SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14 (A) of the Securities
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a 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))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
HONDO OIL & GAS COMPANY
- ------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- -------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
- --------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
______________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
______________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
______________________________________________________________________________
(5) Total fee paid:
______________________________________________________________________________
[ ] 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: $100.00
______________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
______________________________________________________________________________
(3) Filing Party:
Hondo Oil & Gas Company, HOGC Acquisition Corporation and Lonrho Plc.
______________________________________________________________________________
(4) Date Filed:
October 13, 1998
<PAGE>
HONDO OIL & GAS COMPANY
10375 Richmond Avenue, Suite 900
Houston, Texas 77042
(713) 954-4600
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER __, 1998
To the Stockholders of Hondo Oil & Gas Company:
A Special Meeting of Stockholders (the "Special Meeting") of
Hondo Oil & Gas Company, a Delaware corporation (the "Company"),
will be held on December __, 1998 at 10:00 a.m., New York Time,
at the offices of Parker Chapin Flattau & Klimpl, 18th Floor,
1211 Avenue of the Americas, New York, New York 10036, for the
following purposes.
1. To consider and vote upon a proposal to adopt an
Agreement and Plan of Merger, dated October 12, 1998 (the "Merger
Agreement"), by and among the Company, HOGC Acquisition
Corporation (the "Purchaser"), a Delaware corporation and an
indirect wholly owned subsidiary of Lonrho Plc (the "Parent"), and
the Parent, and to approve the related proposed merger (the "Merger")
of the Purchaser with and into the Company. As a result of the
Merger, the Company will become a wholly owned subsidiary of the
Parent and each issued and outstanding share of Common Stock, par
value $1.00 per share (the "Shares"), of the Company (other than
Shares owned by the Parent or any subsidiary of the Parent,
Shares held in treasury by the Company and Shares held by
stockholders who perfect appraisal rights under Delaware law)
will be converted into the right to receive $0.05 per Share net
in cash, without interest thereon. The Merger and the Merger
Agreement are more fully described in the attached Proxy
Statement which forms a part of this Notice.
2. To transact such other business as may properly come
before the Special Meeting.
On October 9, 1998, a Special Committee of the Board of
Directors of the Company, consisting solely of Directors not
affiliated with Parent, and the entire Board of Directors of the
Company, unanimously determined that the Merger Agreement and the
transactions contemplated thereby, including the Merger, are fair
to and in the best interests of the stockholders of the Company,
and approved the Merger Agreement and the transactions
contemplated thereby, including the Merger.
The meeting may be postponed or adjourned from time to time.
Only stockholders of record at the close of business on
October 30, 1998 will be entitled to notice of or to vote at the
Special Meeting or any adjournment or postponement of that
meeting.
Enclosed is a Proxy Statement describing the matters to be
voted upon at the Special Meeting. Please read it carefully and
then sign, complete and return your Proxy as promptly as
possible. If you receive more than one Proxy because your shares
are registered in different names or addresses, each Proxy should
be signed and returned to assure that all your shares will be
voted.
By Order of the Board of Directors,
John J. Hoey
President and Chief Executive
Officer
November __, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY.
HONDO OIL & GAS COMPANY
10375 Richmond Avenue
Houston, Texas 77042, Suite 900
(713) 954-4600
PROXY STATEMENT
Special Meeting of Stockholders
to be Held December __, 1998
This Proxy Statement is being furnished by the Board of
Directors (hereinafter the "Board" or "Board of Directors") of
Hondo Oil & Gas Company, a Delaware corporation (the "Company"),
to the holders of the outstanding shares of Common Stock, par
value $1.00 per share (the "Shares"), of the Company in
connection with the proposed merger (the "Merger") of HOGC
Acquisition Corporation (the "Purchaser"), a Delaware corporation
and an indirect wholly owned subsidiary of Lonrho Plc (the "Parent"),
with and into the Company pursuant to an Agreement and Plan of
Merger, dated October 12, 1998 (the "Merger Agreement"), by and
among the Company, the Purchaser and the Parent, a copy of which is
attached hereto as Annex A. As a result of the Merger, the
Company will become a wholly owned subsidiary of the Parent and
each issued and outstanding Share (other than Shares owned by the
Parent or any subsidiary of the Parent, Shares held in treasury
by the Company and Shares held by stockholders who perfect
appraisal rights under Delaware law) will be converted into the
right to receive $0.05 per Share net in cash, without interest
thereon (the "Merger Consideration").
This Proxy Statement accompanies a Notice of Special Meeting
of Stockholders (the "Special Meeting") of the Company to be held
on December __, 1998, at which time the Company's stockholders
will be asked to consider and vote upon a proposal to approve the
Merger and adopt the Merger Agreement and such other business as
may properly come before the Special Meeting.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Votes cast by proxy or in person at the Special Meeting will
be counted by the persons appointed by the Company to act as
election inspectors for the meeting. The election inspectors
will treat shares represented by proxies that reflect abstentions
as shares that are present and entitled to vote, for purposes of
determining the presence of a quorum and for purposes of
determining the outcome of any matter submitted to the
stockholders for a vote. Abstentions, however, do not constitute
a vote "for" or "against" any matter.
The election inspectors will treat shares referred to as
"broker non-votes" (i.e., shares held by brokers or nominees as
to which instructions have not been received from the beneficial
owners or persons entitled to vote that the broker or nominee
does not have discretionary power to vote on a particular matter)
as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. However, for purposes of
determining the outcome of any matter as to which the broker has
physically indicated on the proxy that it does not have
discretionary authority to vote, those shares will be treated as
not present and not entitled to vote with respect to that matter
(even though those shares are considered entitled to vote for
quorum purposes and may be entitled to vote on other matters).
This Proxy Statement is dated November __, 1998 and is first
being mailed to stockholders on or about November __, 1998.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY 1
The Companies 1
General 1
Special Meeting of Stockholders; Required Vote 1
Payment for Shares 2
The Merger 2
Selected Financial Information of the Company 4
Market Prices and Dividends 6
SPECIAL FACTORS 6
Background of the Merger; Recommendations of the Special
Committee and Board of Directors 6
Opinion of Financial Advisor 13
Plans of Parent for the Company 16
SPECIAL MEETING OF STOCKHOLDERS; REQUIRED VOTE 16
PAYMENT FOR SHARES 17
General 17
Letter Of Transmittal 17
Valid Surrender of Shares 17
Book-Entry Transfer 18
Signature Guarantees 18
Backup Federal Income Tax Withholding 18
APPRAISAL RIGHTS 18
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER 20
CERTAIN RELATIONSHIPS AND RELATED MATTERS 21
CONTROLLING PERSONS, DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY, PARENT AND PURCHASER 24
THE MERGER AGREEMENT 25
SOURCES OF FUNDS 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 28
AVAILABLE INFORMATION 30
FINANCIAL STATEMENTS AND INFORMATION INCORPORATED BY
REFERENCE 30
<PAGE>
SUMMARY
The following is a summary of certain information
contained elsewhere in this Proxy Statement. Reference is made
to, and this summary is qualified in its entirety by, the more
detailed information contained, or incorporated by reference, in
this Proxy Statement and the annexes hereto. Unless otherwise
defined herein, capitalized terms used in this summary have the
respective meanings ascribed to them elsewhere in this Proxy
Statement.
STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THIS
PROXY STATEMENT AND THE ANNEXES HERETO IN THEIR ENTIRETY.
The Companies
The Company. Hondo Oil & Gas Company is an independent
oil and gas company that, until recently, was focused on
international oil and gas development in Colombia, South America.
The principal executive offices of the Company are located at
10375 Richmond Avenue, Suite 900, Houston, Texas 77042 and its
telephone number is (713) 954-4600.
The Purchaser. HOGC Acquisition Corporation is an indirect
newly incorporated Delaware corporation and a wholly owned subsidiary
of the Parent. To date, the Purchaser has not conducted any
business other than in connection with the Merger. The principal
executive offices of the Purchaser are located at 1211 Avenue of the
Americas, 18th Floor, New York, New York 10036 and its telephone
number is (212) 704-6000.
The Parent. Lonhro Plc is a public company formed
under the laws of England. Lonhro Plc and its subsidiaries are
engaged principally in mining, but also other activities, such as
ownership and management of property and hotels. The principal
executive offices of the Parent are located at Four Grosvenor
Place, London SWIX 7DL, England and its telephone number
is 44-171-201-6000.
General
This Proxy Statement is being delivered in connection
with the proposed Merger of the Purchaser with and into the
Company pursuant to the Merger Agreement. As a result of the
Merger, the Company will become a wholly owned subsidiary of the
Parent, each issued and outstanding Share (other than Shares
owned by the Parent or any subsidiary of the Parent, Shares held
in treasury by the Company and Shares held by stockholders who
perfect appraisal rights under Delaware law) will be converted
into the right to receive the Merger Consideration (i.e., $0.05
net in cash), and the equity interest of all pre-Merger
stockholders in the Company will be terminated. See "THE MERGER
AGREEMENT - The Merger."
Special Meeting of Stockholders; Required Vote
A Special Meeting of Stockholders will be held on
December __, 1998, at 10:00 a.m., New York Time, at the offices
of Parker Chapin Flattau & Klimpl, 18th Floor, 1211 Avenue of the
Americas, New York, New York. At the Special Meeting,
stockholders will be asked to consider and vote upon a proposal
to approve the Merger and adopt the Merger Agreement and such
other proposals as may properly come before the Special Meeting.
Under Delaware law, the affirmative vote of a majority
of the issued and outstanding Shares is required to approve the
Merger and adopt the Merger Agreement at the Special Meeting.
Only holders of record of Shares at the close of business on
October 30, 1998 (the "Record Date") are entitled to notice of
and to vote at the Special Meeting. At such date there were
13,798,424 Shares outstanding, each of which will be entitled to
one vote on each matter to be acted upon or which may properly
come before the Special Meeting.
On the Record Date, Parent and its subsidiaries owned
of record 9,434,596 Shares, constituting approximately 68.4% of
the outstanding Shares. Pursuant to the terms of the Merger
Agreement, on the proposal to approve the Merger and adopt the
Merger Agreement, Parent is obligated to vote, or cause to be
voted, all such Shares in the manner voted by the majority of the
other stockholders of the Company voting at the Special Meeting.
Directors and officers of the Company individually owned in the
aggregate 30,768 Shares (or 0.2% of the outstanding Shares) on
the Record Date and have stated they will vote FOR the approval
of the Merger and the adoption of the Merger Agreement.
Payment for Shares
Upon consummation of the Merger, the Purchaser will
make available to Chase Mellon Shareholder Services LLC, as
paying agent (the "Paying Agent") for the holders of record of
Shares, as needed, the amount of cash to be paid in respect of
the Shares converted into the right to receive the Merger
Consideration pursuant to the Merger. Holders of record should
use the Letter of Transmittal to be provided under separate cover
after the consummation of the Merger to effect the surrender of
certificates evidencing Shares in exchange for the Merger
Consideration. All certificates so surrendered will be
cancelled. Upon consummation of the Merger and surrender of a
certificate evidencing Shares, together with a duly executed
Letter of Transmittal, the holder thereof will receive in
exchange for each Share surrendered the Merger Consideration.
Any cash held by the Paying Agent that remains unclaimed by
stockholders for six months after the effective time of the
Merger will be returned to the Company, as the Surviving
Corporation in the Merger, upon demand and thereafter
stockholders may look, subject to applicable abandoned property,
escheat and other similar laws, only to the Company for payment
thereof.
A Letter of Transmittal will be sent to all
stockholders of the Company under separate cover after the
consummation of the Merger. The Letter of Transmittal will
advise each stockholder of the procedures for surrendering to the
Paying Agent certificates evidencing Shares in exchange for the
Merger Consideration. See "PAYMENT FOR SHARES."
STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
WITH THEIR PROXY CARD.
The Merger
Background of the Merger. For a description of the
events leading up to the approval of the Merger Agreement by the
Special Committee of the Board of Directors consisting solely of
directors not affiliated with Parent (the "Special Committee")
and the entire Board of Directors of the Company, see "SPECIAL
FACTORS - Background of the Merger; Recommendations of the
Special Committee and Board of Directors."
Approval of the Special Committee and Board of
Directors of the Company. The Special Committee and the Board of
Directors of the Company as a whole, on October 9, 1998,
unanimously determined that the Merger Agreement and the
transactions contemplated thereby, including the Merger, are fair
to the stockholders of the Company, approved the Merger Agreement
and recommended that the Company's stockholders approve the
Merger and adopt the Merger Agreement. See "SPECIAL FACTORS -
Background of the Merger; Recommendations of the Special
Committee and Board of Directors."
The Special Committee believes that, in view of the
Company's financial situation, including the uneconomic nature of
the Company's interest in the Opon Association Contract (the
"Opon Contract"), the Company's major asset, and the significant
debt owed to Parent and its affiliates, the Company is no longer
viable as a separate entity. Accordingly, the Special Committee
believes the Merger offers the only means for the stockholders of
the Company to receive any value for their Shares.
Opinion of Financial Advisor. On October 9, 1998, Houlihan
Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey")
delivered to the Special Committee its opinion to the effect
that, as of such date, the Merger Consideration to be received by
the stockholders of the Company (other than Parent and its
subsidiaries) is fair to such stockholders from a financial point
of view. The full text of the opinion of Houlihan Lokey, which
sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Annex
B. Stockholders are urged to read the opinion of Houlihan Lokey
carefully and in its entirety. See "SPECIAL FACTORS - Opinion of
Financial Advisor."
Interests of Certain Persons in the Merger. If the Merger
is consummated, Parent and the Surviving Corporation will jointly
and severally indemnify, defend and hold harmless the present and
former directors and officers of the Company to the fullest
extent that the Company would have been permitted to indemnify
such persons under applicable law and the Certificate of
Incorporation and Bylaws of the Company and any other agreements
in effect. Parent has also agreed to provide directors' and
officers' insurance for the present and former directors and
officers of the Company after consummation of the Merger. See
"THE MERGER AGREEMENT - Directors' and Officers' Indemnification
and Insurance."
Purpose of the Merger. The purpose of the Merger is to
enable the Parent, through the Purchaser, to acquire the
remaining equity interest in the Company not currently owned by
the Parent.
Plans of Parent for the Company. If the Merger is
consummated, Parent intends to continue to attempt to resolve the
Company's outstanding liabilities at minimum cost and expense.
Parent has no present plans to conduct operations or to make any
material additional investments in the Company. However, if an
opportunity arises to utilize the existing net operating losses
of the Company, Parent would consider the opportunity, although
Parent has no current plans, understandings or agreements to use
the net operating losses. At September 30, 1998, the net
operating losses of the Company were approximately $138.9
million. If the Merger is not approved by the stockholders,
Parent does not intend to invest or lend any additional funds to
the Company. The Company would then be required to obtain funds
from other sources to continue as a business. The Company
believes it is unlikely that any other financing could be
obtained and, therefore, the Company may need to seek protection
from its creditors under the applicable bankruptcy laws if the
Merger is not consummated. See "SPECIAL FACTORS - Plans of
Parent for the Company."
Conditions to the Merger. The Merger is subject to the
satisfaction of certain conditions, including that stockholders
holding no more than 100,000 shares demand appraisal rights with
respect to their Shares. See "THE MERGER AGREEMENT - Conditions
to the Merger." Assuming the satisfaction of such conditions, it
is expected that the Merger will be consummated on December __,
1998, or as promptly as practicable thereafter.
Certain Effects of the Merger. Following the consummation
of the Merger, Parent will own 100% of the Company's outstanding
capital stock and the holders of Shares immediately prior to the
Merger, other than Parent, will cease to have ownership interests
in the Company or rights as stockholders of the Company (other
than statutory appraisal rights, in the case of those
stockholders who perfect such rights under the Delaware General
Corporation Law. See "APPRAISAL RIGHTS.") The sole right of
holders of Shares immediately prior to the Merger will be to
receive the Merger Consideration. As a result of the Merger, the
Shares will no longer be quoted on the Nasdaq "OTC Bulletin
Board" and the Company will no longer file periodic reports with
the Securities and Exchange Commission (the "Commission").
Accounting Treatment. The Merger will be accounted for by
Parent under the purchase method of accounting in accordance with
generally accepted accounting principles.
Appraisal Rights. Stockholders of the Company are entitled
to appraisal rights under Section 262 of the Delaware General
Corporation Law as to Shares owned by them in connection with
the Merger. See "APPRAISAL RIGHTS."
Regulatory Matters. The Company is not aware of any
federal, state or foreign regulatory requirements that are
required in order to consummate the Merger.
Certain Federal Income Tax Consequences of the Merger. The
receipt of cash pursuant to the Merger Agreement or the exercise
of appraisal rights will be a taxable transaction to stockholders
for federal income tax purposes. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER." Stockholders are urged to
consult their own tax advisors as to the particular tax
consequences of the Merger to them, including the applicability
and the effect of federal, state, local, foreign and other tax
laws.
Selected Financial Information of the Company
The selected financial information of the Company set forth
below has been derived from the audited financial statements of
the Company for the five fiscal years ended September 30, 1997
and from the unaudited financial statements of the Company for
the nine months ended June 30, 1998. Such information should be
read in conjunction with the financial statements and other
financial information of the Company included elsewhere herein or
incorporated by reference.
<TABLE>
<CAPTION>
Nine Months
Ended June 30, Fiscal Year Ended September 30,
1998(a) 1997 1997(b) 1996(b) 1995(b) 1994(b) 1993
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenue $ 3,069 $ 23 $ 29 $ 112 $ 46 $ 728 $ 980
Gain (loss) on sales of assets - - - (6) - (1,240) (8)
Operating costs and expenses 12,970 3,534 4,367 6,293 1,943 2,880 5,910
Depreciation, depletion and
amortization 1,072 172 230 156 266 220 365
Interest expense 8,395 4,480 6,222 5,009 4,680 4,605 3,411
Provision for income tax - (2) (2) 5 113 (199) (46)
------------ ---------- ----------- ----------- ------------ ------------ ---------
Loss from continuing operations (19,368) (8,161) (10,788) (11,357) (6,956) (8,018) (8,668)
Loss from discontinued
operations - - (1,600)(c) (1,300)(d) (4,950)(c) (3,038)(c) (15,176)(e)
Extraordinary items (36,428)(f) - - - - - -
------------ ---------- ----------- ----------- ------------ ------------ ---------
Net loss $(55,796) $(8,161) $(12,388) $(12,657) $(11,906) $(11,056) $(23,844)
============ ========== =========== =========== ============ ============ =========
Earnings (loss) per share
Continuing operations $ (1.41) $ (0.59) $(0.78) $(0.83) $(0.53) $(0.62) $(0.67)
Discontinued operations - - (0.12) (0.10) (0.37) (0.23) (1.16)
Extraordinary items (2.64) - - - - - -
------------ ---------- ----------- ----------- ------------ ------------ ---------
$ (4.05) $ (0.59) $(0.90) $(0.93) $(0.90) $(0.85) $(1.83)
============ ========== =========== =========== ============ ============ =========
Weighted average common shares
outstanding 13,795 13,780 13,781 13,673 13,171 13,009 13,007
============ ========== =========== =========== ============ ============ =========
At June 30, At September 30,
1998 1997(b) 1996(b) 1995(b) 1994(b) 1993(b)
(In thousands)
OTHER FINANCIAL DATA
Working capital (deficit) $(151,303)(f) $(5,834) $(5,109) $(1,077) $2,413 $1,729
Properties, net $20(f) $40,612 $21,248 $12,777 $10,855 $15,910
Net assets of discontinued
operations $2,344 $2,137(b) $2,202(c) $2,978(b) $6,851(b) $7,750(d)
Total assets $6,111 $44,930 $24,540 $18,398 $24,908 $30,142
Total debt $114,578 $102,903 $83,334 $82,213 $81,888 $78,828
Shareholders' deficit $(148,897) $(93,173) $(80,891) $(73,364) $(66,681) $(55,815)
Book value per share
</TABLE>
(a) The Company's Colombian properties began operations in December
1997. Dry hole costs of $8,576,000 from the failed Opon 14 well
were recorded in the quarter ended June 30, 1998.
(b) Under the terms of a Farmout Agreement between the Company and
Amoco Colombia Petroleum Company relating to the Opon Contract,
Amoco Colombia Petroleum Company paid for most costs incurred
(both capitalized and expensed) in Colombia in 1995 and 1994.
The Company became responsible for its share of costs in
Colombia in 1996.
(c) The Company recorded valuation provisions against the carrying
value of its discontinued real estate operations and accrued for
a contingent liability arising from its discontinued refining
and marketing operations in 1997, 1995 and 1994.
(d) The Company recorded valuation provisions against the carrying
value of its discontinued real estate operations in 1996.
(e) The Company completed the sale of substantially all of its
discontinued refining and marketing segment and recorded
valuation provisions against the carrying value of its
discontinued real estate segment in 1993.
(f) In June 1998, the Company wrote off its investment in Colombia,
recorded $3,554,000 from forgiveness of debt, and reclassified
all of its long-term debt as current liabilities, all due to
insufficient oil and gas reserves in Colombia.
Market Prices and Dividends
The Shares were traded on the American Stock Exchange until
May 15, 1998 (trading was suspended during the period May 15,
1998 to July 2, 1998) and have been quoted on the Nasdaq "OTC
Bulletin Board" from July 2, 1998. The following table sets
forth the high and low closing sales prices per Share until
May 15, 1998 and the high and low bid price for periods from
July 2, 1998.
<TABLE>
<S> <C> <C>
High Low
Year Ended September 30, 1997
First Quarter $15.00 $10.75
Second Quarter 14.00 10.50
Third Quarter 10.75 6.44
Fourth Quarter 7.25 5.88
Year Ended September 30, 1998
First Quarter $ 9.75 $ 6.13
Second Quarter 8.13 1.50
Third Quarter 2.25 0.63
Fourth Quarter 0.13 0.04
</TABLE>
On October 9, 1998, the last full trading day prior to the
public announcement of the execution of the Merger Agreement, the
last reported trade for the Shares was $0.036 per Share. On
November __, 1998, the latest practicable trading day prior to
the commencement of mailing of this Proxy Statement, the last
reported trade for the Shares was $____ per Share.
The number of stockholders of record at the Record Date was
_____.
The Company has not paid a dividend on the Shares in the two
most recent fiscal years, nor has it ever done so. The Company's
loan agreement with London Australian and General Property
Company Limited, a subsidiary of Parent ("LAGP"), restricts the
payment of dividends to 35% of the Company's Consolidated Net
Adjusted Income (as defined in the loan agreement) plus $2.0
million. Since the Company has incurred net losses during this
fiscal year and prior years, the payment of dividends is
prohibited.
SPECIAL FACTORS
Stockholders should consider carefully the following matters
in deciding how to vote on the proposal to approve the Merger and
adopt the Merger Agreement.
Background of the Merger; Recommendations of the Special
Committee and Board of Directors
Prior to 1989, the Company was involved in domestic oil and
gas operations and owned a refinery, an asphalt paving materials
company, a packaged concrete manufacturing company and other
assets. In late 1989 and 1990, the Company suspended operations
and closed its refinery. Also in 1990, the Company sold its
asphalt paving materials company and its packaged concrete
company. In 1992, the Company completed a sale of substantially
all of its domestic oil and gas assets. The Company then focused
on international oil and gas exploration and development.
Since 1992, the Company's principal asset has been its
interest in the Opon Contract, an exploration concession for an
area in the Middle Magdalena Valley of Colombia, South America.
Significant reserves of natural gas and condensate were believed
to exist in the Opon Contract area as a result of two discovery
wells drilled during 1994 and 1995. In accordance with the terms
of the Opon Contract, in May 1996 Empresa Colombiana de Petroleos
("Ecopetrol") declared a portion of the area commercial. A
pipeline and related wellsite facilities to deliver natural gas
and condensate to a market were completed, and production began
in December 1997. Deliveries of natural gas to a power plant
located at the Opon Contract area also began in December 1997,
but were suspended at the end of March 1998 due to unanticipated
drops in pressure and corresponding production from the Opon No.
3 and No. 4 wells. During 1997, the Opon No. 6 well encountered
mechanical problems during completion operations and was
temporarily suspended to evaluate information and develop plans
for further operations on the well. The associate parties
deferred commencing production of the Opon No. 6 well until they
completed a review and analysis of the reservoir and reserves.
Drilling of the Opon No. 14 well began in October 1997 and has
been completed and tested. The Opon No. 14 well did not produce
any hydrocarbons and has been suspended.
Hondo Magdalena Oil & Gas Limited ("Hondo Magdalena"), a
wholly-owned subsidiary, became involved in the Opon Contract
through a farmout agreement with Opon Development Company ("ODC")
in 1991. In August 1993, Hondo Magdalena and ODC entered into a
Farmout Agreement under which Amoco Colombia Petroleum Company
("Amoco Colombia") earned a 60% participating interest in the
Opon Contract. To earn the interest, Amoco Colombia paid $3.0
million in cash in 1993 and paid all of the costs related to
drilling the Opon No. 3 well in 1994. In addition, Amoco
Colombia paid Hondo Magdalena $5.0 million in October 1994 and
paid all but $2.0 million of Hondo Magdalena's costs for drilling
the Opon No. 4 well in 1995.
Amoco Colombia, Hondo Magdalena and ODC have interests in
the Opon Contract (outside the commercial area described below)
of approximately 60%, 30.9% and 9.1%, respectively. As provided
in the Opon Contract, upon the designation of an area or field as
commercial, Ecopetrol acquires a 50% interest in such area or
field and will reimburse the associate parties for 50% of the
direct exploration costs for each commercial discovery from its
share of production. In May 1996, Ecopetrol approved a
commercial field of approximately 2,500 acres around the Opon No.
3 and No. 4 wells. The interests in the commercial field are
approximately 50%, 30%, 15.4%, and 4.6% for Ecopetrol, Amoco
Colombia, Hondo Magdalena, and ODC, respectively.
The Opon No. 6 well commenced drilling in October 1996.
This well is slightly more than 1 kilometer north of the Opon No.
3 well and is outside the current commercial area. The well is
presently estimated to cost $30.6 million, of which Hondo
Magdalena's share is 30.9%. After the drilling was completed,
several mechanical problems in the completion and testing of the
Opon No. 6 well occurred. After there was a failure of a portion
of the perforating guns during the initial completion attempt in
April 1997, a second set of perforating guns were fired. Cleanup
and testing on the second set of perforations commenced in May
1997 and, while all the guns fired, the well has not flowed as
anticipated.
The associate parties made a number of claims against
suppliers of services and equipment related to the problems
encountered during completion operations on the Opon No. 6 well.
The claims relate to the failure of perforating guns, problems
with the installation of the production tubing and failure of a
downhole safety valve provided by Colombian branches of U.S. and
multinational oil service companies. The claims are based upon
contract and purchase order terms providing for warranties,
adequate supervision of assembly of components and other work,
equipment to be in good working order, and work to be performed
in a workmanlike manner. The disputed charges aggregate
approximately $4.9 million, of which Hondo Magdalena's share is
approximately $1.5 million. Consequential losses, depending on
how measured, could make the claims larger. The Company has
agreed with Amoco Colombia on a settlement of all claims related
to equipment failure with suppliers to the Opon No. 6 well,
except for the claim with the supplier of the TCP guns that
initially failed to fire. If this remaining dispute is not
resolved, the Company will consider filing an arbitration claim
in London, UK pursuant to the contract. The settlements have
already resulted, and will result, in partial payments of
outstanding invoices to several suppliers and will further
increase the amount the Company owes Amoco Colombia but will
reduce the Company's accrued liabilities.
The Opon No. 14 well, approximately four kilometers south of
the Opon No. 4 well, commenced drilling in October 1997. The
total cost of the well is estimated to be $26.3 million, of which
Hondo Magdalena was required to bear 30.9%. The well was planned
and intended to confirm the existence of the La Paz gas and
condensate reservoir in the south of the Opon Contract area.
The well has been drilled to a depth of 12,200 feet. The
associate parties have completed testing of both the La Paz
formation and the deeper Lisama formation. The results were
unsuccessful and the well did not flow any significant
hydrocarbons and has been plugged and temporarily suspended in
such a manner that it may be re-entered in the future.
In July 1995, Hondo Magdalena, ODC, Amoco Colombia and
Ecopetrol agreed to construct a pipeline and wellhead facilities
(which were not contemplated in the Opon Contract). The parties
constructed a 16 inch pipeline approximately 88 kilometers in
length from the Opon Contract area north to Ecopetrol's gas
processing plant at El Centro, and from there to Ecopetrol's
refinery at Barrancabermeja. The investment in the pipeline is
to be recovered through a pipeline tariff, but see the discussion
in the next paragraph concerning the action of the governmental
agency on the associate parties' tariff application.
The Comision de Regulacion de Energia y Gas (Commission for
the Regulation of Energy and Gas, "CREG"), an agency of the
Ministry of Mines and Energy of the Colombian government,
regulates natural gas pipelines and the sale of natural gas in
Colombia. CREG's regulations provide the ceiling price for
natural gas and the methodology for establishing pipeline
tariffs. Based upon these regulations, Amoco Colombia, as
operator, applied for a pipeline tariff of 60.4 cents per
thousand cubic feet of gas; CREG has responded by rejecting the
proposed tariff, instead approving a tariff of 26.4 cents per
thousand cubic feet of gas. Amoco Colombia appealed this
decision, but the appeal was denied. In the interim, the
associate parties have been charging (and through the July 1998
production, Ecopetrol has paid) the higher 60.4 cents tariff.
The Company is recognizing revenue using the 25.0 cent rate, the
remainder of the cash being received is recorded as a liability.
Contracts, covering the sale of natural gas, the sale of
condensate and natural gas liquids, the processing of the gas
stream, and transportation of natural gas and liquids are
complete and have been signed by all parties. The contracts
provide for: (i) the sale of 100 million cubic feet of natural
gas per day for the life of the Opon Contract at the regulated
price determined semi-annually by a formula based upon the
average price received by Ecopetrol for exported fuel oil during
the prior two six-month periods (currently US$0.846 per million
British Thermal Units); (ii) the sale of condensate and natural
gas liquids at market-related and market-indexed prices; and
(iii) the processing of the gas stream at Ecopetrol's El Centro
gas processing plant for a fee of $0.159 per thousand cubic feet
of gas. Ecopetrol, as purchaser, pays the pipeline tariff for
the natural gas sold by the associate parties.
In March 1997, Hondo Magdalena, ODC, Amoco Colombia and
Ecopetrol, as sellers, signed a contract with Termo Santander de
Colombia E.S.P., as purchaser ("Termo Santander"), to supply,
subject to the conditions noted below, natural gas to its
electric generation plant at the Opon Contract area. Under the
contract, that is not in effect, the sellers were required to
supply natural gas requested by the purchaser up to 60 million
cubic feet per day. The sellers were to receive $4.2 million per
year for making the gas available for purchaser's call.
Purchaser was to pay 60% of the government-regulated price
(described above) for the natural gas it takes. The sellers also
were to receive additional bonus payments if the power plant
achieves a price for its electrical power in excess of certain
target rates. The contract provides for substantial penalties,
decreasing over the life of the contract, to the sellers for the
failure to deliver gas. The commencement of the contract was
conditioned upon a determination by the sellers that there are
sufficient reserves to supply natural gas to the purchaser for
the entire term of the agreement. In order to begin deliveries
before the condition concerning the sufficiency of reserves could
be satisfied, an interim agreement for the sale of gas to Termo
Santander was signed on November 20, 1997. The interim agreement
was to be effective until January 1, 1999. The gas sales price
under the interim agreement was equivalent to the price,
including pipeline tariff, that would have been received if the
same gas were sold under the contract with Ecopetrol described in
the preceding paragraph. The associate parties have not supplied
gas to Termo Santander since March 31, 1998. The power plant has
not been able to locate another supply of gas and has permanently
ceased operation. It is currently being dismantled for export.
The associate parties have no liability for failing to supply gas
to the power plant under the interim agreement.
The pipeline and wellsite facilities were completed in June
1997. Ecopetrol completed the improvements to the El Centro gas
processing plant in November 1997. Production from the Opon
field began on December 1, 1997, with gas supplied to Termo
Santander for testing the first of two turbines at the power
plant. The first shipment of gas through the pipeline occurred
on December 5, 1997.
The associate parties have submitted invoices to Ecopetrol
under the gas sales agreement for payments under the take-or-pay
clause, which provides that Ecopetrol will pay 200% of the gas
price for the Company's share of 100 million cubic feet per day
if the gas pipeline is completed and ready and the El Centro gas
plant improvements have not been completed. The associate
parties believe the pipeline was complete on June 25, 1997, and
submitted invoices accordingly. Ecopetrol has indicated that it
will not pay these invoices. The Company has not accrued its
$5.2 million invoice in its financial statements. The associate
parties are reviewing their legal options to pursue the
collection of these invoices, which could include negotiation of
a settlement and arbitration in a Colombian forum.
Amoco Colombia has submitted budgets to Hondo Magdalena and
ODC for calendar years 1996, 1997 and 1998. Hondo Magdalena
approved capital expenditures for wells and the pipeline
projects, and certain other expenditures, but did not approve the
proposed overhead. Pursuant to a Stand-Still Agreement reached
with Amoco Colombia on May 19, 1998, Hondo Magdalena has approved
the original 1996 and 1997 budgets in their entirety and no
longer has any disputes regarding overhead operating expenses.
This has not resulted in any adjustments to the Company's
financial statements since the Company had previously expensed
all disputed overhead operating expenses as incurred.
The Company and Amoco Colombia have had a dispute regarding
audit exceptions for the Opon project for 1994, 1995 and 1996.
The dispute as to 1994 and 1995 was submitted to arbitration in
January 1998. The parties met in July 1998 and subsequently
resolved all matters on which they disagreed. Final resolution
of the entire dispute should be reached in the near future.
In April 1998, the Company announced that the rate of
decline in production from its Opon No. 3 and Opon No. 4 gas
wells in Colombia had been higher than expected during the first
five months of production. Testing of the wells is complete. An
analysis of the test results by the Company's independent reserve
engineers concluded that it will become uneconomic (operating
costs will exceed operating revenues) to produce the wells before
the end of fiscal 1998 and that the drilling of additional wells
would be uneconomic (net profit over the life of a new well would
be less than the cost to drill it). As a result of the
significant declines in production observed since December 1997
and the recently completed testing, proved reserves as of
June 30, 1998 were estimated to be 0.4 billion cubic feet of
natural gas and 0.02 million barrels of associated liquids, for
which the present value of net cash flows is less than $0.1
million.
The current production revenue from the Opon Nos. 3 and 4
wells continues to decline and net cash flow to the Company's
interest turned negative before the end of fiscal 1998. No
additional wells are planned to be drilled by Amoco Colombia in
the Opon Contract area. The Company has commenced negotiations
with Amoco Colombia for a voluntary surrender of its working
interest in the Opon Contract pursuant to the joint operating
agreement in exchange for a release of the Company's liabilities
to Amoco Colombia, which include $5.5 million in current charges
and $27.1 million under the Funding Agreement as of June 30,
1998. There can be no assurances that these negotiations will be
successful. Amoco Colombia has the option to place Hondo
Magdalena into default on or after October 15, 1998 and Hondo
Magdalena has a 30 day period to cure the default or lose the
interest in the Opon Contract. The Company does not have the
financial resources to cure the potential default, if declared by
Amoco Colombia, and does not have any known possibility of
outside financing. In July 1998, Amoco Colombia announced that
it would write off a significant amount of its Opon investment.
At June 30, 1998, the Company was indebted to Parent and its
affiliates in the aggregate amount of $112.5 million. The
Company has failed to comply with an existing loan covenant to
increase reserves in the Opon area by 13 billion cubic feet of
gas by October 1, 1998. The Company has not received a notice of
default from Parent.
In various discussions between the Company and Parent,
Parent has expressed its preference that the Company not commence
a bankruptcy proceeding. Between July, 1998 and September, 1998,
the Company settled claims against the Company totaling
approximately $5,943,000 for approximately $578,000.
As noted above, Parent and its affiliates continue to be the
Company's principal creditor and stockholder. The Special
Committee does not believe that the Company has or can obtain the
funds to repay the amounts owed to Parent and its affiliates or
that the Company can refinance such indebtedness.
On August 24 1998, the Board of Directors met to discuss the
Company's financial situation. The Board of Directors appointed
a Special Committee of the Board consisting of John J. Hoey,
Douglas G. McNair and Robert K. Steer, none of whom are officers
or directors of Parent or any of its affiliates, other than the
Company. The Special Committee was empowered to consider various
alternatives and determined that the only practicable
alternatives available to the Company were bankruptcy, liquidation
and a possible transaction with Parent. John J. Hoey then
approached Parent regarding a possible merger of the Company with
a wholly owned subsidiary of Parent and the payment of an amount
in cash to the stockholders of the Company. On August 31, 1998,
the Special Committee engaged Houlihan Lokey as its financial
advisor to render an opinion regarding the consideration to be
received by stockholders of the Company if an agreement was
reached with Parent.
On September 16, 1998, counsel for the Company distributed
to the directors and officers of the Company and to
representatives of and counsel to Parent a draft of the Merger
Agreement.
On September 25, 1998, the Special Committee had a
telephonic meeting. Mr. Hoey described the current financial
situation and his efforts to settle several of the claims against
the Company. A representative of Houlihan Lokey then gave a
presentation regarding Houlihan Lokey's preliminary analysis of
the consideration proposed to be given to the stockholders of the
Company in the proposed Merger and answered questions from the
members of the Special Committee. Counsel for the Company then
described in detail the terms of the proposed Merger Agreement
and answered questions from the members of the Special Committee
On October 6, 1998, counsel for the Company and counsel for
Parent discussed the terms of the proposed Merger and the
provisions of the draft Merger Agreement.
On October 7, 1998, the Special Committee met by telephone
to discuss the continuing analysis by Houlihan Lokey.
On October 9, 1998, the Merger Agreement was presented to
the Special Committee. Counsel to the Company described in detail
the provisions of the Merger Agreement and answered any questions
from the members of the Special Committee. Representatives of
Houlihan Lokey made a presentation to the Special Committee and,
after the presentation, delivered its opinion to the Special
Committee to the effect that the Merger Consideration was fair to
the stockholders of the Company (other than Parent) from a
financial point of view. The Special Committee then unanimously
determined that the Merger should be approved and the Merger
Agreement should be executed and delivered, and that the terms of
the Merger Agreement are fair to the stockholders of the Company,
other than Parent and its affiliates. The entire Board of
Directors then met and unanimously approved the Merger and the
Merger Agreement.
On October 12, 1998, the Merger Agreement was executed by
all parties thereto.
The Special Committee and the Board of Directors as a whole
recommend a vote FOR the approval of the Merger and the adoption
of the Merger Agreement.
In reaching the determination and recommendation described
above, the Special Committee and the Board of Directors
considered a number of factors, including the following:
(1) The financial condition and results of operations
of the Company.
(2) The fact that independent petroleum consultants
had estimated that the present value of net cash flows from
proved reserves as of June 30, 1998 was less than $100,000.
(3) The fact that the Company's working interest in
the Opon Contract has become uneconomical, Amoco Colombia
has ceased new additional work on the Opon Project and the
Company's interest in the Opon Contract is the only
operating asset of the Company.
(4) The fact that the Company owes Parent and its
affiliates approximately $112.5 million and the Company has
no prospects of being able to repay the debt.
(5) The fact that the Company liabilities total
approximately $148.7 million, far in excess of its assets of
approximately $1.7 million.
(6) The fact that Parent, as the majority stockholder
and major lender of the Company, does not intend to provide
any further funds to the Company.
(7) The fact that, without additional funding, the
Company will be unable to meet its obligations as a public
company, including filing reports under the Securities
Exchange Act of 1934.
(8) The belief of the Special Committee and the Board
of Directors that a bankruptcy filing by the Company is the
only alternative to the Merger and, in a bankruptcy
proceeding, the stockholders of the Company will likely
receive nothing.
(9) The belief by the Special Committee that many
stockholders have a tax basis greater than $0.05 per share
and, therefore, could recognize a tax loss in calendar 1998
if the Merger is consummated in calendar 1998.
(10) The presentation to the Special Committee by
representatives of Houlihan Lokey and the opinion of
Houlihan Lokey that the Merger Consideration to be received
by the stockholders of the Company (other than Parent and
its subsidiaries) pursuant to the Merger Agreement is fair
to such stockholders from a financial point of view. The
full text of the written opinion of Houlihan Lokey, which
sets forth assumptions made, procedures followed, matters
considered and limits on the review undertaken, is attached
as Annex B to this Proxy Statement. THE COMPANY'S
STOCKHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY.
The opinion of Houlihan Lokey was presented for the
information of the Special Committee in connection with
their consideration of the Merger Agreement and is directed
only to the fairness of the aggregate consideration to be
received by the stockholders of the Company (other than
Parent and its subsidiaries) pursuant to the Merger
Agreement. The opinion does not constitute a recommendation
to any stockholder as to how to vote with respect to the
Merger.
(11) The availability of appraisal rights under Section
262 of Delaware Law for dissenting Shares.
(12) The terms and conditions of the Merger Agreement.
The members of the Special Committee and the Board of
Directors evaluated the factors listed above in light of their
knowledge of the business and operations of the Company and their
business judgment. In view of the wide variety of factors
considered in connection with its evaluation of the Merger,
neither the Special Committee nor the Board of Directors found it
practicable to, and did not, quantify or otherwise attempt to
assign relative weights to the specific factors considered in
reaching its determination.
Opinion of Financial Advisor
The preparation of a fairness opinion is a complex process
and is not necessarily susceptible to partial analysis or summary
description. The following is a brief summary and general
description of the valuation methodologies followed by Houlihan
Lokey. The summary does not purport to be a complete statement
of the analyses and procedures applied, the judgments made or the
conclusion reach by Houlihan Lokey or a complete description of
its presentation. Houlihan Lokey believes that its analyses must
be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering
all factors and analyses, could create an incomplete view of the
process underlying its analyses and opinions.
Houlihan Lokey delivered a written opinion to the Special
Committee on October 9, 1998 to the effect that, as of such date,
and based upon the assumptions made, general procedures followed,
factors considered and limitations on the review undertaken as
set forth in such opinion, the Merger Consideration to be
received by the stockholders of the Company, other than Parent
and its subsidiaries (the "Public Stockholders"), pursuant to the
Merger is fair to the Public Stockholders from a financial point
of view. References herein to the "Opinion" refer to the written
opinion of Houlihan Lokey dated October 9, 1998.
The full text of the Opinion, which sets forth the
assumptions made, general procedures followed, matters considered
and limitations on the review undertaken by Houlihan Lokey in
rendering its Opinion, is attached as Annex B and is incorporated
herein by reference. The Opinion is directed only to the
fairness, from a financial point of view, of the Merger
Consideration to be received by the Public Stockholders in
connection with the Merger and does not constitute a
recommendation to the Public Stockholders as to how such should
vote with respect to the Merger. The summary of the Opinion set
forth in this Proxy Statement is qualified in its entirety by
reference to the full text of the Opinion. The Public
Stockholders are urged to, and should, read the Opinion in its
entirety.
In connection with the Opinion, Houlihan Lokey made such
reviews, analyses and inquires as it deemed necessary and
appropriate under the circumstances. Among other things,
Houlihan Lokey: (i) reviewed the Company's audited financial
statements for the five fiscal years ended September 30, 1997 and
the unaudited financial statements for the nine months ended
June 30, 1998, which the Company's management has identified as
being the most currently available financial statements available
as of the valuation date; (ii) reviewed the audited financial
statements for Hondo Magdalena Oil & Gas Limited Colombian Branch
for the fiscal years ended December 31, 1997 and December 31,
1996; (iii) reviewed the Merger Agreement; (iv) met and had
discussions with certain members of the senior management of the
Company to discuss the operations, financial condition, future
prospects and projected operations and historical performance of
the Company; (v) reviewed the estimation of proven reserves and
future revenue, dated June 30, 1998, prepared by Netherland,
Sewell and Associates; (vi) reviewed the Second Amendment to the
Agreement between the City of Long Beach and the Company, dated
July 1998; (vii) reviewed the release of liability granted the
Company by Phillips Petroleum Company, dated July 16, 1998;
(viii) reviewed the petition of U.S. Bank Trust National
Association, the order for hearing on the petition and the
proposed order for settlement between Newhall Refining Co., Inc.
and the Company, dated August 12, 1998; and (ix) conducted such
other studies, analyses, and inquires as it has deemed
appropriate.
Houlihan Lokey relied primarily upon a "Net Asset Value"
approach to assess the fairness of the Merger Consideration to be
received by the Public Stockholders in the Merger from a
financial point of view. The following is a summary of the
financial analyses utilized by Houlihan Lokey, and does not
purport to be a complete description of the analyses performed by
Houlihan Lokey.
In the "Net Asset Value" approach, Houlihan Lokey performed
an analysis of the value of the Company's underlying assets and
liabilities under a sale/liquidation scenario. This approach is
reasonable to use in situations where the business is no longer
considered to be a going concern as is the situation with the
Company. In these situations, the other general approaches to
valuation, such as the market multiple approach and the income
(or discounted cash flow) approach, are not applicable as the
Company will not be operating and therefore not generating future
earnings or cash flows. The Net Asset Value approach determined
the net equity value of the business by first determining the
value of the Company's assets and then subtracting the value of
its liabilities.
The Company's principal asset is its interest in the Opon
Contract, an exploration concession for an area in the middle
Magdalena Valley of Colombia, South America. This area currently
includes four non-performing wells. The value of the proved
reserves and future reserves resulting from those four wells in
the Opon Field was determined by an independent firm of
international petroleum consultants to be approximately $70,000
as of April 30, 1998. The Company has informed Houlihan Lokey
that there has been no material change in the value of the wells
since that date. The Company's remaining assets include cash and
receivables of approximately $1,670,000, and certain other assets
with a value of approximately $20,000. The Company is in the
process of selling its remaining real estate for approximately
$3,100,000, the proceeds of which will be used to repay a portion
of the mortgage on this real estate. The Company will receive no
proceeds from the sale of this real estate. Based upon the
above, the value of the Company's assets is approximately
$1,700,000.
The Company's liabilities total approximately $148,651,000
and consisted of the following: accrued expenses of $6,087,000
(which includes $2,094,000 due to Parent and its affiliates as
interest on outstanding obligations); accounts payable of
$6,478,000; and amounts due to Amoco of $27,058,000 and Parent
and its affiliates of $109,418,000 (after deducting the proceeds
from the sale of the real estate mentioned above). The Company
has recently reached settlement with certain creditors (other
than Parent and Amoco) due approximately $5,943,000 in aggregate,
for $578,000. Further, the Company was unable to satisfy certain
conditions to the notes payable to Parent and its affiliates.
The Company has not received a notice of default with respect to
those notes payable. Based on the above, it is reasonable to
assume that the equity of the Company has no value.
Houlihan Lokey also considered the current and recent
trading price of the Company's stock. The Company's Common Stock
was traded on the American Stock Exchange until May 15, 1998
(trading was suspended during the period May 15, 1998 to July 2,
1998) and began trading on the Nasdaq "OTC Bulletin Board" on
July 2, 1998. Trading volume is very thin. The last reported
trade of the Company's stock on October 8, 1998 was $.026 per
share.
In preparing the Opinion, Houlihan Lokey relied and assumed,
without independent verification, that the information provided
to it by the Company was reasonably prepared and reflected the
best currently available estimates of the future financial
results and conditions of the Company and that there had been no
material change in the assets, financial condition, business or
prospects of the Company since the date of the most recent
financial statements provided to Houlihan Lokey. Houlihan Lokey
did not make an independent appraisal of any of the assets of the
Company. Houlihan Lokey's Opinion is necessarily based on
business, economic, market and other conditions as they existed
and could be evaluated by them at the date of their Opinion.
Houlihan Lokey did not and was not engaged or requested
to initiate any discussions with third parties or to solicit any
third-party indications with respect to a possible acquisition of
the Company or its assets. Furthermore, Houlihan Lokey did not
and was not requested to negotiate the terms of the Merger or to
advise the Special Committee with respect to alternatives with
respect to the Merger.
In the Opinion, Houlihan Lokey made its determination as to
the fairness, from a financial point of view, of the Merger
Consideration on the basis of the analyses described above. No
restrictions or limitations were imposed by the Company upon
Houlihan Lokey with respect to the investigation made or the
procedures followed in rendering its Opinion. Houlihan Lokey's
Opinion is not intended to be and does not constitute a
recommendation to any of the Public Stockholders as to whether to
accept the Merger Consideration to be received in connection with
the Merger.
Houlihan Lokey has advised the Company of the methodology
used to assess the fairness, from a financial point of view, of
the Merger Consideration. As the Merger Consideration to be
received by Public Stockholders is greater than the net value of
the Company's assets, Houlihan Lokey was able to conclude that
the Merger Consideration to be received by the Public
Stockholders in the Merger is fair to the Public Stockholders
from a financial point of view.
Houlihan Lokey was retained pursuant to an engagement letter
dated August 31, 1998 to act as financial advisor to the Special
Committee to render an opinion as to the fairness, from a
financial point of view, to the Public Stockholders of the Merger
Consideration. Houlihan Lokey is a nationally recognized
investment banking firm that is continually engaged in providing
financial advisory services in connection with mergers and
acquisitions, leveraged buyouts, business valuations for a
variety of regulatory and planning purposes, recapitalizations,
financial restructurings, and private placements of debt and
equity securities. Houlihan Lokey has no material prior
relationship with the Company.
As compensation to Houlihan Lokey for its services, the
Company has agreed to pay Houlihan Lokey a fee of $150,000 plus
reasonable out-of-pocket expenses. No portion of Houlihan
Lokey's fees were contingent upon the successful completion of
the Merger. The Company has also agreed to indemnify Houlihan
Lokey and related persons against certain liabilities, including
liabilities under Federal securities laws, arising out of the
engagement of Houlihan Lokey, and reimburse Houlihan Lokey for
certain expenses.
Plans of Parent for the Company
If the Merger is consummated, Parent intends to continue to
attempt to resolve the Company's outstanding liabilities at
minimum cost and expense. Parent has no present plans to conduct
operations or to make any material additional investments in the
Company. However if an opportunity arises to utilize the
existing net operating losses of the Company, Parent would
consider the opportunity, although Parent has no current plans,
understandings or agreements to use the net operating losses. At
September 30, 1998, the net operating losses of the Company were
approximately $138.9 million. If the Merger is not approved by
the stockholders, Parent does not intend to invest or lend any
additional funds to the Company. The Company would then be
required to obtain funds from other sources to continue as a
business. The Company believes it is unlikely that any other
financing could be obtained and, therefore, the Company may need
to seek protection from its creditors under the applicable
bankruptcy laws if the Merger is not consummated.
SPECIAL MEETING OF STOCKHOLDERS; REQUIRED VOTE
The Special Meeting will be held on December __, 1998 at
10:00 A.M., New York Time, at the offices of Parker Chapin
Flattau & Klimpl, 18th Floor, 1211 Avenue of the Americas, New
York, New York. At the Special Meeting, stockholders will be
asked to consider and vote upon a proposal to approve the Merger
and adopt the Merger Agreement and such other proposals as may
properly come before the Special Meeting.
Under Delaware law, the affirmative vote of a majority of
the issued and outstanding Shares is required to approve the
Merger and adopt the Merger Agreement at the Special Meeting.
Only holders of record of Shares at the close of business on the
Record Date are entitled to notice of and to vote at the Special
Meeting. At such date there were 13,798,424 Shares outstanding,
each of which will be entitled to one vote on each matter to be
acted upon or which may properly come before the Special Meeting.
On the Record Date, Parent and its subsidiaries owned of
record 9,434,596 Shares, constituting approximately 68.4% of the
Shares outstanding. Pursuant to the terms of the Merger
Agreement, on the proposal to approve the Merger and adopt the
Merger Agreement, Parent is obligated to vote, or cause to be
voted, all such Shares in the manner voted by a majority of the
other stockholders of the Company voting at the Special Meeting.
Directors and officers of the Company individually owned in the
aggregate 30,768 Shares (or 0.2% of the outstanding Shares) on
the Record Date and have stated that they intend to vote FOR the
approval of the Merger and adoption of the Merger Agreement.
Directors, officers and employees of the Company may solicit
proxies from stockholders by personal interview, special letter,
telephone or facsimile transmission. The Company will bear the
expenses of any such solicitation. Directors, officers and other
employees of the Company will not be specifically compensated for
the solicitation of proxies. Brokerage houses and other
custodians, nominees and fiduciaries will be requested to forward
soliciting materials to the beneficial owners of Shares owned of
record by those organizations, and the Company will pay the
reasonable expenses of forwarding the materials.
A proxy relating to the Special Meeting may be revoked by
the stockholder at any time before it is voted. However, mere
attendance at the Special Meeting will not itself have the effect
of revoking the proxy. A stockholder may revoke a proxy at any
time before it is voted by delivery of a written instrument of
revocation to the Secretary of the Company at the principal
executive offices of the Company prior to the Special Meeting, or
in open meeting, without, however, affecting any vote previously
taken, or by casting a ballot in person at the Special Meeting.
A proxy will not be revoked by the death or incapacity of a
stockholder, unless written notice of the death or incapacity is
given to the Company by the fiduciary having control of the
shares represented by the proxy.
A proxy in the accompanying form, when properly executed and
returned, will be voted in accordance with the instructions shown
on it. A proxy on which no instruction has been indicated will
be voted FOR approval of the Merger and adoption of the Merger
Agreement.
At the date of this Proxy Statement, the Board of Directors
does not know of any business to be presented at the Special
Meeting other than the proposal to approve the Merger and adopt
the Merger Agreement. If any other matters properly come before
the Special Meeting, the Shares represented by proxies will be
voted with respect to those matters in accordance with the
judgment of the persons voting the proxies.
PAYMENT FOR SHARES
General
If the Merger is consummated, the Purchaser will make
available to the Paying Agent for the holders of record of
Shares, as needed, the amount of cash to be paid in respect of
the portions of Shares converted into the right to receive the
Merger Consideration pursuant to the Merger. Holders of record
should use the Letter of Transmittal to be provided under
separate cover after the consummation of the Merger to effect the
surrender of certificates evidencing Shares in exchange for the
Merger Consideration. All certificates so surrendered will be
cancelled. Upon consummation of the Merger and surrender of
certificates evidencing Shares, together with a duly executed
Letter of Transmittal, the holder of record thereof will receive
in exchange for each Share surrendered the Merger Consideration.
Any cash held by the Paying Agent that remains unclaimed by
stockholders for six months after the Effective Time will be
returned to the Company, as the Surviving Corporation in the
Merger, upon demand and thereafter stockholders may look, subject
to applicable abandoned property, escheat and other similar laws,
only to the Company for payment thereof.
Letter Of Transmittal
If the Merger is consummated, a Letter of Transmittal will
be sent to all stockholders of the Company under separate cover.
The Letter of Transmittal will advise each stockholder of the
procedures for surrendering to the Paying Agent certificates
evidencing Shares in exchange for the Merger consideration.
STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES WITH
THEIR PROXY CARD.
Valid Surrender of Shares
For Shares to be validly surrendered pursuant to the Merger,
a Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, with any required signature
guarantees, must be received by the Paying Agent, at one of its
addresses set forth in the Letter of Transmittal and either (i)
certificates representing Shares must be received by the Paying
Agent or (ii) Shares must be delivered by book-entry transfer.
Book-Entry Transfer
The Paying Agent will establish an account with respect to
the Shares at The Depositary Trust Company (the "Book-Entry
Transfer Facility") for purposes of the Merger. Any financial
institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Shares by
causing the Book-Entry Facility to transfer such Shares into the
Paying Agent's account at the Book-Entry Transfer Facility in
accordance with the procedures for such transfer.
Signature Guarantees
Unless the Shares delivered therewith are delivered (i) by a
registered holder of Shares who has not completed either the box
entitled "Special Delivery Instructions" or the box entitled
"Special Payment Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined
below), signatures on Letters of Transmittal must be guaranteed
by a member firm of a registered national securities exchange
(registered under Section 6 of the Securities Exchange Act of
1934 (the "Exchange Act")) or of the National Association of
Securities Dealers, Inc., or by a commercial bank or trust
company having an office or correspondent in the United States or
by any other "Eligible Guarantor Institution" (as defined in
Rule 17Ad-15 under the Exchange Act) (each of the foregoing
constituting an "Eligible Institution"). If the certificates
representing Shares are registered in the name of a person other
than the signer of the Letter of Transmittal or if payment is to
be made to a person other than the registered holder, then the
certificates representing Shares must be endorsed or accompanied
by appropriate stock powers, in each case signed exactly as the
name or names of the registered holder or holders appear on the
certificates, with the signatures on the certificates or stock
powers guaranteed as described above and as provided in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF CERTIFICATES FOR SHARES, THE
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE STOCKHOLDER. IF DELIVERY IS MADE BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
IS RECOMMENDED.
Backup Federal Income Tax Withholding
To prevent backup federal income tax withholding of 31% of
the aggregate Merger Consideration payable to a stockholder,
stockholders must provide the Paying Agent with his or her
correct taxpayer identification number and certify that such
number is correct and that he or she is not subject to backup
withholding of federal income tax by completing the substitute
Form W-9 included in the Letter of Transmittal.
APPRAISAL RIGHTS
Stockholders of the Company are entitled to appraisal rights
under Section 262 of the Delaware General Corporation Law
("Section 262") as to Shares owned by them. Set forth below is a
summary description of Section 262. Section 262 is reprinted in
its entirety as Annex C to this Proxy Statement. All references
in Section 262 and in this summary to a "stockholder" are to the
record holder of the Shares as to which appraisal rights are
asserted. A person having a beneficial interest in Shares that
are held of record in the name of another person, such as a
broker or nominee, must cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect
whatever appraisal rights the beneficial owner may have.
THE FOLLOWING SUMMARY IS NOT A COMPLETE STATEMENT OF THE LAW
RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ANNEX C. THIS SUMMARY AND ANNEX C SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY
APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO
SINCE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH IN
SECTION 262 WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
In accordance with Section 262, any stockholder entitled to
appraisal rights may, prior to the Special Meeting, demand in
writing from the Company the appraisal of the fair value of such
stockholder's Shares. Such demand must reasonably inform the
Company of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of the fair
value of such stockholder's Shares. A vote against the Merger
does not constitute such a demand. A stockholder who elects to
exercise appraisal rights must mail or deliver such stockholder's
written demand to the Secretary of the Company at Hondo Oil & Gas
Company, 10375 Richmond Avenue, Suite 900, Houston, Texas 77042.
A demand for appraisal must be executed by or for the
stockholder of record, fully and correctly, as the stockholder's
name appears on the certificate or certificates representing his
or her Shares. If the Shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, the demand
must be executed by the fiduciary. If the Shares are owned of
record by more than one person, as in a joint tenancy or tenancy
in common, the demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such
person is acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a
nominee for others, may exercise appraisal rights with respect to
the Shares held for all or less than all beneficial owners of
Shares as to which such person is the record owner. In such case,
the written demand must set forth the number of Shares covered by
such demand. Where the number of Shares is not expressly stated,
the demand will be presumed to cover all Shares outstanding in
the name of such record owner. Beneficial owners who are not
record owners and who intend to exercise appraisal rights should
instruct the record owner to comply strictly with the statutory
requirements with respect to the exercise of appraisal rights.
To comply with Section 262, any stockholder seeking
appraisal rights under Section 262 must not vote in favor of the
proposal to approve the Merger and adopt the Merger Agreement.
Within 120 days after the Effective Time (as defined below
under "THE MERGER AGREEMENT - The Merger"), either the Surviving
Corporation or any stockholder who has complied with the required
conditions of Section 262 may file a petition in the Delaware
Court of Chancery (the "Delaware Chancery Court") demanding a
determination of the fair value of the Shares of the dissenting
stockholders. If a petition for an appraisal is timely filed,
after a hearing on such petition, the Delaware Chancery Court
will determine which stockholders are entitled to appraisal
rights and will appraise the Shares formerly owned by such
stockholders, determining the fair value of such Shares 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 Delaware Chancery
Court is to take into account all relevant factors.
Stockholders considering seeking appraisal should note that
the "fair value" of their Shares determined under Section 262
could be more than, the same as or less than $0.05 per Share, and
that opinions of investment banking firms as to fairness, from a
financial point of view, are not opinions as to fair value under
Section 262. The cost of the appraisal proceeding may be
determined by the Delaware Chancery Court and taxed against the
parties as the Delaware Chancery Court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the
Delaware Chancery Court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection
with the appraisal proceeding, including without limitation,
reasonable attorneys' fees and the fees and expenses of experts,
be charged pro rata against the value of all Shares entitled to
appraisal.
From and after the Effective Time, no stockholder who has
duly demanded appraisal in compliance with Section 262 will be
entitled to vote for any purpose the Shares subject to such
demand or to receive payment of dividends or other distributions
on such Shares, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any
stockholder shall have the right to withdraw the stockholder's
demand for appraisal and to accept the terms offered in the
Merger Agreement; after this period, a stockholder may withdraw a
demand for appraisal only with the consent of the Surviving
Corporation. If no petition for appraisal is filed with the
Delaware Chancery Court within 120 days after the Effective Time,
stockholders' rights to appraisal shall cease, and all
stockholders who had previously demanded appraisal (but did not
file a petition) shall thereafter be entitled to receive the
Merger Consideration in cash, without interest thereon, upon
surrender of the certificates that formerly represented their
Shares. Inasmuch as the Company has no obligation to file such a
petition, and has no present intention to do so, any stockholder
who desires such a petition to be filed is advised to file it on
a timely basis. However, no petition timely filed in the Delaware
Chancery Court demanding appraisal shall be dismissed as to any
stockholder without the approval of the Delaware Chancery Court,
and such approval may be conditioned upon such terms as the
Delaware Chancery Court deems just.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of the material federal income
tax consequences of the Merger to stockholders of the Company
whose Shares are converted into the right to receive the Merger
Consideration in the Merger (as well as any cash amounts received
by dissenting stockholders pursuant to the exercise of appraisal
rights). The discussion applies only to stockholders of the
Company holding Shares as capital assets and may not apply to
stockholders who received their Shares pursuant to the exercise
of employee stock options or otherwise as compensation, or who
are not citizens or residents of the United States.
The federal income tax consequences set forth below are
included for general informational purposes only and are based
upon present law. Because individual circumstances may differ,
each stockholder should consult the stockholder's own tax advisor
to determine the applicability of the rules discussed below to
the stockholder and the particular tax effects of the Merger,
including the application and effect of state, local, foreign and
other tax laws.
Receipt of the Merger Consideration
The receipt by a stockholder of the Merger Consideration
(including any cash amounts received by dissenting stockholders
pursuant to the exercise of appraisal rights) in exchange for
Shares will be a taxable transaction for federal income tax
purposes. In general, for federal income tax purposes, a
stockholder will recognize gain or loss equal to the difference
between such stockholder's adjusted tax basis in the Shares
exchanged for cash in the Merger and the amount realized in such
exchange (i.e., generally the amount of cash received therefor).
Such gain or loss will be capital gain or loss. In the case of
non-corporate taxpayers, any such capital gain will be long-term
capital gain and subject to a maximum federal income tax rate of
20% if the stockholder's holding period for the Shares at the
Effective Time of the Merger is greater than eighteen months; if
such holding period is more than one year but not more than
eighteen months, then any such capital gain will be mid-term
capital gain and will be subject to a maximum federal income tax
rate of 28%. Any capital losses incurred will be subject to
limitations on their availability. Dissenting stockholders who
do not receive cash in the taxable year in which the Effective
Time of the Merger occurs (i.e., the year of the sale of Shares)
are urged to consult their own tax advisors regarding the amount
of their "amount realized" (and resulting amount of gain
recognized) in such taxable year and the potential application
(if at all) of the "open transaction doctrine" pending the
determination of the amount of cash to which dissenting
stockholders are entitled.
Backup Withholding
Payments in connection with the Merger may be subject to
"backup withholding" at a 31% rate. Backup withholding generally
applies if the stockholder (a) fails to furnish his or her social
security number or other taxpayer identification number ("TIN"),
(b) furnishes an incorrect TIN, (c) fails properly to report
interest or dividends, or (d) under certain circumstances, fails
to provide a certified statement, signed under penalties of
perjury, that the TIN provided is his or her correct number and
that he or she is not subject to backup withholding. Any amounts
withheld from a payment to a stockholder under the backup
withholding rules will be allowed as a credit against such
stockholder's federal income tax liability, provided that the
required information is provided to the Internal Revenue Service.
Certain persons generally are exempt from backup withholding,
including corporations and financial institutions. Certain
penalties apply for failure to furnish correct information and
for failure to include the reportable payments in income. Each
stockholder should consult with the stockholder's own tax advisor
as to the stockholder's qualification for exemption from
withholding and the procedure for obtaining such exemption.
CERTAIN RELATIONSHIPS AND RELATED MATTERS
Nicholas J. Morrell, John F. Price and R.E. Whitten,
directors of the Company, are also directors or officers of
Parent. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT." Messrs. Morrell, Price and Whitten constitute three
of the six members of the Board of Directors, but are not members
of the Special Committee.
If the Merger is consummated, Parent and the Surviving
Corporation will jointly and severally indemnify, defend and hold
harmless the present and former directors and officers of the
Company to the fullest extent that the Company would have been
permitted to indemnify such persons under applicable law and the
Certificate of Incorporation and Bylaws of the Company and any
other agreements in effect. Parent has also agreed to provide
directors' and officers' insurance for the present and former
directors and officers of Company after consummation of the
Merger. See "THE MERGER AGREEMENT - Directors' and Officers'
Indemnification and Insurance."
On November 30, 1988, the Company made a private placement
of $75,000,000 aggregate principal amount of 13.5% Senior
Subordinated Notes to Thamesedge Ltd. ("Thamesedge"), a wholly
owned subsidiary of Parent. The terms of the transaction were
approved by all of the disinterested directors of the Company
upon the recommendation of a special committee of the Board
appointed to review the transaction. The terms were
substantially the same as those which were under discussion and
negotiation with an underwriter for a public offering of a
similar debt instrument and were no less favorable to the Company
than could be obtained with non-affiliated parties.
During calendar year 1991, the Company entered into and
amended a loan agreement with Parent pursuant to which it
borrowed the sum of $32,000,000. At the time the loans were
made, the interest rates were similar to that in the Company's
former working capital loan with a bank for its refining and
marketing operations. The terms of the loan, and all amendments
thereto, were approved by all of the disinterested directors of
the Company and were no less favorable to the Company than could
be obtained with non-affiliated parties.
On December 18, 1992, the Company entered into an agreement
with Parent and Thamesedge to defer interest and principal
payments on the loans described above. As consideration for the
deferral of interest and principal payments, the Company granted
Parent a 5% share of the Company's net profits, as defined, under
the Opon Contract. On April 30, 1993, Parent loaned the Company
an additional $3,000,000, and as security the Company granted to
Parent a mortgage on certain real property. On June 25, 1993,
Parent loaned the Company an additional $4,000,000, and as
security the Company granted to Parent a mortgage on certain
other real property. The interest rate of the new loans was the
same as that for other loans from Parent. The terms of the
agreement to defer interest and principal payments and the terms
of the new loans were approved by all of the disinterested
directors of the Company and were no less favorable to the
Company than could be obtained with non-affiliated parties.
On December 17, 1993, Thamesedge and Parent agreed to add
interest accrued at September 30, 1993 to principal, to reduce
the annual interest rate on each of the foregoing loans to the
Company to 6% effective September 30, 1993, and to defer
principal payments on the loans. Parent and the Company further
agreed that, if the Company does not have sufficient cash
resources to pay interest on any of the foregoing indebtedness of
the Company when due, the Company may offer to pay such interest
in shares of its common stock valued at their market price on the
day the interest is due. Thereupon Parent could either accept
such offer or add the amount of interest then due to the
remaining outstanding principal balance of the applicable
obligation. The terms of these agreements were approved by all
of the disinterested directors of the Company and were no less
favorable to the Company than could be obtained with non-
affiliated parties.
On October 18, 1994, the Company paid to Parent $5,000,000
to repay a portion of the loans made in calendar 1991. At the
same time, Parent provided a $5,000,000 loan facility to the
Company. On November 10, 1994, Thamesedge and Parent agreed to
extend the maturities of all of the above debts to not earlier
than October 1, 1996. The terms of the loan facility and the
agreement to extend debt maturities were approved by all of the
disinterested directors of the Company and were not less
favorable to the Company than could be obtained with non-
affiliated parties.
On December 22, 1995, Thamesedge and Parent agreed to extend
the maturities of all the above debts to not earlier than
October 1, 1997.
On March 29, 1996, Parent assigned to Thamesedge all of its
interest in the above loans and indebtedness. On June 28, 1996,
the Company and Thamesedge entered into a Revolving Credit
Agreement under which Thamesedge agreed to loan to the Company
$13.5 million. The interest rate on this loan is 13%, and
interest is payable as provided in the December 17, 1993 letter
agreement described above. The terms of the Revolving Credit
Agreement were approved by all of the disinterested directors of
the Company and were no less favorable to the Company than could
be obtained with non-affiliated parties.
On December 13, 1996, Thamesedge and Parent agreed to extend
the maturities of all the above debts maturing on October 1, 1997
to not earlier than January 1, 1998. As consideration for the
extensions and certain other financial undertakings, the Company
granted to Parent a security interest in all of the shares of
Hondo Magdalena, and agreed to give Thamesedge an option to
convert $13.5 million of the November 1988 indebtedness to
Thamesedge into the Company's common stock. The Company signed a
Security Interest Agreement dated as of May 13, 1997 to document
the pledge of the Hondo Magdalena shares. The debt was
convertible at any time prior to January 1, 1998 at a rate of
$12.375 per share (110% of the closing price of the Company's
common stock on December 11, 1996) and was approved by the
Company's shareholders in the 1997 annual meeting. No debt was
converted prior to January 1, 1998. The portion of the debt that
was subject to the option is not secured by the pledge of the
Hondo Magdalena shares.
In July 1997, the Company and Thamesedge, Ltd. agreed to
amend and restate the June 1996 Revolving Credit Agreement.
Under the Amended and Restated Revolving Credit Agreement dated
as of July 2, 1997, Thamesedge agreed to make additional advances
of $7.0 million to the Company, making the total amount of the
loan $20.5 million. The interest rate remains 13%, due semi-
annually and, as described above, the Company may make interest
payments in shares of its common stock. The terms of the Amended
and Restated Revolving Credit Agreement were approved by all of
the disinterested directors of the Company. The Company was
unable to obtain any commitment or terms from a disinterested
third party. The loan now matures January 1, 1999. As
additional consideration for the loan, the Company agreed to give
Parent an option to convert $7.0 million of existing debt with an
interest rate of 6% into the Company's shares at $7.70 per share
(110% of the closing price on July 1, 1997). The option to
convert was approved by the Company's shareholders in the 1998
annual meeting.
In August 1997, Thamesedge assigned all of its interest in
the indebtedness of the Company to LAGP, a wholly-owned
subsidiary of Parent.
In a letter agreement dated December 18, 1997, LAGP agreed
to advance an additional $7.0 million to the Company during
fiscal 1998 and to extend the maturity of the above described
indebtedness due on January 1, 1998 to January 15, 1999. In
consideration for the additional advances and extension of
maturities, the notes have been amended by adding a cross-default
provision and a new event of default. The new event of default
requires the Company to furnish to LAGP by October 1, 1998 a
reserve report that shows an increase of a minimum of 13 billion
cubic feet of gas over the report of proved reserves in the
Company's 1997 Annual Report on Form 10-K. In the event of a
default under this provision, LAGP has the right to declare all
the loans in default and demand payment. The Company was not
able to satisfy the new event of default. To date, LAGP has not
declared the loans in default or demanded payment.
F. E. Wright, a subsidiary of Parent, acts as the insurance
broker for the Company's directors' and officers' liability
insurance. The insurance companies which provide the policy are
those from whom coverage could be obtained by the use of other
insurance brokers. The terms of the policy are identical to the
ones which could be obtained through an independent broker.
Based upon quotes received from other brokers, management
believes that F. E. Wright is able to obtain more favorable
premiums for the insurance coverage by virtue of inclusion in the
larger, group-wide programs of Parent, and that the terms and
cost of the insurance coverage are no less favorable to the
Company than could be obtained with non-affiliated parties.
During the fiscal year ended September 30, 1997, F. E. Wright
received commissions of $33,040 in respect of policies issued to
the Company.
CONTROLLING PERSONS, DIRECTORS AND EXECUTIVE
OFFICERS OF THE COMPANY, PARENT AND PURCHASER
Background of Named Persons
The Company and Parent have jointly filed a Rule 13E-3
Transaction Statement with the Commission with respect to the
Merger.
Set forth on Annex D hereto for each controlling person,
director and executive officer of the Company, Parent and
Purchaser (collectively, the "Named Persons") is such person's:
(i) name; (ii) business address; (iii) present principal
occupation or employment and the name of the organization in
which such individual conducts such principal occupation or
employment; (iv) material occupation, positions, offices and
employments during the past five years and the name of the
organizations in which such individual conducted such material
occupations, positions, offices and employments; and
(v) citizenship.
During the past five years, neither the Company, Parent,
Purchaser nor any Named Person has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors)
or was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree, or final
order enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any
violations of such laws.
All information in the Proxy Statement concerning the Named
Persons and any affiliates and associates referred to herein is
to the best knowledge of the Company.
Past Contacts, Transactions or Negotiations
Except as described in this Proxy Statement, since
September 30, 1996, neither Parent, Purchaser nor any Named
Person has had any contacts, negotiations or transactions with
the Company concerning any acquisition, acquisition of
securities, consolidation, election of directors, merger, tender
offer, or sale or other transfer of a material amount of assets.
Plans or Proposals
Except as described in this Proxy Statement, neither the
Company, Parent, Purchaser nor any Named Person has any plan or
proposal concerning any extraordinary corporate transaction
involving the Company, any sale or transfer of a material amount
of the Company's assets, any change in the Board of Directors of
the Company or management, any material change in the Company's
present dividend policy or the Company's present policy on
indebtedness or capitalization, or any other change in the
Company's corporate structure or business.
Interest in the Company's Securities
Except as described in this Proxy Statement, neither the
Company, Parent, Purchaser, any pension, profit sharing, or
similar plan of the Company, any Named Person, nor any associate
or majority owned subsidiary of the Company, Parent or Purchaser
beneficially owns any shares of the Common Stock or has engaged
in any transaction involving the shares of Common Stock of the
Company during the past 60 days.
Contracts, Arrangements or Understanding Concerning the Company's
Securities
Except as described in this Proxy Statement, neither the
Company, Parent, Purchaser nor any Named Person has any
arrangement, contract, relationship, or understanding with any
person with respect to any security of the Company, including any
arrangement, contract, relationship or understanding concerning
the transfer or the voting of any security of the Company, any
joint venture, any loan or option arrangement, any put or call,
any guarantee of a loan, any guarantee against loss, or any
giving or withholding of any authorization, consent, or proxy.
THE MERGER AGREEMENT
The following is a summary of the material terms of the
Merger Agreement. The summary is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached to
this Proxy Statement as Annex A.
The Merger
Pursuant to the terms of the Merger Agreement, the Purchaser
will be merged with and into the Company in accordance with the
Delaware General Corporate Law (the "DGCL"). As a result of the
Merger, the separate existence of the Purchaser will cease and
the Company will be the surviving corporation (the "Surviving
Corporation"). As soon as practicable after satisfaction or
waiver of all conditions to the Merger set forth in the Merger
Agreement, the parties will cause a certificate of merger to be
duly filed with the Delaware Secretary of State. The Merger will
become effective when the certificate of merger is so filed (the
"Effective Time").
By virtue of the Merger, at the Effective Time: (i) each
share of common stock of the Purchaser then issued and
outstanding will be converted into one share of common stock of
the Surviving Corporation; and (ii) each Share then issued and
outstanding, except for Shares held by the Company as treasury
shares or owned by the Parent or any subsidiary of the Parent
(which Shares will be immediately canceled and no payment will be
made with respect thereto), will be converted, by virtue of the
Merger and without any action on the part of the holder thereof,
into the right to receive, without interest, the Merger
Consideration. Subject to the right of stockholders to dissent
from the Merger and require appraisal of their Shares pursuant to
the DGCL, from and after the Effective Time all Shares will be
canceled and retired and cease to exist and each holder of a
certificate representing any Shares immediately prior to the
Effective Time will thereafter cease to have any rights with
respect to such Shares, except the right to receive the Merger
Consideration therefor or payment from the Surviving Corporation
of the "fair value" of such Shares as determined under Section
262 of the DGCL.
Until amended in accordance with applicable law, the
Certificate of Incorporation and Bylaws of the Company in effect
immediately prior to the Effective Time will be the certificate
of incorporation and bylaws of the Surviving Corporation after
the consummation of the Merger. Until successors are duly elected
or appointed and qualified in accordance with applicable law,
from and after the Effective Time, the directors and officers of
the Purchaser immediately prior to the Effective Time will be the
directors and officers of the Surviving Corporation after the
consummation of the Merger.
Special Meeting; Proxy Statement
On the proposal to approve the Merger and adopt the Merger
Agreement, the Parent has agreed to vote, or cause to be voted,
all Shares owned by it or its subsidiaries in the manner voted by
the majority of the other stockholders of the Company voting at
the Special Meeting. The Company has agreed to take all action
necessary in accordance with the DGCL and with the Company's
Certificate of Incorporation and Bylaws to convene the Special
Meeting to approve the Merger and adopt the Merger Agreement. The
Company's Board of Directors has agreed to recommend that the
Company's stockholders approve the Merger and adopt the Merger
Agreement, and will cause the Company to use all reasonable
efforts to solicit from the stockholders proxies to vote
therefor, unless (i) in the good faith judgment of the Board of
Directors of the Company, after consultation with outside
counsel, such recommendation would not be consistent with the
fiduciary duties of the Board of Directors under applicable law
or (ii) the Merger Agreement is terminated in accordance with its
terms.
Directors' and Officers' Indemnification and Insurance
The Merger Agreement provides that, from and after the
Effective Time, the Parent and the Surviving Corporation will
jointly and severally indemnify, defend and hold harmless the
present and former directors and officers of the Company against
all losses, claims, damages and liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or
investigative, to which any of them was or is a party or is
threatened to be made a party by reason of the fact that he or
she was or is a director or officer of the Company in respect of
acts or omissions occurring at or prior to the Effective Time to
the fullest extent that the Company would have been permitted to
indemnify such person under applicable law and the certificate of
incorporation and bylaws of the Company or any other agreements
or commitments in effect on the date of the Merger Agreement. The
Parent will use all reasonable efforts to, without any lapse in
coverage, either (i) for at least six years after the Effective
Time, provide directors' and officers' liability insurance ("D&O
Insurance") in respect of acts or omissions occurring at or prior
to the Effective Time covering each such Person currently covered
by the Company's D&O Insurance policy on terms with respect to
coverage and amount no less favorable than those of such policy
in effect on the date of the Merger Agreement; provided that the
Parent will not be required to pay per annum more than 150% of
the last premium (annualized) paid by the Company for such policy
prior to the date of the Merger Agreement, (ii) purchase tail
insurance in respect of the Company's existing D&O Insurance for
six years for a premium not to exceed the present value
(discounted at the rate of 10% per annum) of the maximum annual
premiums payable under clause (i) above; or (iii) if such D&O
Insurance or tail insurance is only available at premiums in
excess of the maximum premiums set forth in clauses (i) or (ii),
as applicable, then purchase the highest level of D&O Insurance
or tail insurance available at such applicable premium.
Conditions to the Merger.
The obligations of the Company, the Parent and the Purchaser
to consummate the Merger are subject to the satisfaction of the
following conditions: (i) the Merger has been approved, and the
Merger Agreement has been adopted, by the requisite vote of the
Company's stockholders; (ii) no provision of any applicable
domestic law or regulation, and no judgment, injunction, order or
decree of a court or governmental agency or authority of
competent jurisdiction is in effect that has the effect of making
the Merger illegal or otherwise restrains or prohibits the
consummation of the Merger or has been threatened by any
governmental agency, commission, court, department or other
instrumentality of any government, and no action is pending seeking
such a judgment, injunction, order or decree; and (iii) demands for
appraisal rights by holders of an aggregate of more than 100,000
Shares shall not have been received by the Company pursuant to
Section 262.
Termination
The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time,
notwithstanding any prior approval of the Merger and adoption of
the Merger Agreement by the Company's stockholders, (i) by either
the Company or the Parent if the Merger has not been consummated
by March 31, 1999; (ii) by the mutual written consent of the
Company, the Parent and the Purchaser; (iii) by either the
Company or the Parent if any applicable domestic law, rule or
regulation makes consummation of the Merger illegal or if any
judgment, injunction, order or decree of a court or governmental
agency or authority of competent jurisdiction restrains or
prohibits the consummation of the Merger and such judgment,
injunction, order or decree has become final and nonappealable;
or (iv) by either the Company or the Parent if the requisite vote
of the Company's stockholders approving the Merger and adopting
the Merger Agreement has not been obtained at the Special
Meeting.
In the event of any such termination of the Merger Agreement
and abandonment of the Merger, no party to the Merger Agreement
(or any of its directors, officers, employees, agents or
advisors) will have any liability or further obligation to any
other party to the Merger Agreement except for liability for any
breach of covenants or agreements of the Merger Agreement.
Fees and Expenses
The Merger Agreement provides that all costs and expenses
incurred in connection with the Merger Agreement will be paid by
the party incurring the costs and expenses.
Waiver and Amendment
Subject to applicable law and the terms of the Merger
Agreement, any provision of the Merger Agreement may be amended
or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and duly executed and
delivered, in the case of an amendment, by each of the parties to
the Merger Agreement or, in the case of a waiver, by the party
against whom the waiver is to be effective.
SOURCES OF FUNDS
The funds required to purchase all of the Shares tendered in
the Merger will be obtained by Purchaser through a capital
contribution from the Parent. Parent will obtain the funds for
such capital contribution from cash on hand. The Company
currently estimates that the total expenses for this transaction
to be paid by the Company will be $_______, which includes
estimated legal fees of $___________, estimated accounting fees
of $3,000, estimated printing and mailing costs of $_________,
the fee and estimated expenses payable to Houlihan Lokey of
$150,000, filing fees of $________ and miscellaneous expenses of
$______. Parent currently estimates that its total expenses will
be $______, which includes estimated legal fees of $_______,
estimated fees for the Paying Agent of $______ and miscellaneous
expenses of $______.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the number of Shares
beneficially owned as of September 30, 1998 by (i) each
stockholder known to the Company to be a beneficial owner of more
than 5% of the Shares; (ii) each director of the Company; (iii)
the executive officers of the Company as of September 30, 1998;
and (iv) all directors and executive officers as a group. All
individuals listed in the table have sole voting and investment
power over the Shares reported as owned, except as otherwise
indicated.
<TABLE>
<CAPTION>
Common Stock Percentage of
Beneficially Common Stock
Owned
<S> <C> <C>
The Hondo Company 10,343,686(1) 70.3%
Lonrho Plc 10,343,686(1) 70.3%
London Australian General &
Property Company Limited 10,343,686(1) 70.3%
John J. Hoey 134,500 *
Douglas G. McNair 25,750 *
Nicholas J. Morrell 0(2) --
John F. Price 0(2) --
Robert K. Steer 25,750 *
S. J. Urquhart 27,000 *
R. E. Whitten 0(2) --
All directors and current 213,000(2) 1.5%
executive officers as a group
__________________________
* less than 1%
</TABLE>
(1) These 10,343,686 shares consist of 8,651,200 shares owned
by The Hondo Company, 410 East College Boulevard, Roswell, NM
88201, 783,396 shares owned by LAGP, Four Grosvenor Place,
London SWIX 7DL, England, and 909,090 shares which LAGP has
the right to acquire upon the conversion of certain debt.
The Hondo Company is wholly owned by LAGP. LAGP is wholly
owned by Lonrho Plc, Four Grosvenor Place, London SWIX 7DL,
England. Because they may be deemed a group, within the meaning
of Rule 13d-5 under the Exchange Act, each of The Hondo Company,
Lonrho Plc, and LAGP may be deemed to be the beneficial owner,
within the meaning of Rule 13d-3 under the Exchange Act, of
10,343,686 shares. Lonrho Plc, by virtue of its ownership
interest in each of The Hondo Company and LAGP, may be deemed
to share the right to direct the voting and disposition of
10,343,686 shares which (a) as to 8,651,200 shares, by virtue
of its ownership interest in The Hondo Company may also be
deemed to be the beneficial owner with shared voting and
dispositive power and (b) as to 1,692,486 owned by LAGP, LAGP
is also a beneficial owner.
(2) Nicholas J. Morrell is Managing Director and Chief
Executive of Lonrho Plc. John F. Price is an Associate
Director of Lonrho Plc and President and director of The Hondo
Company. R. E. Whitten is Finance Director of Lonrho Plc and
a director of LAGP and The Hondo Company. None of these
directors of the Company hold shares of the Company's common
stock individually.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information filing
requirements of the Exchange Act, and in accordance therewith
files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the
"SEC"). Such reports, proxy and information statements and other
information filed by the Company with the SEC may be inspected
and copied at the public reference facilities maintained by the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549-1004 and at the following regional offices
of the SEC: Midwest Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
Northeast Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such information may be obtained
by mail, upon payment of the SEC's customary charges, by writing
to the SEC's principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, DC 20549-1004. Such material
should also be available on-line through EDGAR, which is located
on the SEC's public access site at http://www.sec.gov.
Statements contained in this Proxy Statement or in any
document incorporated in this Proxy Statement by reference as to
the contents of any contract or other document referred to herein
or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document
filed as an annex to this Proxy Statement or such other document,
each such statement being qualified in all respects by such
reference.
Any report included in the Schedule 13E-3 filed jointly by
the Company, Parent and Purchaser and not included as an Annex to
this Proxy Statement will be made available for inspection and
copying at the principal executive offices of the Company during
its regular business hours by any interested equity security
holder of the Company or his, her or its representative who has
been so designated in writing. A copy of any such report will be
transmitted by the Company to any interested equity security
holder of the Company or his, her or its representative who has
been so designated in writing upon written request and at the
expense of the requesting security holder.
FINANCIAL STATEMENTS AND
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997 and the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 are included as
part of this Proxy Statement as Annexes D and E, respectively,
and are hereby incorporated by reference. Also incorporated by
reference in this Proxy Statement are the following documents
filed by the Company with the SEC: (i) the Company's Quarterly
Reports on Form 10-Q for the fiscal quarters ended December 31,
1997 (as amended by Form 10-Q/A dated March 23, 1998) and
March 31, 1998; and (ii) the Company's Current Reports on
Form 8-K filed November 7, 1997, March 25, 1998, April 14, 1998,
July 6, 1998 and October 13, 1998.
Stockholders may obtain a copy of any of the reports filed
by the Company with the SEC that are incorporated by reference
into this Proxy Statement free of charge upon oral or written
request to the Secretary of the Company at 10375 Richmond Avenue,
Houston, Texas, telephone number (713) 954-4600. The Company
will provide to the requesting stockholder by first class mail or
other equally prompt means within one business day of receipt of
the stockholder's request a copy of any and all requested
information (except for exhibits to the report that is
incorporated by reference unless such exhibits are specifically
incorporated by reference into the report).
By Order of the Board of
Directors
November __, 1998 John J. Hoey
President and Chief Executive
Officer
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
October 12, 1998
among
LONHRO PLC,
HOGC ACQUISITION CORPORATION
and
HONDO OIL & GAS COMPANY
AGREEMENT AND PLAN OF MERGER
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER
Section 1.01 The Merger. 1
Section 1.02 Conversion of Shares 1
Section 1.03 Surrender and Payment 2
Section 1.04 Shares of Dissenting Stockholders 3
ARTICLE II
THE SURVIVING CORPORATION
Section 2.01 Certificate of Incorporation. 4
Section 2.02 Bylaws. 4
Section 2.03 Directors and Officers. 4
ARTICLE III
COVENANTS OF THE COMPANY
Section 3.01 Access to Information. 4
Section 3.02 Merger Meeting; Proxy Statement. 4
ARTICLE IV
COVENANTS OF THE PARENT AND MERGER SUB
Section 4.01 Director and Officer Liability. 5
Section 4.02 Parent Vote at Merger Meeting 6
ARTICLE V
COVENANTS OF THE PARENT, MERGER SUB AND THE COMPANY
Section 5.01 Reasonable Efforts. 7
Section 5.02 Certain Filings and Consents. 7
Section 5.03 Public Announcements. 7
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.01 Conditions to the Obligations of Each Party. 7
ARTICLE VII
TERMINATION
Section 7.01 Termination 8
Section 7.02 Effect of Termination. 8
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices. 8
Section 8.02 Survival. 9
Section 8.03 Amendments; No Waivers 9
Section 8.04 Fees and Expenses. 10
Section 8.05 Successors and Assigns. 10
Section 8.06 Governing Law. 10
Section 8.07 Counterparts; Effectiveness. 10
Section 8.08 Entire Agreement. 10
Section 8.09 Headings. 10
Section 8.10 Severability. 11
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of October 12,
1998 (this "Agreement"), is among Lonhro Plc, a public company
formed under the laws of England (the "Parent") , HOGC
Acquisition Corporation, a Delaware corporation and an indirect
wholly owned subsidiary of Parent ("Merger Sub"), and Hondo Oil
& Gas Company, a Delaware corporation (the "Company").
In consideration of the respective agreements set forth
herein, the parties agree as follows:
ARTICLE I
The Merger
Section 1.01 The Merger.
(a) Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in
Section 1.01(b)), Merger Sub will be merged with and into the
Company in accordance with the Delaware General Corporation Law
(the "Delaware Law"). As a result of this merger (the "Merger"),
the separate existence of Merger Sub will cease and the Company
will be the surviving corporation (the "Surviving Corporation").
(b) As soon as practicable after satisfaction or,
to the extent permitted hereunder, waiver of all conditions to
the Merger set forth in Article VI, the parties will cause a
certificate of merger in such form as is required by, and
executed in accordance with, Delaware Law to be duly filed with
the
Secretary of State of the State of Delaware. The Merger will
become effective when the certificate of merger is so filed
(the "Effective Time").
(c) From and after the Effective Time, the Merger
will have the effects specified in Delaware Law.
(d) The closing of the Merger (the "Closing") will
take place (i) at the offices of Parker Chapin Flattau & Klimpl
LLP, 1211 Avenue of the Americas, New York, New York at 10:00 a.m.
as soon as practicable (and in no event later than the fifth
business
day) following the date on which the last to be fulfilled or
waived of the conditions set forth in Article VI (other than
those conditions that by their nature are to be satisfied at
the Closing, but subject to the fulfillment or waiver of those
conditions at the Closing) have been satisfied or waived in
accordance with this Agreement or (ii) at such other place and
time as the parties may agree.
Section 1.02 Conversion of Shares.
At the Effective Time:
(a) Each share of Common Stock, par value $1.00 per
share,
of the Company (the "Common Stock") issued and outstanding
immediately prior to the Effective Time will, except as
otherwise provided in Sections 1.02(c) and 1.04, be converted,
by virtue of the Merger and without any action on the part of
the holder thereof, into the right to receive, without
interest, an amount in cash equal to $0.05 per share (the
"Merger Consideration"). Subject to Section 1.04, from and
after the Effective Time, all shares of Common Stock, by
virtue of the Merger and without any action on the part of the
holders thereof, will be canceled, and each holder of a
certificate representing any shares of Common Stock
immediately prior to the Effective Time (a "Stock
Certificate") will thereafter cease to have any rights with
respect thereto except the right to receive (i) the Merger
Consideration therefor upon the surrender of the Stock
Certificate in accordance with Section 1.03 or (ii) payment
from the Surviving Corporation of the "fair value" of such
shares of Common Stock as determined under Section 262 of the
Delaware Law, subject to the conditions set forth therein and
in accordance with Section 1.04 of this Agreement.
(b) Each share of Common Stock of Merger Sub (a share
of "Merger Sub Common Stock") issued and outstanding immediately
prior to the Effective Time will be converted into one share of
Common Stock of the Surviving Corporation.
(c) Each outstanding share of Common Stock held by the
Company as a treasury share or owned by the Parent, Merger Sub or
any other subsidiary of the Parent immediately prior to the
Effective Time will be canceled, and no payment will be made with
respect thereto.
(d) Each option to purchase shares of Common Stock not
exercised prior to the Effective Time will be cancelled and no
payment will be made with respect thereto.
Section 1.03 Surrender and Payment.
(a) Prior to the Effective Time, the Parent will
appoint the transfer agent for the Common Stock of the Company
or a bank or trust company reasonably acceptable to the
Company (the "Paying Agent") for the purpose of exchanging Stock
Certificates. The Parent will make available to the Paying
Agent funds in amounts and at the times necessary for the
payment of the Merger Consideration in accordance with this
Section 1.03 (such cash is referred to as the "Exchange
Fund").
(b) Promptly, but in no event more than five business
days, after the Effective Time, the Parent will cause the
Surviving
Corporation to send, or will cause the Paying Agent to send,
to each holder of a Stock Certificate a letter of transmittal
and instructions for use in surrendering the Stock
Certificates for payment in accordance with this Section 1.03.
The agreement with the Paying Agent will provide that, upon
surrender to the Paying Agent of such Stock Certificates,
together with the letter of transmittal, duly executed and
completed in accordance with the instructions thereto and such
other documents as may be reasonably required by the Paying
Agent, the Paying Agent will promptly pay to the persons
entitled thereto, out of the Exchange Fund, a check in the
amount to which such persons are entitled pursuant to Section
1.02(a), after giving effect to any required tax withholdings,
and such Stock Certificate will forthwith be canceled.
(c) If any cash is to be paid to a Person other than
the registered holder of the Stock Certificates surrendered in
exchange therefor, it will be a condition to such payment that
the Stock Certificates so surrendered be properly endorsed or
otherwise in proper form for transfer and that the Person
requesting such payment pay to the Paying Agent any transfer
or other taxes required as a result of such issuance or
establish to the satisfaction of the Paying Agent that such
tax has been paid or is not applicable. For purposes of this
Agreement, "Person" means an individual, a corporation, a
partnership, a limited liability company, an association, a
trust, or any other entity or organization, including a
government or political subdivision or any agency or
instrumentality thereof.
(d) At and after the Effective Time, the stock
transfer books of the Company will be closed, and there will
be no further registration of transfers of shares of Common Stock
outstanding prior to the Effective Time. If, at or after the
Effective Time, Stock Certificates are presented to the
Surviving Corporation, they will be canceled and exchanged in
accordance with this Article I.
(e) Any cash in the Exchange Fund that remains
unclaimed by the holders of shares of Common Stock six months
after the Effective Time will be returned to the Surviving
Corporation, upon demand, and any such holder who has not
surrendered his shares of Common Stock in accordance with this
Section 1.03 prior to that time will thereafter look only to
the Surviving Corporation, as a general creditor thereof, to
pay the Merger Consideration to which such holder is entitled.
Notwithstanding the foregoing, the Surviving Corporation will
not be liable to any holder of shares of Common Stock for any
amount paid to a public official pursuant to applicable
abandoned property, escheat, or similar laws.
(f) If any Stock Certificate is lost, stolen or
destroyed, upon the making of an affidavit of that fact by the
Person claiming such Stock Certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the
posting by such Person of a bond in such reasonable amount as
the Parent may direct as indemnity against any claim that may
be made against it with respect to such Stock Certificate, the
Paying Agent will pay the Merger Consideration payable in
respect of such Stock Certificate pursuant to this Agreement.
Section 1.04 Shares of Dissenting Stockholders.
Notwithstanding anything in this Agreement to the contrary,
any outstanding shares of Common Stock held by a person (a
"Dissenting Stockholder") who objects to the Merger and complies
with all the provisions of Delaware Law concerning the right of
holders of shares of Common Stock to dissent from the Merger and
require appraisal of their shares will not be converted as
described in Section 1.02(a), but will be converted into the
right to receive such consideration as may be determined to be
due to such Dissenting Stockholder pursuant to Delaware Law. If,
after the Effective Time, such Dissenting Stockholder withdraws
his demand for appraisal, or fails to perfect or otherwise loses
his right to appraisal, in accordance with Delaware Law, his
shares of Common Stock will be deemed to have been converted as
of the Effective Time into the right to receive the Merger
Consideration. The Company will give the Parent (i) prompt
notice of any demands for appraisal of shares of Common Stock
received by the Company and (ii) the opportunity to participate
in all negotiations and proceedings with respect to any such
demands. The Surviving Corporation will not, without the prior
written consent of the Parent, make any payment with respect to,
or settle, offer to settle, or otherwise negotiate, any such
demands.
ARTICLE II
The Surviving Corporation
Section 2.01 Certificate of Incorporation.
The certificate of incorporation of the Company in effect
immediately prior to the Effective Time will be the certificate
of incorporation of the Surviving Corporation after the
consummation of the Merger until amended in accordance with
applicable law.
Section 2.02 Bylaws.
The bylaws of the Company in effect immediately prior to the
Effective Time will be the bylaws of the Surviving Corporation
after the consummation of the Merger until amended in accordance
with applicable law.
Section 2.03 Directors and Officers.
From and after the Effective Time, until successors are duly
elected or appointed and qualified in accordance with applicable
law, the directors and officers of Merger Sub immediately prior
to the Effective Time will be the directors and officers of the
Surviving Corporation after the consummation of the Merger.
ARTICLE III
Covenants of the Company
Section 3.01 Access to Information.
From the date hereof until the Effective Time or earlier
termination of this Agreement, the Company will, upon reasonable
notice, give the Parent, its counsel, financial advisors,
auditors, and other authorized representatives reasonable access
during regular business hours to the offices, properties, books,
and records of the Company, and will furnish to the Parent, its
counsel, financial advisors, auditors, and other authorized
representatives such financial and operating data and other
information as they may reasonably request, for the purpose of
evaluating the financial condition, results of operations,
business, and properties of the Company, and will instruct the
Company's employees, counsel, and financial advisors to cooperate
with the Parent in its evaluation.
Section 3.02 Merger Meeting; Proxy Statement.
(a) As soon as practicable following the date of this
Agreement, the Company will take all action necessary in
accordance
with Delaware Law and with the Company's certificate of
incorporation and bylaws to convene a meeting of its
stockholders to approve the Merger and adopt this Agreement
(the "Merger Meeting"). The Company's Board of Directors will
recommend that the Company's stockholders approve the Merger
and adopt this Agreement, and will cause the Company to use
all reasonable efforts to solicit from the stockholders
proxies to vote therefor, unless (i) in the good faith
judgment of the Board of Directors of the Company, after
consultation with outside counsel, such recommendation would
not be consistent with the fiduciary duties of the Board of
Directors under applicable law or (ii) this Agreement is
terminated in accordance with Article VII.
(b) The Company will prepare and file with the SEC
preliminary proxy materials relating to the approval of the
Merger and the adoption of this Agreement by the Company's
stockholders, and will file with the SEC revised preliminary
proxy materials, if appropriate, and definitive proxy materials
in a timely manner as required by the rules and regulations of
the SEC. Subject to the last sentence of Section 3.02(a), the
proxy materials relating to the Merger Meeting will include the
recommendation of the Company's Board of Directors.
ARTICLE IV
Covenants of the Parent and Merger Sub
The Parent and Merger Sub agree that:
Section 4.01 Director and Officer Liability.
(a) The certificate of incorporation and the bylaws
of the Surviving Corporation will contain the provisions with
respect to exculpation from liability and indemnification set
forth in the certificate of incorporation and bylaws of the
Company as of the date hereof, which provisions (together with
all provisions regarding indemnification or exculpation from
liability contained in any agreements or commitments of the
Company) will not be amended, repealed, or otherwise modified
in any manner that would adversely affect the rights
thereunder of individuals who at the Effective Time were
present or former directors, officers, employees, or agents of
the Company, unless such modification is required by law.
(b) From and after the Effective Time, the Parent and
the Surviving Corporation will, jointly and severally, indemnify,
defend, and hold harmless the present and former directors and
officers of the Company against all losses, claims, damages,
and liabilities and amounts paid in settlement in connection
with any claim, action, suit, proceeding, or investigation,
whether civil, criminal, administrative, or investigative, to
which any of them was or is a party or is threatened to be
made a party by reason of the fact that he or she was or is a
director or officer of the Company in respect of acts or
omissions occurring at or prior to the Effective Time to the
fullest extent that the Company would have been permitted to
indemnify such Person under applicable law and the certificate
of incorporation and bylaws of the Company or any other
agreements or commitments in effect on the date hereof. The
Parent will use all reasonable efforts to, without any lapse
in coverage, either (i) for at least six years after the
Effective Time, provide officers' and directors' liability
insurance ("D&O Insurance") in respect of acts or omissions
occurring at or prior to the Effective Time covering each such
Person currently covered by the Company's D&O Insurance policy
on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof;
provided that, in no event will the Parent be required to pay
per annum more than 150% of the last premium (annualized) paid
by the Company for such policy prior to the date hereof, (ii)
purchase tail insurance in respect of the Company's existing
D&O Insurance for six years for a premium not to exceed the
present value (discounted at the rate of 10% per annum) of the
maximum annual premiums payable under clause (i) above, or
(iii) if such D&O Insurance or tail insurance is only
available at premiums in excess of the maximum premiums set
forth in clauses (i) or (ii), as applicable, then purchase the
highest level of D&O Insurance or tail insurance available for
such maximum premium.
(c) Any Person who is entitled to indemnification under
Section 4.01(b) (an "Indemnified Party") wishing to claim such
indemnification, upon learning of any such claim, action,
suit, proceeding, or investigation, will promptly notify the
Parent thereof, but failure to notify the Parent will not
relieve the Parent of liability except to the extent the
Parent is materially and adversely affected thereby. In the
event of any such claim, action, suit, proceeding, or
investigation (whether arising before or after the Effective
Time), (i) the Parent or the Surviving Corporation will have
the right to assume the defense, and the Parent will not be
liable to any of the Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently
incurred by them in connection with the defense, except that,
if the Parent or the Surviving Corporation elects not to
assume the defense or counsel for the Indemnified Parties
advises that, in such counsel's reasonable judgment, there are
issues that constitute conflicts of interest between the
Parent or the Surviving Corporation and the Indemnified
Parties, the Indemnified Parties may retain counsel
satisfactory to them, and the Parent or the Surviving
Corporation will pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements
therefor are received; provided that, the Parent will be
obligated pursuant to this paragraph (c) to pay for only one
firm of counsel for all Indemnified Parties in any
jurisdiction, (ii) the Indemnified Parties will cooperate in
the defense of any such matter, and (iii) the Parent will not
be liable for any settlement effected without its prior
written consent; and provided further that, the Parent will
not have any obligation hereunder to any Indemnified Party
when and if a court of competent jurisdiction ultimately
determines, and such determination becomes final and
nonappealable, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by
applicable law.
(d) If the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into
any other Person and is not the continuing or surviving Person
in the consolidation or merger or (ii) transfers all or
substantially all of its assets to any Person, then and in each
such case, proper provisions will be made so that the successors
and assigns of the Surviving Corporation will assume all of the
obligations of the Surviving Corporation under this Article IV.
(e) The provisions of this Article IV are intended to
be for the benefit of, and will be enforceable by, each of the
present and former directors, officers, employees, and agents,
their heirs and their representatives.
Section 4.02 Parent Vote at Merger Meeting.
At the Merger Meeting, on the proposal to approve the Merger
and adopt this Agreement, the Parent will vote, or cause to be
voted, all shares of Common Stock beneficially owned by it in the
manner voted by a majority of the other stockholders of the
Company voting at the Merger Meeting.
ARTICLE V
Covenants of the Parent, Merger Sub and the Company
The Parent, Merger Sub and the Company agree that:
Section 5.01 Reasonable Efforts.
Subject to the terms and conditions of this Agreement, each
party will use its all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things
necessary or advisable under applicable laws and regulations to
satisfy the conditions to closing and consummate the transactions
contemplated by this Agreement as promptly as practicable.
Section 5.02 Certain Filings and Consents.
The Company and the Parent will cooperate with one another
(a) in determining whether any action by or in respect of, or
filing with, any governmental body, agency, official or authority
is required, or any actions, consents, approvals or waivers are
required to be obtained from parties to any Contracts ("Third
Party Consents"), in connection with the transactions
contemplated by this Agreement and (b) in attempting to take all
such actions, to make all such filings, and to obtain all such
consents, approvals and waivers.
Section 5.03 Public Announcements.
The Parent and the Company will consult with each other
before issuing any press release or making any public statement
with respect to this Agreement or the transactions contemplated
by it and, except as may be required by applicable law, will not
issue any such press release or make any such public statement
prior to such consultation.
ARTICLE VI
Conditions to the Merger
Section 6.01 Conditions to the Obligations of Each Party.
The obligations of the Company, the Parent and Merger Sub to
consummate the Merger are subject to the satisfaction of the
following conditions:
(a) the Merger has been approved, and this Agreement
has been adopted, by the requisite vote of the Company's
stockholders;
(b) no provision of any applicable domestic law or
regulation, and no judgment, injunction, order, or decree of a
court or governmental agency or authority of competent
jurisdiction, that has the effect of making the Merger illegal
or otherwise restrains or prohibits the consummation of the
Merger is in effect or has been threatened by any governmental
agency, commission, court, department or other instrumentality
of any government, and no action is pending seeking such a judgment,
injunction, order or decree; and
(c) demands for appraisal rights by stockholders of the
Company with respect to an aggregate of more than 100,000 shares
of Common Stock shall not have been received by the Company
pursuant to Section 262 of the Delaware Law.
ARTICLE VII
Termination
Section 7.01 Termination.
This Agreement may be terminated, and the Merger may be
abandoned at any time prior to the Effective Time
(notwithstanding any approval of the Merger and adoption of this
Agreement by the Company's stockholders):
(a) by either the Company or the Parent if the Merger
has not been consummated by March 31, 1999;
(b) by mutual written consent of the Company, the Parent
and Merger Sub;
(c) by either the Company or the Parent if any
applicable domestic law, rule, or regulation makes consummation
of the Merger illegal or if any judgment, injunction, order, or
decree of a court or governmental agency or authority of competent
jurisdiction restrains or prohibits the consummation of the
Merger, and such judgment, injunction, order or decree has
become final and nonappealable; or
(d) by either the Company or the Parent if the
stockholder approval referred to in Section 6.01(a) has not been
obtained at the Merger Meeting.
Section 7.02 Effect of Termination.
If this Agreement is terminated and the Merger is abandoned
pursuant to Section 7.01, no party to this Agreement (or any of
its directors, officers, employees, agents, or advisors) will
have any liability or further obligation to any other party
except (a) that the agreements contained in Section 8.04 will
survive the termination hereof and (b) that nothing herein will
relieve any party from liability for any breach of the covenants
made by it in this Agreement.
ARTICLE VIII
Miscellaneous
Section 8.01 Notices.
All notices, requests, and other communications to any party
hereunder will be in writing (including telecopy) and will be
given,
if to the Parent or Merger Sub, to:
Lonhro Plc
Four Grosvenor Place
London SW1X 7DL
England
Attention: Corporate Secretary
Fax: 44-171-201-6100
with a copy to:
Parker Chapin Flattau & Klimpl
1211 Avenue of the Americas
New York, New York 10036
Attention: Richard A. Rubin
Fax: (212) 704-6288
if to the Company, to:
Hondo Oil & Gas Company
10375 Richmond Avenue, Suite 900
Houston, Texas 77042
Attention: John J. Hoey
Fax: (713) 954-4601
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Attention: Richard A. Boehmer
Fax: (213) 430-6407
or to such other address or telecopy number as such party may
hereafter specify for the purpose by notice to the other parties.
Each such notice, request or other communication will be
effective upon receipt.
Section 8.02 Survival.
None of the agreements and other provisions contained in
this Agreement or in any certificate or other writing delivered
pursuant to this Agreement, other than Article I, Section 4.01
and Article 8, will survive the Effective Time.
Section 8.03 Amendments; No Waivers.
(a) Subject to the applicable provisions of Delaware
Law, any provision of this Agreement may be amended or waived
prior to the Effective Time if, and only if, such amendment or
waiver is in writing and duly executed and delivered, in the case
of an amendment, by the Company, the Parent and Merger Sub or, in
the case of a waiver, by the party against whom the waiver is
to be effective.
(b) No failure or delay by any party in exercising any
right, power, or privilege hereunder will operate as a waiver
thereof, nor will any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other
right, power or privilege.
Section 8.04 Fees and Expenses.
All costs and expenses incurred in connection with this
Agreement will be paid by the party incurring the costs and
expenses.
Section 8.05 Successors and Assigns.
The provisions of this Agreement will be binding upon and
inure to the benefit of the parties hereto and their respective
successors and assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations
under this Agreement without the written consent of the other
parties.
Section 8.06 Governing Law.
The interpretation, validity and enforceability of this
Agreement will be governed by the law of the State of Delaware
without regard to principles of conflict of laws that would apply
the laws of any other jurisdiction.
Section 8.07 Counterparts; Effectiveness.
This Agreement may be signed in any number of counterparts,
each of which will be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
This Agreement will become effective when each party has received
counterparts hereof signed by all of the other parties.
Section 8.08 Entire Agreement.
This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes
all prior agreements, both written and oral, among the parties
with respect to the subject matter of this Agreement. No
representation, warranty or inducement not set forth herein has
been made or relied upon by any party. Neither this Agreement
nor any provision hereof is intended to confer upon any Person
other than the parties any rights or remedies, except that the
provisions of Section 4.01 are intended for the benefit of
present and former directors, officers, employees and agents of
the Company.
Section 8.09 Headings.
The headings contained in this Agreement are for reference
purposes only and will not in any way affect the meaning or
interpretation of this Agreement.
Section 8.10 Severability.
If any term or other provision of this Agreement is invalid,
illegal, or unenforceable, all other provisions of this Agreement
will remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby is not
affected.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed by their respective authorized officers as of
the day and year first above written.
Lonhro Plc
By: /s/ R.E. WHITTEN
Name: R.E. Whitten
Title: Executive Director
HOGC Acquisition Corporation
By: /s/ R.E. WHITTEN
Name: R.E. Whitten
Title: Secretary
Hondo Oil & Gas Company
By: /s/ JOHN J. HOEY
Name: John J. Hoey
Title: President and Chief
Executive Office
<PAGE>
ANNEX B
[HLHZ LETTERHEAD]
October 9, 1998
To the Special Committee of
the Board of Directors
Hondo Oil & Gas Company
Dear Sirs:
We understand that Hondo Oil & Gas Company ("Hondo" or the
"Company") is a publicly held oil and gas company that, until
recently, was focused on international oil and gas development in
Colombia, South America. The lack of success of the Company's
investment in the Opon Project has resulted in significant losses
for the Company in recent periods. The Company's common stock
was publicly traded on the American Stock Exchange until recently
when it was delisted. The Company's common stock is now traded
on the NASDAQ small capitalization "electronic bulletin board."
The Company's largest shareholder, Lonrho Plc ("Lonrho") is a
publicly traded English company which through wholly owned
subsidiaries, owns and controls 68.4 percent of the Company's
outstanding common stock. Moreover, Lonrho is the Company's
primary lender.
We further understand that the Company has entered into
discussions with Lonrho whereby Lonrho and the Company would
enter into a Merger Agreement dated October 9, 1998 (the "Merger
Agreement") pursuant to which a wholly owned Lonrho subsidiary
will be merged with and into the Company (the "Merger"). As part
of the Merger, the public stockholders of Hondo (other than
Lonrho and its subsidiaries) (the "Public Stockholders") will
receive an aggregate consideration of 5 cents per share (the
"Merger Consideration") for their equity investment in Hondo.
The Merger and other related transactions disclosed to Houlihan
Lokey are collectively referred to herein as the "Transaction."
Houlihan Lokey has been retained on behalf of, and will report
solely to, the Special Committee, notwithstanding that Houlihan
Lokey's fees and expenses will be paid by the Company.
You have requested our opinion (the "Opinion") as to the matters
set forth below. The Opinion does not address the Company's
underlying business decision to effect the Transaction. We have
not been requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated
the Transaction or advised you with respect to alternatives to
it.
In connection with this Opinion, we have made such reviews,
analyses and inquiries as we have deemed necessary and
appropriate under the circumstances. Among other things, we
have:
. reviewed the Company's audited financial statements for the
five fiscal years ended September 30, 1997 and the unaudited
financial statements for the nine months ended June 30, 1998,
which the Company's management has identified as being the most
currently available financial statements available as of the
valuation date;
. reviewed the audited financial statements for Hondo
Magdalena Oil & Gas Limited Colombian Branch for the fiscal
years
ended December 31, 1997 and December 31, 1996;
. reviewed the Merger Agreement;
. met and had discussions with certain members of the senior
management of the Company to discuss the operations, financial
condition, future prospects and projected operations and
historical performance of the Company;
. reviewed the estimation of proven reserves and future
revenue dated June 30, 1998 prepared by Netherland, Sewell and
Associates;
. reviewed the Second Amendment to the Agreement between the
City of Long Beach and Hondo Oil & Gas Company, dated July
1998;
. reviewed the release of liability granted Hondo Oil & Gas
Company by Phillips Petroleum Company, dated July 16, 1998;
. reviewed the petition of U.S. Bank Trust National
Association, the order for hearing on the petition and the
proposed order for settlement between Newhall Refining Co.,
Inc.
and Hondo Oil & Gas Company, dated August 12, 1998; and
. conducted such other studies, analyses, and inquiries as we
have deemed appropriate.
We have relied upon and assumed, without independent
verification, that the information provided to us has been
reasonably prepared and reflects the best currently available
estimate of the future financial results and condition of the
Company, and that there has been no material change in the
assets, financial condition, business or prospects of the Company
since the date of the most recent financial statements made
available to us.
We have not independently verified the accuracy and completeness
of the information supplied to us with respect to the Company and
do not assume any responsibility with respect to it. We have not
made any physical inspection or independent appraisal of any of
the properties or assets of the Company. Our opinion is
necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date
of this letter.
Based upon the foregoing, and in reliance thereon, it is our
opinion that the Merger Consideration to be received by the
Public Stockholders of the Company in connection with the
Transaction is fair to them from a financial point of view.
This Opinion is delivered to you subject to the conditions, scope
of engagement, limitations and understandings set forth in this
Opinion and our engagement letter, and subject to the
understanding that the obligations of Houlihan Lokey in the
Transaction are solely corporate obligations, and no officer,
director, employee, agent, shareholder or controlling person of
Houlihan Lokey shall be subjected to any personal liability
whatsoever to any person, nor will any such claim be asserted by
or on behalf of you or your affiliates.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
ANNEX C
SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a
corporation of this State who holds shares of stock on the date
of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation
nor consented thereto in writing pursuant to Section 228 of this
title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder's 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 Section 251
(other than a merger effected pursuant to Section 251(g) of this
title), Section 252, Section 254, Section 257, Section 258,
Section 263 or Section 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 Section 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
Sections 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 in respect thereof) 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
Section 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 of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsections
(b) or (c) hereof that appraisal rights are available for
any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section.
Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation,
before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such
stockholder's 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 Section 228 or Section 253 of this title, each
constituent corporation, either before the effective date of
the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a
copy of this section; provided that, if the notice is given
on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving
or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given
on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of such notice, demand in writing
from the surviving or resulting corporation the appraisal of
such holder's 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 such holder's shares. If such notice
did not notify stockholders of the effective date of the
merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second
notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to
each stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in accordance
with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such
notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days
prior to the date the notice is given, provided, that if the
notice is given on or after the effective date of the merger
or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which
the notice is given.
(e) Within 120 days after the effective date of the merger
or consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof
and who is otherwise entitled to appraisal rights, may file a
petition in the Court of Chancery demanding a determination of
the value of the stock of all such stockholders. Notwithstanding
the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have
the right to withdraw such stockholder's 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 such stockholder's
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
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 such
stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder 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 attorneys' 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 such stockholder's
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 such stockholder's 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.
ANNEX D
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY, PARENT AND PURCHASER
Set forth below are the name, age, citizenship, business
address, position with the Company, Parent or Purchaser, as the
case may be, present principal occupation or employment and five-
year employment history of each director and executive officer of
the Company, Parent and Purchaser, as indicated. Directors are
indicated by asterisk.
<TABLE>
<S> <C>
Name (Age) Present Principal Occupation Of
Employment/Material Positions Held During
The Past Five Years
___________ __________________________________________
The Company
John J. Hoey (59)* Mr. Hoey became a director on June 2, 1993
and became President and Chief Executive
Officer of the Company on December 1, 1993.
He is a director and President or Managing
Director of each of the Company's
subsidiaries. He is also President and
sole shareholder of Beneficial Capital
Corp. of New York, an investment company
with ownership in a number of public and
private companies. From 1985 to 1992, he
was associated with Atlantic Petroleum
Corp. of Pennsylvania, including serving as
President of Atlantic Refining and
Marketing Corporation until its sale to Sun
Co. in November 1988. From 1972 to 1984,
Mr. Hoey held various executive positions
in international banking and investment
companies. From 1967 to 1971, he served in
the U.S. Department of State in Saigon,
South Vietnam. He is currently a director
of GVC Corp., a publicly-held corporation.
Mr. Hoey is a U.S. citizen and his business
address is 10375 Richmond Avenue, Suite
900, Houston, Texas 77042.
Douglas G. McNair Mr. McNair has been a director of the
(70)* Company since February 25, 1993. He was an
independent consultant for international
transactions, marketing and negotiations.
From 1985 to 1986 he was Vice President and
Assistant to the Chairman and Chief
Executive Officer of Atlantic Richfield
Company. From 1977 to 1985, he was Vice
President of Atlantic Richfield Company and
worked with that company's subsidiary,
Anaconda Cooper, in connection with
international operations. From 1972 to
1977, he was Vice President of Atlantic
Richfield Company in charge of
international marketing. From 1970 to
1972, he was President and Chief Executive
Officer of Atlantic Richfield Company's
Brazilian marketing subsidiary. Mr. McNair
is a Brazilian citizen and his business
address is 10375 Richmond Avenue, Suite
900, Houston, Texas.
Nicholas J. Morrell Mr. Morrell became a director of the
(51)* Company on November 21, 1996. He was
appointed a director of Lonrho Plc in 1992,
its Deputy Managing Director in 1994, and
became its Chief Executive in November
1996. In 1978, Mr. Morrell joined The
Observer newspaper which subsequently
became a member of the Lonrho group in
1981, becoming Managing Director in 1988
and, in 1989, was appointed Chief Executive
in charge of Lonrho's printing and
publishing operations. Mr. Morrell is a
U.K. citizen and his business address is
Four Grosvenor Place, London SW1X 7DL,
England.
John F. Price (57)* Mr. Price became a director of the Company
on November 16, 1992 and is a director of
Hondo Magdalena Oil & Gas Limited. He is
also President and a director of The Hondo
Company. He was President of Princess
Hotels International, Inc. (now known as
Bahamas Hotels, Inc.) and Executive
Vice President of Princess Properties
International Limited from March 1983 to
August 1998 when Lonrho Plc sold its
interest in those companies. He is
currently President of Bahamas Hotels, Inc.
He was appointed an Associate Director of
Lonrho Plc in 1991. He is a chartered
Accountant and joined the Lonrho group in
1969. He was appointed Managing Director
of Lonrho (Zambia) Ltd. in 1974 and was
Managing Director of Lonrho (Zimbabwe) Ltd.
from 1979 to 1983. Mr. Price is a U.S.
citizen and his business address is Bahamas
Hotels, Inc., 900 Third Street, New York,
New York 10022.
Robert K. Steer (67)* Mr. Steer became a director of the Company
on November 10, 1994. He has been an
independent consulting geologist since
1987. He retired from Exxon Corporation in
1986 where he served as Executive Vice
President of Esso Exploration, Inc. from
1982 to 1986. From 1978 to 1981, he was
Exploration Department Manager for Exxon
Corporation, and from 1974 to 1978, he was
President and Managing Director of Exxon
Malaysia Inc. Mr. Steer is a U.S. citizen
and his business address is 10375 Richmond
Avenue, Suite 900, Houston, Texas 77042.
R.E. Whitten (58)* Mr. Whitten has been a director of the
Company since January 19, 1988 and is
director of Hondo Magdalena Oil & Gas
Limited. He has been an Executive Director
of Lonrho Plc since July 1981 and became
Finance Director on January 1, 1995. He
joined the Lonrho group in 1978. He is
also a director of some 50 other companies
in the Lonrho group, including Princess
Hotels International, Inc. and The Hondo
Company. Mr. Whitten is a U.K. citizen and
his business address is Four Grosvenor
Place, London SW1X 7DL, England.
S.J. Urquhart (36) Mr. Urquhart joined the Company on May 15,
1988 as a Financial Analyst and became
Controller of the Company on August 1,
1992. He was appointed Vice President and
Controller on May 3, 1994. He is also a
director and Vice President of each of the
Company's subsidiaries and a director of
Hondo Magdalena Oil & Gas Limited.
Mr. Urquhart is a Certified Public
Accountant and was employed by Ernst &
Whinney (now Ernst & Young LLP) from 1984
to 1988. Mr. Urquhart is a U.S. citizen
and his business address is 10375 Richmond
Avenue, Suite 900, Houston, Texas 77042.
Parent
- ------
Sir John Craven (57) Sir Craven has been a non-Executive Director
of Lonhro Plc since March 7, 1997 and was
appointed Chariman on March 26, 1997. He
was Chairman of Deutsche Morgan Grenfell
from at least October 1993 until June 1997.
He is currently also a non-Executive Director
of Reuters Holdings Plc and Rothmans
International BV and a member of the Supervisory
Board of Societe Generale de Surveillance
Holdings S.A. He is a U.K. citizen and his
business address is Four Grosvenor Place,
SW1X 7DL, London.
S.E. Jonah (48)* Mr. Jonah has been an Executive Director of
Lonhro Plc since 1992. For at least the past
five years, he has been the Chief Executive
of Ashanti Goldfields Company Limited. He
joined Lonhro Plc in 1969. He is a citizen
of Ghana and his business address is Four
Grosvenor Place, SW1X 7DL, London.
Nicholas J. Morrell See his description above.
R.E. Whitten See his description above.
Terence Wilkinson Mr. Wilkinson has been an Executive Director
(52)* of Lonhro Plc since October 1993. He has
been Chief Operating Officer (Mining) of Lonhro
Plc since July 1997. For more than four years
prior to July 1997, he was responsible to Lonhro
Plc with respect to Lonhro's mining operations.
Mr. Wilkinson joined the Lonhro Group in South
Africa in 1973. He is a South
African citizen and his business address is
Four Grosvenor Place, SW1X 7DL, London.
M.J. Pearce (52) Mr. Pearce is and has been the Company Secretary
of Lonhro Plc since October 1979. He is a U.K.
citizen and his business address is Four Grosvenor
Place, SW1X 7DL, London.
Peter Harper (63)* Mr. Harper has been a non-Executive Director of
Lonhro Plc since October 1993 and was appointed
Deputy Chairman on July 3, 1998. He was Chairman
of Hanson Industrial Services Limited, the U.K.
industrial subsidiary of Hanson Plc, prior to
October 1993 and until September 1994. He is
currently also a non-Executive Director of John
Laing Plc and Deputy Chairman of Victrex Plc. He
is a U.K. citizen and his business address is
Four Grosvenor Place, SW1X 7DL, London.
J.R.B. Phillimore Mr. Phillimore has been a non-Executive Director
(49)* of Lonhro Plc since September 11, 1997. From
1992 to date, he has undertaken strategic advisory
work for U.K. and international companies. He is
currently also a non-Executive Director of Aber
Resources Limited. He is a U.K. citizen and his
business address is Four Grosvenor Place, SW1X 7DL,
London.
Sir Alastair Morton Sir Morton has been a non-Executive Director of
(60)* Lonhro Plc since March 12, 1998. Before October
1993 and until October 31, 1996, he was Executive
Co-Chairman of Eurotunnel. He is currently also
a non-Executive Director of National Power Plc and
of Brockbank Group and an adviser to the Group
Executive Board of ABB Daimler-Benz Transportation
and to the Vice Chancellor of the University of
Cambridge. He is a U.K. citizen and his business
address is Four Grosvenor Place, SW1X 7DL, London.
Purchaser
__________
John F. Price* Mr. Price is the President of the
Purchaser. See his description above.
Nicholas J. Morrell* See his description above.
R.E. Whitten* Mr. Whitten is the Secretary of the
Purchaser. See his description above.
</TABLE>
<PAGE>
FORM OF PROXY CARD
OF
HONDO OIL & GAS COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF HONDO OIL & GAS COMPANY.
The undersigned hereby appoints John H. Hoey and S.J.
Urquhart, or either one of them, proxies with full power of
substitution, and hereby authorizes them to represent and to
vote, as designated below, all the shares of Common Stock of
Hondo Oil & Gas Company (the "Company") held of record by the
undersigned on October 30, 1998, at the Special Meeting of
Stockholders of the Company to be held on December __ 1998, and
any adjournments or postponements thereof as follows:
(1) Proposal to adopt the Agreement and Plan of Merger, dated as
of October 12, 1998 among the Company, HOGC Acquisition
Corporation, ("Purchaser"), and Lonhro Plc., and to approve the
related merger of Purchaser with and into the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) In the discretion of the proxyholder, upon all matters
presented at the Special Meeting but which were not known to the
Board of Directors at a reasonable time before the solicitation
of this proxy and upon such other business as may be properly
come before the Special Meeting, including any adjournments or
postponements thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE
MANNER DIRECTED ABOVE. IF NO DIRECTION IS MADE, IT WILL BE VOTED
FOR PROPOSAL (1) ABOVE.
The undersigned acknowledges receipt of the Notice of Special
Meeting of Stockholders and the Proxy Statement (with all Annexes
thereto) dated November __, 1998. The undersigned ratifies all
that the proxies or any of them or their substitutes may lawfully
do or cause to be done by virtue hereof and revokes all former
proxies.
DATED: _____________, 1998
___________________________
Signature
___________________________
Signature if held jointly
Please sign this proxy
exactly as your name(s)
appears above. If the stock
is registered in the names of
two or more persons, each
should sign. Executors,
administrators, trustees,
guardians, attorneys and
corporate officers should add
their titles.
IMPORTANT: PLEASE MARK,
DATE, SIGN AND RETURN THIS
PROXY IN THE ENVELOPMENT
PROVIDED. NO POSTAGE IS
REQUIRED IF MAILED IN THE
UNITED STATES.
<PAGE>
