election and Terms of Directors. Subject to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect additional
Directors under specific circumstances, the number of the Directors of the
Corporation shall be fixed from time to time by or pursuant to the By-Laws of
the Corporation, or until such director's earlier resignation or removal in
accordance with the General Corporation Law of the State of Delaware, this
Certificate of Incorporation and the By-Laws. Each director shall hold office
for one year after the time of such director's election or until such director's
successor is elected and qualified at the next succeeding annual meeting of
stockholders of the Corporation or until such director's earlier resignation or
removal in accordance with the General Corporation Law of the State of Delaware,
this Certificate of Incorporation and By-Laws.
E-1
<PAGE> 199
EXHIBIT F
AMENDMENTS TO MAXUS ENERGY CORPORATION'S
BY-LAWS
BY-LAW 15, PARAGRAPH (a)
It is proposed that By-Law 15, Paragraph (a) be amended as follows:
15. Board of Directors. (a) Number, election and terms. Except as
otherwise fixed by, or pursuant to the provisions of, Article Fourth of the
Certificate of Incorporation relating to the rights of the holders of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect additional Directors under specified circumstances,
the number of the Directors of the Corporation shall be eight (8) unless
otherwise fixed from time to time by resolution of the Board of Directors but
shall be fixed at no fewer than three (3) nor more than fifteen (15).
F-1
<PAGE> 200
MAXUS ENERGY CORPORATION
P THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
R
O The undersigned hereby appoints C. Sue Blackwell and Lori Hill, and either
X of them, each with full power of substitution and resubstitution, as
Y proxies to represent and to vote all shares which the undersigned may be
entitled to vote as of the record date at the Special Meeting of
Stockholders to be held June 8, 1995, and any adjournment thereof. The
undersigned directs said proxies to vote as specified upon the items shown
on the reverse side, which are referred to in the Notice of Special Meeting
and described in the Proxy Statement.
(change of address)
--------------------------------
--------------------------------
--------------------------------
--------------------------------
SEE REVERSE
SIDE
/X/ Please mark your SHARES IN YOUR NAME
votes as in this
example.
1. Approve the adoption of the Agreement of Merger dated as of February 28,
1995 among YPF Sociedad Anonima, YPF Acquisition Corp., and Maxus Energy
Corporation (the "Company").
2. Approve the adoption of the amendments to the Company's Restated Certificate
of Incorporation to (i) eliminate supermajority stockholder voting
requirements relating to the amendment of certain By-Laws, (ii) eliminate
the classified terms for the directors of the Company, and (iii) change the
terms of directors from three years to one year.
3. Approve the adoption of the amendments to the Company's By-Laws to (i)
reduce the minimum size of the Board of Directors of the Company and (ii)
eliminate the classified terms for the directors of the Company.
FOR AGAINST ABSTAIN
1. / / / / / /
2. / / / / / /
3. / / / / / /
The Board of Directors
Recommends a Vote FOR
Items 1, 2 and 3.
SIGNATURE(S)_________________________________________________ DATE____________
SIGNATURE(S)_________________________________________________ DATE____________
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If the signor is a corporation, please sign
the full corporate name, by duly authorized officer.
