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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
and
AMENDMENT NO. 1 TO SCHEDULE 13D
Under the Securities Exchange Act of 1934
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
(Name of the Issuer)
BURLINGTON RESOURCES INC.
MERIDIAN OFFSHORE COMPANY
(Name of Person(s) Filing Statement)
DEPOSITARY UNITS
(Title of Class of Securities)
25274410
(CUSIP Number of Class of Securities)
GERALD J. SCHISSLER
SENIOR VICE PRESIDENT, LAW
BURLINGTON RESOURCES INC.
5051 WESTHEIMER, SUITE 1400
HOUSTON, TEXAS 77056
(713) 624-9000
With a copy to:
GARY P. COOPERSTEIN, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
(212) 820-8000
(Names, Addresses and Telephone Numbers of Persons Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
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/X/ a. The filing of solicitation materials or an information statement subject to
Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of
1934.
/ / b. The filing of a registration statement under the Securities Act of 1933.
/ / c. A tender offer.
/ / d. None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: /X/
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CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE
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$43,046,379* $8,609
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* For purposes of calculating fee only. The amount assumes 9,597,855 Depositary
Units, representing all Depositary Units other than Depositary Units owned by
Meridian Offshore Company and its affiliates, will be converted into the
right to receive $4.485 per unit in cash.
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: N/A
Form or Registration No.: N/A
Filing Party: N/A
Date Filed: N/A
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This Rule 13e-3 Transaction Statement on Schedule 13E-3 and Amendment No. 1
to Statement on Schedule 13D (the "Schedule 13E-3/13D") relates to the merger
(the "Merger") of Diamond Shamrock Offshore Partners Limited Partnership (the
"Partnership"), a Delaware limited partnership, with and into Meridian Offshore
Company, a Delaware corporation (the "Company") and an indirect wholly owned
subsidiary of Burlington Resources Inc., a Delaware corporation ("BR").
On April 26, 1994, the Company acquired the .99% managing general
partnership interest of Maxus Offshore Exploration Company in the Partnership
and 64,163,885 units (the "Units") of limited partnership interest (representing
approximately 87% of the outstanding Units) in the Partnership held by Maxus
Exploration Company, and Meridian Offshore Acquisition Company, an affiliate of
the Company, acquired the .01% special general partnership interest of Maxus
Energy Corporation in the Partnership, for an aggregate purchase price of
$291,088,000 (approximately $4.485 per Unit). On April 28, 1994, the Partnership
and the Company entered into an Agreement and Plan of Merger, pursuant to which
the Partnership will be merged with and into the Company and holders of Units
(other than the Company and its affiliates) will receive $4.485 per Unit in
cash, without interest. A copy of the Agreement and Plan of Merger is attached
as Appendix A to the Information Statement (the "Information Statement") filed
by the Partnership with the Securities and Exchange Commission on the date
hereof pursuant to Regulation 14C under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"). A copy of the Information Statement is attached
hereto as Exhibit (d)(1).
The filing of this Schedule 13E-3/13D shall not be deemed an admission that
Rule 13e-3 under the Exchange Act is applicable to the Merger. Each of BR and
the Company disclaims that the Merger constitutes a "Rule 13e-3 Transaction"
within the meaning of Rule 13e-3 under the Exchange Act.
The information set forth in the Information Statement is incorporated in
its entirety by reference. The following is a summary cross-reference sheet
pursuant to General Instruction F of Schedule 13E-3, showing the location in the
Information Statement of the information required by Schedule 13E-3 and Schedule
13D.
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SCHEDULE 13D
SCHEDULE 13E-3 ITEM ITEM NUMBER CAPTION IN INFORMATION STATEMENT
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Item 1. Issuer and Class of Security Item 1
Subject to the Transaction
(a), (b) Cover Page; "INTRODUCTION"
(c), (d) "PRICE RANGE OF UNITS; CASH
DISTRIBUTIONS"
(e) Not applicable
(f) "INTRODUCTION" and "SPECIAL
FACTORS -- Background"
Item 2. Identity and Background Item 2
(a)-(d); (g) (a)-(c) and (f) Cover Page; "INTRODUCTION";
"INFORMATION CONCERNING THE
COMPANY, ACQUISITION, MERIDIAN
AND BR -- Business of BR and its
Subsidiaries"; Schedule 1
(e), (f) Item 2(d), (e) Not Applicable
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<TABLE>
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SCHEDULE 13D
SCHEDULE 13E-3 ITEM ITEM NUMBER CAPTION IN INFORMATION STATEMENT
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Item 3. Past Contacts, Transactions or
Negotiations
(a), (b) "SPECIAL FACTORS -- Background";
"SPECIAL FACTORS -- Purpose and
Structure of the Merger"; and
"CERTAIN AGREEMENTS BETWEEN THE
COMPANY AND ITS AFFILIATES AND
MAXUS"
Item 4. Terms of the Transaction
(a) Cover Page; "INTRODUCTION"; and
"THE MERGER"
(b) Not Applicable
Item 5. Plans or Proposals of the Item 4
Issuer or Affiliate
(a)-(g) "SPECIAL FACTORS -- Purpose and
Structure of the Merger" and
"INFORMATION CONCERNING THE
PARTNERSHIP AND THE PROPERTIES"
Item 6. Source and Amounts of Funds or Item 3
Other Considerations
(a) "SPECIAL FACTORS -- Financing of
the Merger"
(b) "FEES AND EXPENSES"
(c),(d) Not Applicable
Item 7. Purpose(s), Alternatives,
Reasons and Effects
(a)-(d) "INTRODUCTION"; "SPECIAL
FACTORS -- Background"; "SPECIAL
FACTORS -- Purpose and Structure
of the Merger"; "SPECIAL
FACTORS -- Fairness of the
Merger"; "SPECIAL
FACTORS -- Certain Federal
Income Tax Consequences"; and
"SPECIAL FACTORS -- Effect of
the Merger on the Market for
Units; NYSE and PSE Listing and
Exchange Act Registration"
Item 8. Fairness of the Transaction
(a)-(f) "INTRODUCTION"; "SPECIAL
FACTORS -- Background of the
Merger"; "SPECIAL FACTORS --
Purpose and Structure of the
Merger"; and "SPECIAL
FACTORS -- Fairness of the
Merger"
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<TABLE>
<CAPTION>
SCHEDULE 13D
SCHEDULE 13E-3 ITEM ITEM NUMBER CAPTION IN INFORMATION STATEMENT
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Item 9. Reports, Opinions, Appraisals
and Certain Negotiations
(a) "SPECIAL FACTORS -- Fairness of
the Merger"
(b), (c) Not applicable
Item 10. Interest in Securities of the Item 5
Issuer
(a), (b) "INTRODUCTION" and "SPECIAL
FACTORS -- Background"
Item 11. Contracts, Arrangements or Item 6
Understandings with Respect to
the Issuer's Securities "CERTAIN AGREEMENTS BETWEEN THE
COMPANY AND ITS AFFILIATES AND
MAXUS" and "THE MERGER"
Item 12. Present Intention and
Recommendation of Certain
Persons with Regard to the
Transaction
(a),(b) "SPECIAL FACTORS -- Purpose and
Structure of the Merger"
Item 13. Other Provisions of the
Transaction
(a) "SPECIAL FACTORS -- Appraisal
Rights"
(b),(c) Not Applicable
Item 14. Financial Information
(a) "INFORMATION CONCERNING THE
PARTNERSHIP AND THE
PROPERTIES -- Selected Financial
Data and "INDEX TO FINANCIAL
INFORMATION"
(b) Not Applicable
Item 15. Persons and Assets Employed,
Retained or Utilized
(a) Not Applicable
(b) "FEES AND EXPENSES"
Item 16. Additional Information Information Statement in its
entirety
Item 17. Material to be filed as Item 7
Exhibits *
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*See Item 17 below.
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) The name of the subject company is Diamond Shamrock Offshore Partners
Limited Partnership, a Delaware limited partnership (the "Partnership"). The
principal executive offices of the Partnership are located at 5051 Westheimer,
Suite 1400, Houston, Texas 77056.
(b) The class of securities to which this Statement relates is the
Depositary Units of the Partnership. The information set forth on the cover page
and under "INTRODUCTION" in the Information Statement is incorporated herein by
reference.
(c), (d) The information set forth under "PRICE RANGE OF UNITS; CASH
DISTRIBUTIONS" in the Information Statement is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth under "INTRODUCTION" and "SPECIAL
FACTORS -- Background" in the Information Statement is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND
(a)-(d); (g) The Company is a wholly owned subsidiary of Meridian Oil Inc.,
a Delaware corporation ("Meridian"), which in turn is a wholly owned subsidiary
of Meridian Oil Holding Inc., a Delaware corporation ("MOHI"), which is a wholly
owned subsidiary of BR. The information set forth under "INTRODUCTION" and
"INFORMATION CONCERNING THE COMPANY, ACQUISITION, MERIDIAN AND BR -- Business of
BR and its Subsidiaries" in the Information Statement is incorporated herein by
reference. The information with respect to the directors and executive officers
of BR and the Company set forth in Schedule 1 to the Information Statement is
incorporated herein by reference.
(e) and (f) During the last 5 years, none of BR, the Company, MOHI and
Meridian, nor, to the best knowledge of BR and the Company, any of the persons
listed in Schedule 1 to the Information Statement (i) has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) 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 violation
of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a),(b) The information set forth under "SPECIAL FACTORS -- Background";
"SPECIAL FACTORS -- Purpose and Structure of the Merger"; and "CERTAIN
AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS" in the Information
Statement is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION
(a) The information set forth on the cover page and under "INTRODUCTION"
and "THE MERGER" in the Information Statement is incorporated herein by
reference
(b) Not applicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a)-(g) The information set forth under "SPECIAL FACTORS -- Purpose and
Structure of the Merger" and "INFORMATION CONCERNING THE PARTNERSHIP AND THE
PROPERTIES" in the Information Statement is incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS
(a) The information set forth under "SPECIAL FACTORS -- Financing of the
Merger" in the Information Statement is incorporated herein by reference.
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(b) The information set forth under "FEES AND EXPENSES" in the Information
Statement is incorporated herein by reference.
(c),(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a)-(d) The information set forth under "INTRODUCTION"; "SPECIAL
FACTORS -- Background"; "SPECIAL FACTORS -- Purpose and Structure of the
Merger"; "SPECIAL FACTORS -- Fairness of the Merger"; "SPECIAL
FACTORS -- Certain Federal Income Tax Consequences"; and "SPECIAL
FACTORS -- Effect of the Merger on the Market for Units; NYSE and PSE Listing
and Exchange Act Registration" in the Information Statement is incorporated
herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION
(a)-(f) The information set forth under "INTRODUCTION"; "SPECIAL
FACTORS -- Background"; "SPECIAL FACTORS -- Purpose and Structure of the
Merger"; and "SPECIAL FACTORS -- Fairness of the Merger" in the Information
Statement is incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a) The information set forth under "SPECIAL FACTORS -- Fairness of the
Merger" in the Information Statement is incorporated herein by reference.
(b),(c) Not applicable.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a),(b) The information set forth under "INTRODUCTION"; and "SPECIAL
FACTORS -- Background" in the Information Statement is incorporated herein by
reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES
The information set forth under "THE MERGER" and "CERTAIN AGREEMENTS
BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS" in the Information Statement
is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION
(a),(b) The information set forth under "SPECIAL FACTORS -- Purpose and
Structure of the Merger" in the Information Statement is incorporated herein by
reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
(a) The information set forth under "SPECIAL FACTORS -- Appraisal Rights"
in the Information Statement is incorporated herein by reference.
(b),(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION
(a) The information set forth under "INFORMATION CONCERNING THE PARTNERSHIP
AND THE PROPERTIES -- Selected Financial Data" and "INDEX TO FINANCIAL
INFORMATION" in the Information Statement is incorporated herein by reference.
(b) Not applicable.
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ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) Not applicable.
(b) The information set forth under "FEES AND EXPENSES" in the Information
Statement is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION
The information set forth in the Information Statement is incorporated
herein by reference in its entirety.
ITEM 17. MATERIALS TO BE FILED AS EXHIBITS
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(a) -- Not applicable.
(b) -- Not applicable.
(c)(1) -- Agreement and Plan of Merger dated as of April 28, 1994 between
Diamond Shamrock Offshore Partners Limited Partnership and Meridian
Offshore Company (included as Appendix A to Exhibit (d)(1)).
(c)(2) -- Unit Purchase Agreement dated as of April 26, 1994 between Maxus
Energy Corporation, Maxus Exploration Company, Maxus Offshore
Exploration Company, Meridian Offshore Company and Meridian Offshore
Acquisition Company.
(c)(3) -- Transition Services Agreement dated as of April 26, 1994 between
Maxus Exploration Company and Meridian Offshore Company.
(c)(4) -- Purchase and Sale Agreement dated as of April 26, 1994 between Maxus
Exploration Company and Meridian Oil Inc.
(d)(1) -- Information Statement of Diamond Shamrock Offshore Partners Limited
Partnership dated May , 1994.
(e) -- Not applicable.
(f) -- Not applicable.
(g)(1) -- Class Action Complaint captioned Susser vs. Burlington Resources, et
al. (C.A. No. 13483), filed in the Court of Chancery of the State of
Delaware in and for New Castle County on April 27, 1994.
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SIGNATURES
After due inquiry and to the best knowledge and belief of the undersigned,
the undersigned certify that the information set forth in this statement is
true, complete and correct.
BURLINGTON RESOURCES INC.
By: /s/ GERALD J. SCHISSLER
----------------------------------
Name: Gerald J. Schissler
Title: Senior Vice President, Law
MERIDIAN OFFSHORE COMPANY
By: /s/ L. DAVID HANOWER
----------------------------------
Name: L. David Hanower
Title: Senior Vice President
May 12, 1994
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UNIT PURCHASE AGREEMENT
Dated April 26, 1994
Among
MAXUS ENERGY CORPORATION,
MAXUS EXPLORATION COMPANY,
MAXUS OFFSHORE EXPLORATION COMPANY,
MERIDIAN OFFSHORE COMPANY
And
MERIDIAN OFFSHORE ACQUISITION COMPANY
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TABLE OF CONTENTS
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Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01 Purchase and Sale . . . . . . . . . . . . . 1
SECTION 1.02 Closing . . . . . . . . . . . . . . . . . . 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . 3
SECTION 2.01 Organization and Qualification . . . . . . 3
SECTION 2.02 Authority Relative to this Agreement . . . 4
SECTION 2.03 Absence of Certain Changes . . . . . . . . 4
SECTION 2.04 Litigation . . . . . . . . . . . . . . . . 5
SECTION 2.05 Reports . . . . . . . . . . . . . . . . . . 5
SECTION 2.06 Consents and Approvals; No Violation . . . 5
SECTION 2.07 Compliance with Law . . . . . . . . . . . 6
SECTION 2.08 Title . . . . . . . . . . . . . . . . . . . 6
SECTION 2.09 Intercompany Arrangements . . . . . . . . . 6
SECTION 2.10 The Partnership . . . . . . . . . . . . . . 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASERS . . . . . . 7
SECTION 3.01 Organization and Qualification . . . . . . 7
SECTION 3.02 Authority Relative to this Agreement . . . 7
SECTION 3.03 Securities Act . . . . . . . . . . . . . . 7
ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.01 Termination of Intercompany Arrangements . 8
SECTION 4.02 Reasonable Best Efforts . . . . . . . . . . 8
SECTION 4.03 Fees and Expenses . . . . . . . . . . . . . 8
</TABLE>
(i)
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ARTICLE V INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 5.01 Indemnification . . . . . . . . . . . . . . . . . . 8
ARTICLE VI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 6.01 Survival of Representations and Warranties . . . . 10
SECTION 6.02 Entire Agreement; Assignment . . . . . . . . . . . 10
SECTION 6.03 Amendment . . . . . . . . . . . . . . . . . . . . . 10
SECTION 6.04 Waiver . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 6.05 Validity . . . . . . . . . . . . . . . . . . . . . 10
SECTION 6.06 Notices . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 6.07 Governing Law . . . . . . . . . . . . . . . . . . . 11
SECTION 6.08 Descriptive Headings . . . . . . . . . . . . . . . 11
SECTION 6.09 Counterparts . . . . . . . . . . . . . . . . . . . 11
SECTION 6.10 Further Assurances . . . . . . . . . . . . . . . . 12
</TABLE>
(ii)
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UNIT PURCHASE AGREEMENT
UNIT PURCHASE AGREEMENT, dated April 26, 1994 (the "Agreement"), among
Maxus Energy Corporation, a Delaware corporation ("Parent"), Maxus Exploration
Company, a Delaware corporation and a wholly-owned subsidiary of Parent
("Exploration"), Maxus Offshore Exploration Company, a Delaware corporation and
an indirect wholly-owned subsidiary of Parent (the "MGP" and, together with
Parent and Exploration, "Sellers"), Meridian Offshore Company, a Delaware
corporation ("MGP Purchaser"), and Meridian Offshore Acquisition Company, a
Delaware corporation ("SGP Purchaser" and, together with MGP Purchaser,
"Purchasers").
Background
Parent, Exploration and the MGP are the owners of partnership
interests in Diamond Shamrock Offshore Partners Limited Partnership, a Delaware
limited partnership (the "Partnership"), consisting of (i) the .99% managing
general partnership interest of the MGP in the Partnership, (ii) the .01%
special general partnership interest of Parent in the Partnership and (iii)
64,163,885 LP Units (as defined in the Second Amended and Restated Agreement of
Limited Partnership of the Partnership, as amended (the "Partnership
Agreement")) held by Exploration (collectively, such general partnership
interests and LP Units being referred to as the "Partnership Interests") which,
in the aggregate, constitute 87.1% of the partnership interests in the
Partnership.
MGP Purchaser desires to purchase the .99% managing general
partnership interest of MGP in the Partnership and the LP Units held by
Exploration, and SGP Purchaser desires to purchase the .01% special general
partnership interest of Parent in the Partnership, and Sellers desire to sell
the Partnership Interests to the Purchasers, upon the terms and subject to the
conditions of this Agreement.
Now, therefore, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
SECTION 1.01 Purchase and Sale. (a) Concurrently with the execution
and delivery of this Agreement, the following transactions shall take place in
the following order:
(i) the MGP in accordance with Section 12.4 of
the Partnership Agreement shall execute and file with the Secretary of State of
the State of Delaware a Certificate of Amendment to the Certificate of Limited
Partnership of the Partnership
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(the "Certificate of Limited Partnership"), naming MGP Purchaser as the new
managing general partner of the Partnership and MGP Purchaser shall deliver all
documents required pursuant to Section 11.2(c) of the Partnership;
(ii) the MGP shall sell to MGP Purchaser, free and
clear of all liens, claims, charges, encumbrances and rights of others of any
nature whatsoever (collectively, "Liens"), and MGP Purchaser shall purchase
from the MGP, all of the assets of the MGP, which include the .99% managing
general partnership interest of the MGP in the Partnership;
(iii) Purchasers shall cause Meridian Oil Inc.
("MOI") to contribute to MGP Purchaser a demand promissory note of MOI in the
amount of $32 million;
(iv) Exploration shall sell to MGP Purchaser, free
and clear of all Liens, and MGP Purchaser shall purchase from Exploration, the
64,163,885 LP Units held by Exploration;
(v) MGP Purchaser, as managing general partner,
shall consent to (a) the transfer of the .01% special general partnership
interest of Parent in the Partnership to SGP Purchaser and (b) the selection of
SGP Purchaser as the successor special general partner of the Partnership
pursuant to Section 13.2(b) of the Partnership Agreement and SGP Purchaser
shall deliver all documents required pursuant to Section 11.2(b) of the
Partnership Agreement; and
(vi) Parent shall sell to SGP Purchaser, free and
clear of all Liens, and SGP Purchaser shall purchase from Parent, the .01%
special general partnership interest of Parent in the Partnership.
The purchase price for the Partnership Interests shall be $291,088,000
in cash (the "Purchase Price"). Schedule 1.01 sets forth the allocation of the
Purchase Price among the Partnership Interests. The amount and payment of the
Purchase Price is conditioned and contingent upon (a) Exploration assuming the
obligations of Parent under Parent's outstanding promissory note (the "Note")
in favor of the Partnership and (b) Exploration using $36,849,635 of the
Purchase Price to repay the amount estimated to be outstanding under the Note
as of the date hereof and $253,050 of the Purchase Price to satisfy its
obligations under Section 14(c) of the Transition Agreement, which amounts
shall be held separately by Exploration, shall not be commingled with any other
funds of any of Sellers and shall not be available to any creditor of any of
Sellers. Purchasers and Sellers each will deliver all other notices and
documents and take all other actions necessary to be taken on their part,
respectively, under Sections 12.5 and 12.6 of the Partnership Agreement to
effectuate the transfer to Purchasers of the general
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partnership interests in the Partnership. The parties acknowledge that the
$36,849,635 being paid by Exploration to the Partnership in repayment of the
Note is a good faith estimate and that the actual amount outstanding as of the
date hereof may be greater or less than such amount. As promptly as
practicable after the date hereof, the parties shall determine the actual
amount outstanding under the Note and Exploration shall pay to the Partnership,
or Purchasers shall cause the Partnership to pay to Exploration, as
appropriate, the difference, if any, between the estimated outstanding amount
of the Note and the actual outstanding amount of the Note as of the date
hereof.
(b) Concurrently with the execution and delivery of this
Agreement, (i) Sellers are conveying or causing to be conveyed to MGP
Purchaser, free and clear of all Liens, all seismic data, land files, well
files, accounting files and other information owned by Sellers and their
affiliates relating to the properties owned by the Partnership and (ii) Parent
and MGP Purchaser are entering into a Transition Services Agreement (the
"Transition Agreement").
SECTION 1.02 Closing. Concurrently with the execution and delivery of
this Agreement and the consummation of the transactions contemplated by Section
1.01, Purchasers will deliver to Sellers, by wire transfer of immediately
available funds, the Purchase Price and Sellers will deliver to Purchasers
certificates (with powers attached) representing, or other instruments of
transfer or assignment satisfactory to Purchasers in respect of, the
Partnership Interests, which certificates or powers will be in the name of or
duly endorsed for transfer to MGP Purchaser or SGP Purchaser, as the case may
be. Sellers will pay any documentary stamp or transfer taxes or charges
resulting from the purchase and sale of the Partnership Interests.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF SELLERS
Sellers jointly and severally represent and warrant to Purchasers as
follows:
SECTION 2.01 Organization and Qualification. (a) Each Seller and
Pipeline (as defined below) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has the requisite corporate power and authority to carry on its business as
it is now being conducted.
(b) The Partnership is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite power and authority to carry on its business as it is now
being conducted. The Partnership is duly qualified or licensed to do business
and is in good standing in each
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jurisdiction in which the nature of its business or the properties owned or
leased by it makes such qualification necessary, except where the failure to be
so qualified or licensed would not have a material adverse effect on it. The
copies of the Partnership Agreement, the Certificate of Limited Partnership,
the Depositary Agreement (as defined in the Partnership Agreement) and the
Certificate of Incorporation and Bylaws of Pipeline previously delivered to
Purchasers are true, complete and correct as of the date hereof. Except for
the Amendment dated April 25, 1994, the Partnership Agreement has not been
amended since October 17, 1985. The Partnership Agreement, as amended, is in
full force and effect and all amendments thereto have been validly adopted.
(c) The Partnership does not have any subsidiaries,
except for Diamond Shamrock Offshore Pipeline Company ("Pipeline"). Pipeline
has not engaged in any activities other than gathering hydrocarbons for the
Partnership's properties and has no liabilities or obligations of any nature,
other than obligations to the Partnership and tax liabilities referred to
below. There is no suit, action or proceeding pending or threatened against
Pipeline. The representations and warranties of the Partnership in this
Article II shall also be deemed, where applicable, to be made with respect to
Pipeline. Pipeline has timely filed all tax returns required to be filed by
it, and has never joined in the filing of a consolidated tax return with any
company. All tax liabilities of Pipeline attributable to the income,
activities or property of Pipeline through the date of execution and delivery
of this Agreement have been paid or provided for on the books of Pipeline.
SECTION 2.02 Authority Relative to this Agreement. (a) Each Seller
has all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by each Seller and the consummation by
each Seller of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of each Seller and no
other corporate proceedings on the part of any Seller are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by each Seller
and constitutes its legal, valid and binding obligation, enforceable against it
in accordance with the terms hereof.
(b) The transfer of the Partnership Interests
contemplated hereby complies with the terms of the Partnership Agreement and
has been duly and validly authorized by all necessary actions required under
the Partnership Agreement and no other proceedings on the part of any party are
necessary to consummate the transfer of the Partnership Interests contemplated
hereby.
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<PAGE> 8
SECTION 2.03 Absence of Certain Changes. Except as disclosed in the
Partnership's filings and reports under the Securities Exchange Act of 1934
(the "Exchange Act") or as contemplated by this Agreement, since December 31,
1993 through the date of this Agreement, the Partnership has conducted its
business only in the ordinary course and no event has occurred that would have
a material adverse effect on the Partnership. Except as disclosed in the
Partnership's filings and reports under the Exchange Act or on Schedule 2.03,
since December 31, 1993 there has not been (a) any declaration, setting aside
or payment of any dividend or other distribution in respect of any partnership
interest in the Partnership, or any redemption, repurchase or other acquisition
by the Partnership of any partnership interest; (b) any entry into any
agreement, commitment or transaction by the Partnership which is material to
the Partnership, except agreements, commitments or transactions in the ordinary
course of business; or (c) any significant change by the Partnership in
accounting methods, principles or practices except as required or permitted by
generally accepted accounting principles.
SECTION 2.04 Litigation. There is no suit, action or proceeding
pending or, to the knowledge of management of any Seller, threatened against or
affecting the Partnership, or any Seller that individually or in the aggregate
could reasonably be expected to have a material adverse effect on the
Partnership nor is there any judgment, decree, injunction or order of any
Federal, state or local government or any court, administration or regulatory
agency or commission or other governmental authority or agency or arbitrator
outstanding against the Partnership or any Seller having any such effect.
SECTION 2.05 Reports. Since December 31, 1990, the Partnership has
filed all required forms, reports and documents with the Securities and
Exchange Commission (the "SEC") required to be filed by it pursuant to the
Federal securities laws and the SEC rules and regulations thereunder, all of
which complied as of their respective filing dates in all material respects
with all applicable requirements of the Securities Act of 1933 (the "Securities
Act"), the Exchange Act and the rules and regulations promulgated thereunder.
All such forms, reports and documents have been made available to Purchasers.
None of such forms, reports or documents at the time filed contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The audited
and unaudited consolidated financial statements of the Partnership included (or
incorporated by reference) in such forms, reports or documents present fairly
in all material respects the financial position of the Partnership and its
subsidiaries as of their respective dates, and the results of operations and
cash flows for the periods presented therein in conformity with generally
accepted accounting principles applied on a consistent basis, subject, in the
case of the unaudited interim financial statements, to normal year-end audit
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<PAGE> 9
adjustments which are not expected to be materially adverse to the Partnership
and except that the quarterly financial statements do not contain all of the
footnote disclosures required by generally accepted accounting principles.
Except as disclosed in the audited consolidated financial statements of the
Partnership as of December 31, 1993, the Partnership does not have any material
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, except for liabilities or obligations incurred in the ordinary
course of business since December 31, 1993. The information contained in
Schedule 2.05, which sets forth a list of interests owned by the Partnership in
oil and gas leases, is true and correct in all material respects. There are no
agreements involving leases with proved or proved undeveloped reserves carried
on the Partnership's books as of December 31, 1993 and listed on Schedule 2.05
which would, without further action by the Partnership after the date hereof,
materially reduce the Partnership's interests in such leases except as noted on
Schedule 2.05. The MGP has no assets other than its .99% managing general
partnership interest in the Partnership.
SECTION 2.06 Consents and Approvals; No Violation. Neither the
execution and delivery of this Agreement by any Seller nor the consummation of
the transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the certificate of incorporation or by-laws of any
Seller; (ii) require any consent of, approval of, filing with or notification
to, any governmental or regulatory authority, except where the failure to
obtain such would not individually or in the aggregate have a material adverse
effect on the Partnership; (iii) result in a violation of or a default (or give
rise to any right of termination, cancellation or acceleration or loss of any
material benefit) under any loan or credit agreement, note or other agreement,
instrument, obligation, permit, concession, franchise or license to which the
Partnership, or any Seller or by which any of their respective properties or
assets may be bound, except for such violations or defaults (or rights of
termination, cancellation or acceleration or loss of material benefits) as to
which requisite waivers or consents have been obtained or which individually or
in the aggregate would not have a material adverse effect on the Partnership;
(iv) violate any judgment, order, writ, injunction, decree, statute, law,
ordinance, rule or regulation applicable to the Partnership, or any Seller or
any of their respective assets, except for violations which would not
individually or in the aggregate have a material adverse effect on the
Partnership; or (v) trigger any preferential rights with respect to the
properties owned by the Partnership.
SECTION 2.07 Compliance with Law. The Partnership has not violated or
failed to comply with any statute, ordinance, regulation, rule or order of any
foreign, Federal, state or local government or any other governmental
department or agency, or any judgment, decree or order of any court, applicable
to its business or operations except where any such violations or failures to
comply would not, individually or in the aggregate, have a material adverse
effect on the Partnership; and the conduct of the Partnership's business is in
conformity with all Federal, state and local requirements,
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<PAGE> 10
except where such non-conformities individually or in the aggregate would not
have a material adverse effect on the Partnership. The Partnership has all
permits, licenses, authorizations, consents, approvals and franchises from
governmental agencies required to conduct its business as now being conducted,
except for such permits, licenses, authorizations, consents, approvals and
franchises the absence of which would not individually or in the aggregate have
a material adverse effect on the Partnership.
SECTION 2.08 Title. Each Seller has good and marketable title to the
Partnership Interests owned by it, free and clear of all Liens.
SECTION 2.09 Intercompany Arrangements. Except with respect to the
matters disclosed in Schedule 2.09, none of Sellers nor any of their respective
affiliates is a creditor of, or has any arrangement or transaction (contractual
or otherwise) with the Partnership. Since December 31, 1993, except with
respect to the matters disclosed in Schedule 2.09, there has not been any
payment by the Partnership to any Seller or any of their respective affiliates,
any charge by any Seller or any of their respective affiliates to the
Partnership or any other arrangement or transaction (contractual or otherwise)
between the Partnership and any Seller or any of their respective affiliates.
Sellers' good faith estimate of the outstanding amount of the Note as of the
date hereof is $36,849,635.
SECTION 2.10 The Partnership. The partnership interests in the
Partnership are comprised of (i) the .99% general partnership of the MGP in the
Partnership, (ii) the .01% general partnership interest of Parent in the
Partnership and (iii) the 99% limited partnership interest of the limited
partners in the Partnership. The limited partnership interests are represented
by an aggregate of 73,761,740 LP Units. As of the date of this Agreement,
there are not any authorized or outstanding subscriptions, options, warrants,
rights, commitments or other agreements, arrangements or undertakings
obligating the Partnership to issue any additional partnership interests or any
additional LP Units or any other security or instrument convertible into or
exchangeable for any such partnership interests or LP Units. The Partnership
does not have any employees. The Partnership has in effect a valid election
under section 754 of the Internal Revenue Code and has not been, and is not now
subject to, income taxation by any governmental entity. There is no
grandfathered or other beneficial tax status of the Partnership which would be
adversely affected by the transactions contemplated hereby.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PURCHASERS
Purchasers jointly and severally represent and warrant to Sellers as
follows:
SECTION 3.01 Organization and Qualification. Each Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization or incorporation and has the
requisite corporate power and authority to carry on its business as it is now
being conducted.
SECTION 3.02 Authority Relative to this Agreement. Each Purchaser has
all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery by each Purchaser of this Agreement and the consummation
by each Purchaser of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of such
Purchaser and no other corporate proceedings on the part of such Purchaser are
necessary to authorize this Agreement or to consummate the transactions
contemplated by this Agreement. This Agreement has been duly and validly
executed and delivered by each Purchaser and constitutes a legal, valid and
binding obligation of each Purchaser, enforceable against each Purchaser in
accordance with its terms.
SECTION 3.03 Securities Act. The Partnership Interests purchased by
Purchasers will be acquired for investment only and not with a view to any
public distribution thereof and Purchasers will not offer to sell or otherwise
dispose of any Partnership Interest so acquired by them in violation of the
registration requirements of the Securities Act.
ARTICLE IV
COVENANTS
SECTION 4.01 Termination of Intercompany Arrangements. Simultaneously
with the execution and delivery of this Agreement, Exploration is repaying to
the Partnership all amounts estimated to be outstanding under the Note as of
the date hereof, together with accrued and unpaid interest thereon to the date
of payment but without any prepayment or other similar penalty. Except as
otherwise provided in the Transition Agreement, promptly upon request of the
Partnership or Purchasers, Sellers will repay any other indebtedness or
liabilities of Sellers or any of their respective affiliates to the Partnership
or terminate any arrangement or transaction (contractual or otherwise)
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between the Partnership and any Seller or any of their respective affiliates,
without any termination or other penalty or any future liability of any kind.
Each Seller hereby waives any rights it may have, severally or jointly, to
indemnification under the Partnership Agreement.
SECTION 4.02 Reasonable Best Efforts. Subject to the terms and
conditions hereof, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all appropriate actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations in connection with the consummation of the transactions
contemplated by this Agreement.
SECTION 4.03 Fees and Expenses. All fees and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such fees or expenses, whether
or not the transactions contemplated hereby are consummated.
ARTICLE V
INDEMNIFICATION
SECTION 5.01 Indemnification. (a) Each Seller jointly and severally
agrees to indemnify, defend and hold harmless Purchasers, after the Closing,
from and against any and all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including,
without limitation, interest, penalties and attorneys' fees and expenses
("Damages"), asserted against, resulting from, imposed upon or incurred by
Purchasers or any of their affiliates, directly or indirectly, arising out of,
resulting from or relating to (i) a breach of any representation, warranty or
agreement of any Seller contained in or made pursuant to this Agreement or any
facts or circumstances constituting such a breach, (ii) the Partnership's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 and all
other forms, reports and documents filed by the Partnership with the SEC prior
to the Closing, (iii) any indebtedness of any Seller or any of their respective
affiliates to the Partnership, or any transaction or arrangement (contractual
or otherwise) involving the Partnership and any Seller or any of their
respective affiliates, other than transactions or arrangements set forth in
Sections 2, 3, 4, 5, 8 and 14 of the Transition Agreement, and (iv) the
transactions contemplated pursuant to that certain agreement of purchase and
sale (the "Sale Agreement") dated as of March 28, 1994, by and between the
Partnership and Pogo Producing Company (collectively, "Claims").
(b) Assertion of Claims. In the event that either
Purchaser desires to make a Claim against Sellers under paragraph (a) above,
the party to be indemnified (the "Indemnified Party") will give each Seller
(the "Indemnifying Parties") prompt notice of
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<PAGE> 13
any such Claim, and the Indemnifying Parties will undertake the defense thereof
by representatives chosen by them which are reasonably satisfactory to the
Indemnified Party. The failure to promptly notify the Indemnifying Parties
hereunder shall not relieve such parties of their obligations hereunder except
to the extent such failure to promptly notify materially prejudices the
Indemnifying Parties. If the Indemnifying Parties, within a reasonable time
after notice of any such Claim, fail to defend such Claim, the Indemnified
Party will have the right to undertake the defense, compromise or settlement of
such Claim on behalf of and for the account and risk of the Indemnifying
Parties, subject to the right of the Indemnifying Parties to assume the defense
of such Claim at any time prior to settlement, compromise or final
determination thereof. If an Indemnifying Party shall assume the defense of
any Claim the Indemnifying Party shall assume all past and future
responsibility for such Claim and shall reimburse the Indemnified Parties for
all costs and expenses previously incurred by them or their affiliates relating
thereto. If the Indemnifying Parties have undertaken defense of a Claim and if
there is a reasonable probability that (i) a Claim may materially and adversely
affect the Indemnified Party other than as a result of money damages or other
money payments, or (ii) the Indemnifying Parties shall not have employed
counsel reasonably satisfactory to the Indemnified Party, the Indemnified Party
shall have the right, at the Indemnifying Parties' cost and expense, to defend
or compromise or settle on a reasonable basis such Claim. The Indemnifying
Parties shall not, without the written consent of the Indemnified Party, settle
or compromise any Claim or consent to the entry of any judgment which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release satisfactory to the Indemnified
Party from all liability in respect of such Claim.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 Survival of Representations and Warranties and
Indemnities. The representations and warranties made in this Agreement or any
instrument delivered in connection with this Agreement shall survive after the
Closing until the second anniversary thereof, whereupon such representations
and warranties and all rights to indemnification under this Agreement shall
expire (except (i) to the extent that a claim for indemnification has been
asserted hereunder prior to such expiration, in which event the rights to
indemnification hereunder shall continue with respect to such claim until the
resolution and satisfaction of such claim, (ii) that the rights to
indemnification under Section 5.01(a)(iv) shall survive for the same term as
any rights to indemnification under the Sale Agreement and (iii) that the
representations and warranties in this Agreement with respect to tax
liabilities of Pipeline and the tax liabilities, tax elections and tax status
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<PAGE> 14
of the Partnership and the related rights to indemnification hereunder shall
survive for the applicable statute of limitations).
SECTION 6.02 Entire Agreement; Assignment. This Agreement constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof. Neither this Agreement nor any right, interest or obligation under
this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise without the prior written consent of the other parties; provided that
Purchasers may assign any of their rights and obligations to any direct or
indirect wholly-owned subsidiary of MOI, but no such assignment shall relieve
Purchasers of their obligations hereunder. Subject to the preceding sentence,
this Agreement will be binding upon, and inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 6.03 Amendment. This Agreement may not be amended except by
an instrument in writing signed on behalf of all the parties.
SECTION 6.04 Waiver. The parties hereto, may (i) waive any
inaccuracies in the representations and warranties contained herein by any
other applicable party or (ii) subject to the terms hereof, waive compliance
with any of the agreements or conditions contained herein. Any agreement on
the part of any party to any such waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of a party
to this Agreement to assert any of its rights under this Agreement shall not
constitute a waiver of those rights.
SECTION 6.05 Validity. In the event any one or more of the provisions
contained in this agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 6.06 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in person, by overnight courier (providing proof
of delivery), facsimile transmission with confirmation of receipt, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
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<PAGE> 15
if to Sellers:
Maxus Energy Corporation
717 North Harwood Street
Dallas, Texas 75201
Attention: Steven G. Crowell
Telephone: (214) 953-2733
Telecopy: (214) 979-1911
if to Purchasers:
c/o Meridian Oil Inc.
P.O. Box 4239
Houston, Texas 77210
Attention: Randolph P. Mundt
Telephone: (713) 831-1781
Telecopy: (713) 831-1700
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
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<PAGE> 16
SECTION 6.07 Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of Texas
regardless of the laws that might otherwise govern under principles of
conflicts of laws applicable thereto.
SECTION 6.08 Descriptive Headings. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
SECTION 6.09 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement, and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
SECTION 6.10 Further Assurances. After the date hereof, each of the
parties shall execute, acknowledge and deliver to the other such further
instruments and documents, including, without limitation, transfer orders or
letters in lieu thereof, and take all such other actions as may be reasonably
necessary to carry out the provisions of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its respective officers thereunto duly authorized,
all on the date first above written.
MAXUS ENERGY CORPORATION
By /s/ McCarter Middlebrook
_____________________________________
Name: McCarter Middlebrook
Title: Vice President
MAXUS EXPLORATION COMPANY
By /s/ McCarter Middlebrook
_____________________________________
Name: McCarter Middlebrook
Title: Vice President
MAXUS OFFSHORE EXPLORATION COMPANY
By /s/ McCarter Middlebrook
_____________________________________
Name: McCarter Middlebrook
Title: Vice President
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<PAGE> 17
MERIDIAN OFFSHORE COMPANY
By /s/ Randolph P. Mundt
____________________________________
Name: Randolph P. Mundt
Title: President
MERIDIAN OFFSHORE ACQUISITION
COMPANY
By /s/ Randolph P. Mundt
____________________________________
Name: Randolph P. Mundt
Title: President
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<PAGE> 1
TRANSITION SERVICES AGREEMENT
THIS TRANSITION SERVICES AGREEMENT ("Agreement"), dated April
26, 1994, is between MAXUS EXPLORATION COMPANY, a Delaware corporation, for
itself and on behalf of its affiliates (collectively "Maxus") and MERIDIAN
OFFSHORE COMPANY, a Delaware corporation ("Meridian"), in its capacity as
Managing General Partner of Diamond Shamrock Offshore Partners Limited
Partnership (the "Partnership").
WITNESSETH:
WHEREAS, pursuant to that certain Unit Purchase Agreement
dated the date hereof (the "Purchase Agreement") between Meridian, as
purchaser, and Maxus Energy Corporation, Maxus Exploration Company and Maxus
Offshore Exploration Company, as sellers, Meridian and its affiliates have
purchased certain assets consisting of a Managing General Partner Interest, a
Special General Partner Interest and Limited Partnership Units in the
Partnership (such assets and the Partnership and its assets being referred to
as the "Assets").
WHEREAS, Maxus has performed or provided various services
under the Second Amended and Restated Agreement of Limited Partnership of
Diamond Shamrock
<PAGE> 2
Offshore Partners Limited Partnership, as amended (the "Partnership Agreement")
in support of the ownership, operation, management and administration of the
Partnership; and
WHEREAS, Meridian has requested that Maxus continue to provide
certain services to Meridian with respect to operations, accounting, tax,
marketing and related technical support relating to the Partnership for a
transitional period.
NOW, THEREFORE, in consideration of the premises, the
covenants set forth herein and the benefits to be derived herefrom the parties
hereby agree as follows:
1. Coordinators. Meridian shall designate two or more persons
(the "Coordinators") who shall coordinate the transition from
Maxus to Meridian of management, operations, accounting, tax,
marketing, technical and administrative services ("Services")
for the Partnership. The Coordinators will have an office in
Maxus' corporate office in Dallas, Texas and an office at
Maxus' office at Jeanerette, Louisiana. The Coordinators will
(a) work with Maxus personnel to develop a plan pursuant to
which the Services currently performed by Maxus can be
provided by Meridian with the goal of transferring particular
Services to Meridian as promptly as possible, (b) determine
the Services that Maxus will provide to the Partnership during
the transition, which shall not include the obtaining or
(except as contemplated by Sections 14(d) and (e)) providing
of any insurance coverage or surety bonds,
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<PAGE> 3
(c) supervise the Services being performed by Maxus on behalf
of Meridian (as Managing General Partner of the Partnership)
and (d) coordinate the interviewing of the Employees (as
hereinafter defined) and interface between Meridian and the
Employees.
2. Services. Maxus shall use its reasonable best efforts to
provide the Services, which shall consist of the same type,
level and quality of services provided by Maxus to the
Partnership currently and prior to the date hereof to the
extent (a) Maxus is capable of providing such Services and (b)
any such Services are not terminated by Meridian pursuant to
Section 10. The Services shall be provided in accordance with
all applicable state and federal laws and subject to Section
8(e) hereof.
Notwithstanding the foregoing, if Meridian or its affiliates
hire any Maxus employees who normally perform any of the
Services, such personnel will assist Maxus in providing such
Services at no cost to Maxus. Furthermore, if Meridian or its
affiliates hire the Maxus employees who are primarily
responsible for any of the Services, Meridian will be
primarily responsible for providing such Services with
assistance by the remaining Maxus employees, if any, who
normally perform or assist in the performance of such
Services. Maxus will continue to provide such administrative
and personnel support for
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<PAGE> 4
Maxus employees as is necessary to provide the Services to
Meridian in accordance with this Agreement.
3. Remittance of Cash. Subject to the direction and supervision
of the Coordinators, Maxus shall collect all revenues
generated from the Assets and deposit them into such accounts
(the "Partnership Account") for the Partnership designated by
Meridian. Maxus and the Coordinators shall prepare a monthly
statement of projected operating cash requirements for the
Partnership and, to the extent the Partnership needs cash to
conduct its operations and pay its obligations, the cash in
the Partnership Account shall be used for such purposes.
Maxus shall have no obligation to use its own resources to
make any payment or satisfy any obligation in providing the
Services.
4. Service Fees. Except as provided in this Section, there shall
be no charge or service fee for the Services. The Partnership
shall reimburse Maxus as provided under Section 6.5 of the
Partnership Agreement for the Services provided by Maxus prior
to the date hereof and Meridian, on behalf of the Partnership,
shall pay Maxus $375,000 on each of May 31 and June 30 for
Services provided during the periods ending on such dates and
thereafter reimburse Maxus for any Services actually provided
by Maxus pursuant to this Agreement on the basis set forth in
Section 6.5 of the Partnership Agreement.
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<PAGE> 5
5. Certain Public Filings and Tax Services.
(a) Maxus shall prepare the Partnership's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1994 and shall provide Meridian such information
which is in its possession as Meridian may reasonably
require to prepare any public filings.
(b) Maxus agrees to assist the service providers in (i)
the preparation of the partnership income tax returns
covering the period from January 1, 1994 through
December 31, 1994, including preparation of all
federal and state partnership income tax returns and
partner K-1's required by law, and (ii) the mailing
to partners of all Partnership-related tax materials,
in each case in the same manner that Maxus assisted
the service providers prior to the date hereof.
Maxus shall cooperate with Meridian in the event of
future IRS audits of the Partnership in order to
answer IRS information and document requests and to
collect data requested by the IRS. Drafts of tax
returns of the Partnership shall be submitted to
Meridian for its review at least 15 business days
prior to the filing date of such returns. Returns
for periods that end on the date hereof shall be
prepared in accordance with applicable laws and prior
practice. Tax returns for periods after the date
hereof shall be prepared in accordance with prior
practices unless
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<PAGE> 6
Meridian directs differently, in which case Meridian's
instructions will control.
6. Information Necessary to Perform the Services. Meridian shall
use all reasonable efforts to provide any information and
assistance necessary for Maxus to perform or cause to be
performed a Service.
7. Ownership of Data.
(a) All records, input materials, tapes, reports, forms
and other data and information owned by or primarily
used for the benefit of the Partnership ("Data") are
the exclusive property of Meridian or the Partnership
to the extent not prohibited by existing contractual
obligations with third parties. Upon Meridian's
reasonable request during the term of this Agreement
relating to a particular Service, Maxus shall
familiarize Meridian with the Data relating to such
Service, its form and the best way to furnish such
Data to Meridian. Upon termination of this Agreement
(or any particular Service), Maxus shall furnish to
the extent not prohibited by existing contractual
obligations with third parties all of such Data to
Meridian in Maxus's customary form and formats.
Maxus shall not make copies of any information or
reports provided to Meridian in connection with
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<PAGE> 7
rendering the Services hereunder, nor will Maxus
furnish any such information or reports to any third
party except to the extent same is useful or
necessary in order for Maxus to comply with its
obligations hereunder.
(b) Except as expressly permitted under this Agreement,
from and after the date hereof Maxus shall, and shall
cause its officers, directors, employees, agents and
representatives to, maintain the confidentiality of
all proprietary or non-public information relating to
the Partnership or the Assets, except as otherwise
required by law.
8. Hardware Equipment and Software.
(a) Maxus shall provide or cause to be provided at
Maxus's facilities the use of the computer
equipment and other office equipment and data
lines required for Maxus to perform the Services
under this Agreement. Nothing herein shall be
construed as requiring Maxus to acquire any
additional equipment beyond its current
inventory.
(b) Any hardware or software (including computer and
telecommunications hardware and software) owned
or leased by the Partnership shall remain the
property of the Partnership.
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<PAGE> 8
(c) Maxus shall furnish a list of all software owned
or leased by it which is used primarily for the
benefit of the Partnership. Maxus shall transfer
to the Partnership all such software to the
extent such software can be transferred without
consent or payment to any third party, and, to
the extent any consent or payment is required in
connection with such transfer, at the request of
Meridian, Maxus shall assist Meridian in
obtaining such consent and/or making such payment
in order to transfer such software to the
Partnership.
(d) Maxus currently outsources certain computer
services for the Partnership to Anderson
Consulting and Maxus shall assist Meridian in
causing Anderson Consulting to continue to
perform such services for the benefit of the
Partnership. The Partnership shall pay Anderson
Consulting for such services.
(e) Meridian hereby acknowledges and agrees that the
terms of certain of Maxus's third-party
agreements, including software licenses, may
prohibit Maxus's performance of certain of the
Services. Maxus agrees to use its reasonable
efforts to obtain any consents necessary in order
to render such prohibited Services or to
otherwise provide such Services; however,
Meridian hereby waives performance of
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<PAGE> 9
such Services by Maxus until such time as
agreement permitting performance can be reached
on terms acceptable to Meridian.
9. Disclaimer. Inasmuch as Maxus is performing the Services on a
nonprofit basis, notwithstanding anything contained herein to
the contrary, except to the extent of its willful misconduct
or gross negligence, Maxus shall not be liable for any damages
as a result of its performance of, or failure to perform, the
Services. It is expressly agreed that the failure to make any
payment (including, without limitation, any royalty, shut-in
royalty, delay rental or lease payment) through mistake or
oversight shall not constitute gross negligence.
10. Term. The term of this Agreement shall commence upon the date
hereof and shall expire in 90 days (except for Section 5(b),
the last sentence of Section 7(a), Sections 7(b), 13 and
14(d), the last sentence of Section 10 and the last sentence
of Section 14(b)), unless Meridian, upon 15 days' prior
written notice, terminates this Agreement or terminates any
portion of any of the Services at an earlier date (the intent
of the parties being to terminate function areas at one time
rather than terminating subgroups of a particular function
area on a piecemeal basis), in which case this Agreement shall
remain in full force and effect with respect to the
non-terminated Services. Upon termination of this Agreement,
Maxus will promptly remit to Meridian all cash
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<PAGE> 10
of Meridian held by Maxus reduced by any amounts owed to Maxus
by Meridian pursuant to this Agreement. Notwithstanding the
foregoing, Maxus shall promptly remit to Meridian any cash
belonging to the Partnership or Meridian received by Maxus
after termination of this Agreement.
11. Treasury Services. Maxus shall act in accordance with
instructions, if any, provided by the Coordinators in
connection with the treasury Services and Maxus shall be
entitled to rely upon any written or oral instructions
received from them. Until contrary written notice is received
by Maxus from Meridian, Meridian hereby instructs Maxus to
process and pay accounts payable for Meridian in the same
manner and in accordance with the prior practice of Maxus in
effect immediately prior to the date hereof.
12. Notice of Events, Proposals or Defaults. Maxus will advise
the Coordinators of (a) any notice of default (or written
threat of default) received or given Maxus under any
instrument or agreement affecting the Assets, (b) any action
or occurrence known to it which reasonably may be expected to
materially affect any of the Assets, (c) any proposal known to
it from a third party to engage in any material transaction
with respect to any of the Assets, and (d) any suit, action or
other proceeding before any court or governmental agency of
which it has knowledge which relates to the Assets or which
reasonably may be expected to result in impairment or loss of
title to any of
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<PAGE> 11
the Assets or the value thereof or which might hinder or
impede the operation of the Assets.
13. Indemnity. Meridian agrees to indemnify and hold Maxus (and
its directors, officers, employees and representatives),
harmless from and against any and all claims, losses, damages,
costs, expenses, causes of action or judgments of any kind or
character (including those arising from, related to or caused
directly or indirectly, by the sole, joint, concurrent or
comparative negligence of such indemnified parties), including
any interest, penalty, reasonable attorney's fees,
investigation expenses with respect to asserted claims
(whether or not resulting in any liability) and other costs
and expenses incurred in connection therewith or the defense
thereof, attributable to or arising out of any claims by, or
liabilities or obligations to, any third party arising out of,
in connection with or resulting from the Services or other
activities of Maxus in accordance with this Agreement, except
to the extent arising out of, in connection with or resulting
from Maxus' gross negligence or willful misconduct (which
shall not exist if such action is taken at Meridian's
direction). Notwithstanding anything contained herein, this
Section shall survive the termination of this Agreement.
Nothing contained in this Section 13 shall be construed as
altering any indemnification obligations of Maxus under the
Purchase Agreement.
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<PAGE> 12
14. Certain Agreements.
(a) The parties shall discuss appropriate treatment
of the gas marketing agreement between Maxus and
the Partnership and the contracts between Maxus
and third parties referred to in paragraph (b)
below for 20 days after the date hereof and
thereafter, upon 10 days' notice from Meridian to
Maxus, the gas marketing agreement between the
Partnership and Maxus shall terminate at no cost
to the Partnership, provided that each party
thereto shall continue to be liable to the other
for transactions completed prior to the date of
such termination. All crude oil marketing
contracts between the Partnership and Maxus shall
terminate on May 31, 1994. Maxus has no
arrangements for the resale of Partnership crude
oil after May 31, 1994.
(b) Maxus agrees to assign to the Partnership all of
its right, title and interest under the gas sales
and exchange contracts listed on Schedule 14. If
any such gas sales or exchange contract is not
assignable without the consent of the other party
thereto, Maxus shall use its reasonable efforts
to obtain the consent of such other party to the
assignment thereof to the Partnership or another
party designated by the Partnership or, if such
assignment cannot be
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<PAGE> 13
obtained, at the request of the Partnership to
terminate such contract on terms reasonably
acceptable to the Partnership, in which case the
Partnership will bear all costs of such
termination. If consent to an assignment of any
contract cannot be obtained and such contract
cannot be terminated on terms reasonably
acceptable to the Partnership, the Partnership
shall supply to Maxus the minimum gas volumes
required under such contract for the term of such
contract (which shall not be extended without the
consent of the Partnership) and Maxus shall pay
to the Partnership the per unit price in cash
received by Maxus under such contract. There are
no processing, transportation or gathering
agreements relating to the Partnership which are
not in the name of the Partnership.
(c) Maxus has entered into certain hedging
transactions approximately 35% of which Maxus has
allocated for the account of the Partnership (the
"Hedging Transaction"). Maxus has paid the
Partnership for the Partnership's share of the
profits on the Hedging Transactions through and
including April 30, 1994. Simultaneously
herewith, Maxus Exploration Company is
transferring $253,050 in cash to the Partnership
in settlement of the Partnership's share of the
value of the Hedging Transaction as of such time
and the
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<PAGE> 14
Partnership shall have no further rights and
liabilities arising out of such Hedging
Transaction after the date hereof.
(d) To the extent that Meridian incurs any Damages
(as defined in the Purchase Agreement) which
arise or have arisen out of any matter for which
Maxus would be entitled to bring a claim under
any applicable insurance policies, Maxus shall
bring such claim and shall use its best efforts
to collect all amounts which it would be entitled
to receive under such policies, and shall remit
to Meridian proceeds of such insurance (net of
any deductible or premium adjustment payable by
Maxus).
(e) Until the date Meridian obtains replacements
therefor, Maxus shall use reasonable efforts to
maintain in force (i) each surety bond
outstanding as of the date hereof covering the
operations of the Partnership and (ii) its
evidence of financial responsibility filing in
the amount of $35 million on behalf of the
Partnership in accordance with 33 CFR 135.213;
provided that Meridian shall be obligated to
indemnify and hold Maxus harmless from and
against any liabilities of any kind, including
payments by Maxus to any surety, arising out of
or related to any such surety bond or financial
responsibility filing during the period from the
date hereof until
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<PAGE> 15
Meridian obtains a replacement for such bond or
financial responsibility filing. Meridian shall
use its reasonable best efforts to pursue and
expedite the replacements named in (i) and (ii)
above, and until such replacements are achieved
Meridian shall name Maxus as an additional
insured on Meridian's property/control of
well/pollution insurance policies covering the
Partnership's properties.
15. Maxus Employees.
(a) Prior to the execution of this Agreement, Maxus
has provided Meridian with a list of employees
who perform Services related to the Assets (the
"Employees"). The list contains such employee's
name, title, salary, length of service with Maxus
and work location. Maxus shall allow Meridian
access to Employees for interviews. Within
thirty days of the date of this Agreement,
Meridian will attempt to interview Employees that
Meridian may desire to hire. Within forty-five
days of the date of this Agreement, Meridian will
extend offers to the Employees, if any, that
Meridian desires to hire. The Employees to which
Meridian extends an offer will have ten days from
the date of receipt of Meridian's offer to notify
Meridian that such Employee accepts Meridian's
offer. Except for
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<PAGE> 16
the Employees designated on Schedule 15 whom
Maxus reserves the right to offer continued
employment beyond the transition period, Maxus
shall for 60 days only advise such other
Employees that no determination has been made
with respect to continued employment by them
beyond the transition period. Meridian will
notify Maxus of the acceptance of any offers
within sixty days of the date of this Agreement.
Meridian shall have no liability for severance
payments to Employees not hired by Meridian and
Meridian shall pay severance under Maxus'
voluntary severance package, a copy of which has
been furnished to Meridian prior to the date
hereof, to each Employee hired by Meridian that
is terminated by Meridian other than for cause
within one year of hiring.
(b) Meridian and Maxus shall negotiate in good faith
appropriate treatment for any Employees hired by
Meridian with respect to credit for years of
service, waivers of pre-existing condition
exclusions, the treatment of such Employees'
401(k) plans and pension benefits and such other
matters as they deem appropriate.
16. General Provisions.
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<PAGE> 17
(a) This Agreement shall inure to the benefit and
shall be binding upon the parties hereto, their
respective successors and assigns; provided,
however, that this Agreement and all rights and
obligations hereunder cannot be assigned by
either party (other than to Meridian Oil Inc. or
any of its wholly-owned subsidiaries) without the
prior written consent of the other party, which
consent will not unreasonably be withheld. Any
such assignment shall not relieve the assigning
party of continuing responsibility for its
obligations hereunder.
(b) Except for and without limiting either party's
rights under the Purchase Agreement, this
Agreement constitutes the entire agreement and
understanding between the parties and supersedes
all prior agreements, whether written or oral,
with respect to the subject matter hereof. In
the event of any conflict, the terms of the
Purchase Agreement shall control over the terms
of this Agreement. This Agreement may be amended
or modified only by written instrument executed
by Meridian and Maxus.
(c) The provisions of this Agreement shall be
construed in accordance with the laws of the State
of Texas.
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<PAGE> 18
(d) Any provision in this Agreement that might
otherwise be invalid or unenforceable because of
the contravention of any applicable law, statute
or government regulation shall be deemed to be
amended to the extent necessary to remove the
cause of such invalidation or unenforceability,
and such provision, as amended, shall remain in
full force and effect.
(e) All notices, requests, demands and other
communications hereunder shall be in writing and
shall be deemed to have been duly given upon
actual delivery or if earlier five business days
subsequent to mailing, by United States mail,
with postage prepaid, addressed to the parties at
their respective addresses set forth below or to
any address provided in writing by such party to
the other party subsequent to the execution of
this Agreement.
Maxus: Maxus Energy Corporation
717 North Harwood Street
Dallas, Texas 75201-6594
Attention: Steven G. Crowell
Telephone: (214) 953-2733
Meridian: Meridian Offshore Company
P.O. Box 4239
Houston, Texas 77210
Attention: Randolph P. Mundt
Telephone: (713) 831-1781
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<PAGE> 19
(f) Maxus and Meridian shall each act solely as
independent contractors, and nothing herein shall
at any time be construed to create the
relationship of employer and employee,
partnership, principal and agent, broker or
finder, or joint venturers as between Maxus and
Meridian. Except as expressly provided herein,
neither party shall have any right or authority,
and shall not attempt to enter into any contract,
commitment or agreement or incur any debt or
liability of any nature, in the name of or on
behalf of the other.
(g) Except as expressly provided herein, nothing in
this Agreement shall entitle any person other
than the parties or their respective successors
and assigns permitted hereby to any claim, cause
of action, remedy or right of any kind.
(h) This Agreement may be executed in any number of
counterparts, no one of which needs to be
executed by both parties, and this Agreement
shall be binding upon both parties with the same
force and effect as if both parties had signed
the same document, and each such signed
counterpart shall constitute an original of this
Agreement.
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<PAGE> 20
(i) After the date hereof, each of the parties shall
execute, acknowledge and deliver to the other
such further instruments and documents, and take
all such other actions as may be necessary to
carry out the provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
MAXUS EXPLORATION COMPANY MERIDIAN OFFSHORE
COMPANY
By: /s/ McCARTER MIDDLEBROOK By: /s/ RANDOLPH P. MUNDT
------------------------- ------------------------
McCarter Middlebrook Randolph P. Mundt
Vice President President
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<PAGE> 1
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT dated this 26th day of April, 1994, is between Maxus
Exploration Company, a Delaware corporation ("Seller"), with offices at 717
North Harwood Street, Dallas, Texas 75201-6594 and MERIDIAN OIL INC., a
Delaware corporation ("Buyer"), with offices at P. O. Box 4239, Houston, Texas
77210-4239.
WHEREAS, Seller desires to sell, and Buyer desires to purchase, upon and
subject to the terms and conditions hereinafter set forth, all of Seller's
right, title and interest in and to the following:
(i) All of Seller's interest in, to and under oil and gas leases,
leasehold interests, mineral fee interests, rights and
interests attributable or allocable to the oil and gas leases
or leasehold interests by virtue of pooling, unitization,
communitization, and operating agreements, licenses, permits
and other agreements, all more particularly described in
Exhibit "A" hereto, together with identical undivided
interests in and to all the property and rights incident
thereto (collectively, the "Leases"), including, but not
limited to, all rights in, to and under all agreements,
product purchase and sale contracts, including any and all
past, present and future take-or-pay claims, leases, permits,
rights-of-way, easements, licenses, farmouts, farmins,
options, orders and other contracts or agreements of a similar
nature in any way relating thereto;
(ii) All of Seller's interest in and to all of the wells,
equipment, materials and other personal property, fixtures and
improvements on the Leases as of the Effective Time,
appurtenant thereto or used or obtained in connection with the
Leases or with the production, treatment, sale or disposal of
hydrocarbons or waste produced therefrom or attributable
thereto, and all other appurtenances thereunto belonging (the
"Equipment");
(iii) All other leasehold interests, royalty and overriding royalty
interests owned by Seller, in, to and under the Leases or
attributable to production therefrom as of the Closing Date
(as hereinafter defined);
(iv) All unitization, communitization, pooling and operating
agreements, and the units created thereby which relate to the
Leases or interests therein described in Exhibit "A" or which
relate to any units or wells located on the Leases, including
any
<PAGE> 2
and all units formed under orders, regulations, rules and
other official acts of the governmental authority having
jurisdiction, together with any right, title and interest
created thereby in the Leases;
(v) All rights to claim revenues or gas resulting from and
underproduction attributable to Seller's interest in the
Leases;
(vi) All lease files, land files, well files, oil and gas sales
contracts files, gas processing files, division order files,
abstracts, title opinions, and all other books, files, maps,
logs and records, and all rights thereto, of Seller related to
and necessary to the realization of value by Buyer of any of
the property purchased hereunder (the "Records"); and
(vii) All of Seller's interest in work stations, geological data,
geophysical data, contract files, gas contract files, gas
processing files, any other files, maps, logs, records and
other personal property owned by Seller and used primarily in
connection with its operation and ownership interest in
Diamond Shamrock Offshore Partners Limited Partnership
purchased by Buyer from Seller.
All of Seller's interest in the above-mentioned assets is herein collectively
referred to as the "Interests". The Interests do not include (i) accounts
receivable associated with the Interests and relative to operations prior to
the Effective Time, (ii) oil, gas and liquid hydrocarbons produced prior to the
Effective Time, (iii) any vehicles, tools, pipelines, compressors, fixtures,
equipment or materials owned by any purchaser or transporter of oil and/or gas,
contractor, subcontractor or vendor, and (iv) any geophysical data or records
which Seller cannot lawfully provide Buyer because of third-party restrictions
on Seller.
NOW, THEREFORE, in consideration of the above recitals and of the covenants and
agreements herein contained, Seller and Buyer agree as follows:
1. PURCHASE AND SALE. Subject to and upon all of the terms and
conditions herein set forth, Seller shall sell, transfer, assign,
convey and deliver the Interests to Buyer, and Buyer shall purchase,
receive, pay for and accept the Interests from Seller, effective
January 1, 1994, 7 a.m. local time (the "Effective Time"). Except as
otherwise specifically provided in this Agreement, all costs, expenses
and obligations relating to the Interests which were incurred or
accrue prior to the Effective Time shall be paid and discharged by
Seller;
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<PAGE> 3
and all costs, expenses and obligations relating to the Interests
which were incurred or accrue after the Effective Time shall be paid
and discharged by Buyer.
2. PURCHASE PRICE.
(a) The purchase price for the Interests shall be Fifty-Eight
Million Dollars ($58,000,000) subject to any applicable
purchase price adjustments as provided for herein. Seller and
Buyer agree to allocate the purchase price among the Interests
as set forth on Exhibit "A" (the "Allocated Value").
(b) The Purchase Price shall be adjusted as follows and the
resulting amount shall be called the "Closing Amount":
(i) The Purchase Price shall be adjusted upward by the
following:
(1) the amount of all expenditures, including
without limitation capital expenditures,
rentals, ad valorem, property, production,
excise, severance and similar taxes (but not
including income taxes) based upon or
measured by the ownership of property or the
production of hydrocarbons or the receipt of
proceeds therefrom and royalties paid by or
on behalf of Seller in connection with the
operation of the Interests that are, in
accordance with generally accepted accounting
principles, attributable to the period after
the Effective Time;
(2) an amount equal to all prepaid expenses
attributable to the Interests that are paid
by or on behalf of Seller that are, in
accordance with generally accepted accounting
principles, attributable to the period after
the Effective Time, including without
limitation prepaid utility charges and
prepaid ad valorem, property, production,
severance and similar taxes (but not
including income taxes) based upon or
measured by the ownership of property or the
production of hydrocarbons or the receipt of
proceeds therefrom;
(3) Compensation for Seller's continued operation
of the Interests after the Effective Time
until Buyer takes over such operations, in an
amount equal to: (i) in the case of each
Seller-operated well where no operating
agreement is in place, the monthly overhead
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<PAGE> 4
fee for such well established internally by
Seller, not to exceed $500.00, or, where no
such internal fee has been established, a
monthly fee of $500.000, and (ii) in the case
where Seller operates a well pursuant to an
existing operating agreement, all overhead
amounts and fees attributable to the
Interests;
(4) An amount equal to the sum of any upward
adjustments provided elsewhere in this
Agreement; and
(5) any other amount agreed to by Seller and
Buyer.
(ii) The Purchase Price shall be adjusted downward by the
following:
(1) Revenues received by Seller attributable to
the Interests that are, in accordance with
generally accepted accounting principles,
attributable to the period of time from and
after the Effective Time;
(2) an amount equal to all unpaid ad valorem,
property, production, severance and similar
taxes and assessments (but not including
income taxes) based on or measured by the
ownership of property or the production of
hydrocarbons or the receipt of proceeds
therefrom assessed or to be assessed
(estimated based on the previous year's
taxes) for any period ending prior to the
Effective Time;
(3) an amount equal to the sum of any downward
adjustments provided elsewhere in this
Agreement; and
(4) any other amount agreed to by Seller and
Buyer.
For purposes of Section 2(b)(ii)(1), "Revenues" shall mean the total
sales proceeds before deduction of any royalties or overriding
royalties, under the applicable pricing provisions of the oil and gas
purchase agreements, of all hydrocarbons produced and/or sold during
the period from the Effective Time until Closing which are
attributable to the Interests and received by Seller, and any other
monies collected by Seller with respect to the ownership or operation
of the Interests from the Effective Time until Closing.
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<PAGE> 5
(c) SETTLEMENT STATEMENTS. No later than eight (8) days prior to
Closing, Seller shall furnish Buyer with an estimated
accounting (the "Preliminary Settlement Statement") showing
the estimated amount of adjustments to the Purchase Price,
subject to being finally adjusted within one hundred twenty
(120) days after the Closing as hereinafter provided. An
estimated credit due Seller shall increase the Purchase Price
paid at Closing by that amount and an estimated credit due
Buyer shall reduce the Purchase Price paid at Closing by that
amount. Within ninety (90) days after Closing, Seller shall
provide to Buyer, for Buyer's concurrence, an accounting (the
"Post-Closing Adjustment") of the actual amounts of the
adjustments set out in Section 2(b). Buyer shall have the
right for fifteen (15) days after the receipt of the
Post-Closing Adjustment to audit and take exception to such
adjustments. Any disagreements shall be resolved on a best
efforts basis by Seller and Buyer. Within one hundred twenty
(120) days after the Closing, those credits agreed upon by
Buyer and Seller shall be netted and the final settlement
shall be paid in cash by the party owing it, via wire transfer
as directed in writing by the receiving party. If the
Post-Closing Adjustment has not been agreed upon within the
time period set forth herein, either party may seek to
enforce any rights it claims hereunder.
3. TITLE DEFECTS. As used herein, the term:
(a) "Defensible Title" shall mean, as to the Interests, such title
held by Seller, that, subject to and except for Permitted
Encumbrances (as hereinafter defined):
(i) Entities Seller to receive not less than the "Net
Revenue Interest" in the wells as set forth in
Exhibit "A" of all oil, gas and associated liquid and
gaseous hydrocarbons produced, saved and marketed
from the Interests;
(ii) Obligates Seller to bear costs and expenses relating
to the maintenance, development, and operation of all
wells located on the Interests in an amount not
greater than the "Working Interest" in the wells set
forth in Exhibit "A" and
(iii) Is free and clear of any and all encumbrances, liens
and defects.
(b) The term "Permitted Encumbrances", as used herein, shall mean:
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<PAGE> 6
(i) Lessors' royalties, overriding royalties, and
reversionary interests if the net cumulative effect
of such burdens does not operate to reduce the Net
Revenue Interest of any well to less than the Net
Revenue Interest therein as set forth in Exhibit "A",
(ii) Sales contracts covering oil, gas or associated
liquid or gaseous hydrocarbons;
(iii) Preferential rights to purchase and required third
party consents to assignments and similar agreements
with respect to which (x) waivers or consents are
obtained from the appropriate parties, or (y)
required notices have been given to the holders of
such rights and the appropriate time period for
asserting such rights has expired without an exercise
of such rights;
(iv) Liens for taxes or assessments not due or not
delinquent on the Closing Date;
(v) All rights to consent by, required notices to,
filings with, or other actions by governmental
agencies in connection with the sale or conveyance of
oil and gas leases or interests therein or sale of
production therefrom if the same are prudently
obtained subsequent to such sale or conveyance;
(vi) Easements, rights-of-way, servitudes, permits,
surface leases, and other rights in respect of
surface operations on or over any of the Interests
which do not operate to materially interfere with
current or proposed operations on the Interests;
(vii) Liens of operators relating to obligations not yet
due or pursuant to which Seller is not in default,
and materialmen's, mechanic's, repairmen's, or other
similar liens or charges arising in the ordinary
course of business incidental to construction,
maintenance or operation of the Interests that are
not such as to interfere with the operation, value or
use of the Interests; and
(viii) Such Title Defects or other defects waived by Buyer
pursuant to the terms of this Agreement.
(c) The term "Title Defect", as used herein, shall mean:
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<PAGE> 7
(i) Any encumbrance, encroachment, irregularity, defect
in or objection to Seller's title to the Interests
(expressly excluding Permitted Encumbrances) that
renders Seller's title to the Interests less than
Defensible Title;
(ii) Seller is in default under some material provision of
a lease, farmout agreement or other contract or
agreement affecting the Interests which could (x)
interfere with the operation, value or use thereof,
(y) prevent Seller from receiving the proceeds of
production attributable to Seller's Interest therein,
or (z) result in cancellation of Seller's interest
therein;
(iii) Seller is overproduced with respect to any Interest
as of the Effective Time; or
(iv) Any provision or obligation affecting the Interests
contained in any contract or agreement disclosed in
the Records which is not customary to currently
accepted oil and gas industry standards and (x)
requires an extraordinary expenditure in connection
with the acquisition, exploration, development or
operation of the Interests or (y) would materially
diminish the Net Revenue Interest in any of the wells
as set forth on Exhibit "A", or materially increase
the Working Interest in any of the wells as set forth
on Exhibit "A", or (z) would otherwise have a
material and adverse effect on Buyer's ownership
and/or operation of the Interests.
4. PURCHASE PRICE ADJUSTMENTS FOR TITLE DEFECTS. Buyer may, by delivery
of written notice to Seller of the existence of a Title Defect,
request reduction of the Purchase Price for the Interest affected.
Any such notice by Buyer shall include appropriate evidence to
substantiate its position and shall be delivered to Seller on or
before June 15, 1994. In the event any such notice is not timely
delivered, Buyer shall thereafter have no right to claim a Title
Defect; provided, however, Buyer shall retain its right to claim
breaches of the special warranty of title contained in Section 22
hereof and the Assignment and Bill of Sale delivered at Closing.
Seller shall have until June 24, 1994, to cure any Title Defects. In
the event Seller is unable to cure a Title Defect, Buyer and Seller
shall meet and use their best efforts to agree on the validity of the
claim and the amount of any required Purchase Price adjustment
utilizing the Allocated Value for the wells as set forth on Exhibit
"A". In determining any required
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<PAGE> 8
Purchase Price adjustment, it is the intent of the parties to include,
when possible, only that portion of the Interest adversely affected by
the Title Defect. If the Allocated Value of the affected Interest
cannot be determined directly from Exhibit "A" because the Title
Defect is included within, but does not totally comprise, the Interest
to which the Allocated Value relates, Buyer and Seller shall attempt
to agree on a proportionate reduction of the Allocated Value. In the
event the parties cannot mutually agree on the amount of a Purchase
Price adjustment, Buyer shall have the right to (i) accept the
Interest with the Title Defect, or (ii) terminate this Agreement as to
the Interest affected by the Title Defect and receive a Purchase Price
adjustment equal to the Allocated Value for the affected Interest.
5. CONDITIONS OF CLOSING BY BUYER. The obligation of Buyer to close is
subject to the satisfaction of the following conditions:
(a) Seller shall have obtained and delivered to Buyer all
prerequisite waivers of preferential rights of purchase and
all necessary consents for transfer of the Interests, or Buyer
and Seller shall have adjusted the Purchase Price in
accordance with the provisions of Section 4;
(b) Seller shall have delivered to Buyer a legal opinion rendered
by counsel to the effect that (i) Seller is a corporation
validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and authority to
execute and deliver this Agreement and to consummate the
transactions contemplated hereby, (ii) the execution and
delivery of, and consummation of the transactions contemplated
by, this Agreement by Seller have been duly authorized by all
necessary action on the part of Seller, and this Agreement has
been duly executed and delivered by Seller and constitutes a
legal, valid and binding obligation of Seller and is
enforceable against Seller in accordance with its terms,
except that such enforcement may be subject to bankruptcy,
insolvency, moratorium or similar laws affecting creditors'
rights;
(c) The representations of Seller contained in Section 7 shall be
true on and as of the Closing Date, and Seller shall have
delivered to Buyer at the Closing a certificate signed on its
behalf to such effect;
(d) Seller shall have performed in all material respects all of
its covenants and agreements contained in this Agreement;
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<PAGE> 9
(e) Prior to Closing, except as provided in Section 23 below,
there shall not have been a material adverse change in the
Interests, taken as a whole, excepting depletion due to normal
production and depreciation of equipment through ordinary wear
and tear; and
(f) The necessary waiting period with respect to filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
regulations promulgated thereunder shall have expired and the
Closing shall be permitted to occur without violation thereof.
6. CONDITIONS OF CLOSING BY SELLER. The obligation of Seller to close is
subject to the satisfaction of the following conditions:
(a) Buyer shall have delivered to Seller a legal opinion rendered
by its corporate counsel to the effect that (i) Buyer is a
corporation validly existing and in good standing under the
laws of the State of Delaware and has all requisite power and
authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby; (ii) the
execution and delivery of, and consummation of the
transactions contemplated by, this Agreement by Buyer have
been duly authorized by all necessary action on the part of
the Buyer; and (iii) this Agreement has been duly executed and
delivered by Buyer and constitutes a legal, valid and binding
obligation of Buyer and is enforceable against Buyer in
accordance with its terms, except that such enforcement may be
subject to bankruptcy, insolvency, moratorium or similar laws
affecting creditors' rights;
(b) The representations of Buyer contained in Section 8 hereof are
true on and as of the Closing Date, and Buyer shall have
delivered to Seller at the Closing a certificate signed on its
behalf to such effect; and
(c) The necessary waiting period with respect to filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
regulations promulgated thereunder shall have expired and the
Closing shall be permitted to occur without violation thereof.
7. REPRESENTATIONS OF SELLER. Seller represents to Buyer that:
(a) Seller is a corporation validly existing and in good standing
under the laws of the State of Delaware and is duly qualified
to own its properties and assets and to carry on its business
as now being conducted;
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<PAGE> 10
(b) Seller has the requisite power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement by Seller and the consummation of the transactions
contemplated hereby have been duly authorized;
(c) This Agreement has been duly executed and delivered by Seller
and constitutes the valid and binding obligation of Seller,
enforceable against it in accordance with the terms hereof,
subject to the effects of bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting
creditors' rights. No other act, approval or proceeding on
the part of Seller or any other party is required to authorize
the execution and delivery of this Agreement by Seller or the
consummation of the transactions contemplated hereby;
(d) This Agreement, and the execution and delivery hereof by
Seller, does not and the consummation of the transactions
contemplated hereby will not (i) conflict with or result in a
breach of the charter or bylaws of Seller or any other
governing documents of Seller, (ii) violate, or conflict with,
or constitute a default under, or result in the creation or
imposition of any security interest, lien or encumbrance upon
any property or assets of Seller under any mortgage, indenture
or agreement to which it is a party or by which the Interests
are bound, which violation, conflict or default might
adversely affect the ability of Seller to perform its
obligations under this Agreement, or (iii) violate any statute
or law or any judgment, decree, order, writ, injunction,
regulation or rule of any court or governmental authority,
which violation might adversely affect the ability of Seller
to perform its obligations under this Agreement;
(e) Seller has not been advised directly or indirectly by any
owner or lessor under any Leases of any material default under
any lease or agreement which has not been remedied or waived,
or of any requirements or demands which have not been
satisfied;
(f) All royalties, rentals and other payments due under the Leases
have been properly and timely paid in the normal course of
business, except for those amounts in suspense, and all
conditions necessary to keep the Leases in force have been
duly performed;
(g) Seller is not obligated to deliver hydrocarbons produced from
the Interests at some future time without receiving full
payment therefor;
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<PAGE> 11
(h) No overbalance of gas deliveries exists with regard to any
producing wells included in the Interests as to the interest
of Seller;
(i) No entity has any call upon, option to purchase or similar
rights under any agreement with respect to the Interests or to
the production therefrom;
(j) There are no actions, suits, proceedings or governmental
investigations or inquiries pending or threatened, against
Seller or the Interests which might delay, prevent or
materially hinder the consummation of the transactions
contemplated hereby or materially adversely affect the title
to or value of any of the Interests;
(k) Seller possesses all licenses, permits, certificates, orders,
approvals and authorizations necessary to own the Interests
and to carry on its business as now being conducted;
(l) Seller has complied with all laws, ordinances, rules,
regulations and orders applicable to the Interests necessary
for the conduct of legal operations of the Interests, except
where the failure to comply with such laws, ordinances, rules,
regulations and orders, individually or in the aggregate,
would not reasonably be expected to have a material and
adverse effect on the ownership, operation, value or use of
the Interests.
(m) Seller is unaware of any Title Defects;
(n) All ad valorem, property, production, severance, excise and
similar taxes and assessments based on or measured by the
ownership of property or the production of hydrocarbons or the
receipt of proceeds therefrom on the Interests that have
become due and payable have been properly and timely paid;
(o) Seller has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Buyer shall have any
responsibility whatsoever; and
(p) None of the statements, representations or warranties made by
Seller in this Agreement or in any Exhibit to this Agreement
contains any untrue statement of any material fact or fails to
disclose any material fact necessary to be disclosed in order
to make the statements, representations or warranties
contained herein or therein not misleading. Seller has no
knowledge of any matter which materially and adversely affects
(or may materially and adversely affect) the
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<PAGE> 12
operation or the condition of the Interests which has not been
made known to Buyer, which is not discoverable by Buyer
through its examination of the materials and data furnished or
made available by Seller to Buyer, or which is not set forth
in this Agreement or the Exhibits hereto.
8. REPRESENTATIONS OF BUYER. Buyer represents and warrants to Seller
that:
(a) Buyer is a corporation validly existing and in good standing
under the laws of the State of Delaware and is duly qualified
to own its properties and assets and to carry on its business
as now being conducted;
(b) Buyer has the requisite power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement by Buyer and the consummation of the transactions
contemplated hereby have been duly authorized;
(c) This Agreement has been duly executed and delivered by Buyer
and constitutes the valid and binding obligation of Buyer,
enforceable against it in accordance with the terms hereof,
subject to the effects of bankruptcy, insolvency,
reorganization, moratorium, and similar laws affecting
creditors' rights. No other act, approval or proceeding on
the part of Buyer or any other party is required to authorize
the execution and delivery of this Agreement by Buyer or the
consummation of the transactions contemplated hereby;
(d) This Agreement, and the execution and delivery hereof by
Buyer, does not and the consummation of the transactions
contemplated hereby will not (i) conflict with or result in a
breach of the charter or bylaws of Buyer or any other
governing documents of Buyer, or (ii) violate any statute or
law or any judgment, decree, order, writ, injunction,
regulation or rule of any court or governmental authority,
which violation might adversely affect the ability of Buyer to
perform its obligations under this Agreement;
(e) Buyer possesses all required governmental licenses, permits,
certificates, orders and authorizations necessary to own the
Interests;
(f) Buyer has incurred no liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions
contemplated by this Agreement for which Seller shall have any
responsibility whatsoever;
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<PAGE> 13
(g) Buyer is experienced and knowledgeable in the oil and gas
business and is aware of its risks. Buyer is being afforded
the opportunity to examine information ("Information") made
available to it by Seller with respect to the Interests.
Buyer acknowledges that, other than as set forth or provided
in this Agreement, Seller has made no representations or
warranties whatever, express or implied, as to the accuracy of
the Information, as to the reserves attributable to the
Interests or the value thereof, as to the condition or state
of repair of the Interests or as to the legal, tax or other
consequences of the transaction contemplated by this
Agreement. In entering into this Agreement, Buyer has relied
upon Seller's warranties and representations in this Agreement
as well as upon its independent investigation of and judgment
with respect to such Information, and neither Seller nor its
affiliates, agents, representatives or employees shall have
any liability to Buyer or its agents, representatives or
employees resulting from any use, authorized or unauthorized,
of the Information relating to reserve estimates or
interpretative information by Buyer or its agents,
representatives or employees. Buyer understands and accepts
the risks inherent in ownership of the Interests; and
(h) The Interests to be acquired by Buyer pursuant to this
Agreement are being acquired by Buyer for its own account for
investment purposes and not for distribution within the
meaning of any securities law. In acquiring the Interests,
Buyer is acting in the conduct of its own business and not
under any specific nominee agreement with any third party to
transfer to, or to hold title on behalf of, such third party,
with respect to all or any part of the Interests.
9. COVENANTS OF SELLER. Seller covenants and agrees that from and after
the Effective Time and until the Closing Date:
(a) Sales. Seller will not sell, transfer, assign, convey or
otherwise dispose of any Interests other an (i) oil, gas and
other hydrocarbons produced, saved and sold in the ordinary
course of business, and (ii) personal property and equipment
which is replaced with property and equipment of comparable or
better value and utility in the ordinary and routine
maintenance and operation of the Interests;
(b) Encumbrances. Seller will not create or permit the creation
of any lien (other than under Section 3(b)(vii) hereof),
security interest or encumbrance on any
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<PAGE> 14
Interest, the oil or gas produced therefrom, or the proceeds
thereof;
(c) Operation of Interests. Seller agrees to:
(i) Cause the Interests to be developed, maintained and
operated in a prudent, good and workmanlike manner,
maintain any insurance now in force with respect to
the Interests, and pay or cause to be paid all costs
and expenses in connection therewith in the normal
course of business;
(ii) Not participate in the drilling of any new well on
the Interests or fail to participate in operations on
the Interests proposed by other parties, without the
advance written consent of Buyer, which consent or
non-consent must be given by Buyer within ten (10)
days of the notice from Seller;
(iii) Maintain and keep the Leases in full force and effect;
(iv) Perform and comply with all of its obligations under
agreements relating to or affecting the Interests;
(v) Take no action which will cause any purchaser of
production to place in suspense any payment for
production sold;
(vi) Not enter into or assume any contract, agreement or
commitment which is not in the ordinary course of
business as theretofore conducted or which involves
payments, receipts or potential liabilities with
respect to the Interests of more than TEN THOUSAND
DOLLARS ($10,000) without the prior written consent
of Buyer; and
(vii) Carry on its business with respect to the Interests
in substantially the same manner as it has
heretofore, not introducing any new method of
management, operation or accounting with respect to
the Interests;
(d) Contracts and Agreements. Seller will not:
(i) Grant any preferential right to purchase or similar
right or agree to acquire the consent
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<PAGE> 15
of any party to the transfer and assignment of the
Interests to Buyer;
(ii) Enter into any gas sales contract or new crude oil
sales or supply contract with respect to the
Interests which is not terminable without penalty or
detriment on notice of thirty (30) days or less;
(iii) Incur or agree to incur any contractual obligation or
liability, absolute or contingent, with respect to
the Interests other than provided under Section
9(c)(vi) hereof;
(iv) Enter into any transaction the effect of which,
considered as a whole, would be to cause Seller's
ownership interest in any of the Interests to be
altered from its ownership interest as of the
Effective Time; or
(v) Enter into any settlement of or relinquish any
outstanding receivables (including, without
limitation, the right to receive any retroactive
price adjustments, take-or-pay monies, FERC mandated
refunds, accounting adjustments, and tax
adjustments);
(e) Consents. If any approval or consent by any federal, state or
local government authority is required to vest good and
Defensible Title to any of the Interests in Buyer at Closing,
Seller agrees to exercise its best efforts, as reasonably
requested by Buyer, to obtain all such required approvals or
consents. Seller will execute appropriate transfer orders or
letters-in-lieu covering the Interests submitted to it for
execution designating Buyer as the appropriate party for
payment, effective as of the Effective Time;
(f) Notice of Defaults. Seller will give prompt written notice to
Buyer of any notice of default (or written threat of default,
whether disputed or denied) received or given by Seller under
any instrument or agreement affecting the Interests to which
Seller is a party or by which it or any of the Interests is
bound; and
(g) Notice of Events and Proposals. If between the Effective Time
and the Closing, Seller becomes aware of (i) any action or
occurrence which reasonably may materially affect any of the
Interests, (ii) any proposal from a third party to engage in
any material transaction with respect to any of the Interests,
or (iii) any suit,
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<PAGE> 16
action or other proceeding before any court or
governmental agency which relates to the Interests or which
might result in impairment or loss of the Seller's title to
any of the Interests or the value thereof or which might
hinder or impede the operation of the Interests, it will give
prompt written notice to Buyer of such action, occurrence or
proposal.
10. HART-SCOTT-RODINO. The parties will prepare and submit, in a timely
manner, all necessary filings in connection with the transaction
contemplated by this Agreement under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations of the Federal
Trade Commission thereunder.
11. LIABILITIES AND INDEMNITIES OF SELLER. In connection with the sale,
conveyance, transfer, assignment and delivery of the Interests to
Buyer, Buyer shall not assume or become obligated in any way with
respect to the following:
(a) Any cost, expense or obligation relating to the Interests
which accrued prior to the Effective Time unless specifically
assumed by Buyer in Section 12 hereof;
(b) Any litigation which affects the Interests, whether pending or
threatened, which is based upon omissions, events or
occurrences prior to the Effective Time;
(c) Any federal or state income tax or other tax liability of
Seller arising by reason of the transaction contemplated by
this Agreement;
(d) Any federal, state, county, municipal, ad valorem, production,
windfall profits or other tax liability attributable to
Seller's ownership or operation of any of the Interests prior
to the Effective Time except as to prorate taxes for the
current tax period;
(e) Any claims arising out of the production or sale of
hydrocarbons from the Interests, or the proper accounting or
payment to parties for their interests therein, prior to the
Effective Time; and
(f) Any other claim or demand against, or liability or obligation
of Seller arising from any act or omission whatsoever of
Seller, prior to the Effective Time, whether such claim,
demand, liability or obligation is fixed or contingent, and
whether the same arises by contract, tort or otherwise.
Seller shall, to the fullest extent permitted by law, protect, defend,
indemnify and hold Buyer and its affiliates, including its directors,
officers, employees, agents and representatives
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<PAGE> 17
of each of them, harmless from and against any and all claims, losses,
damages, costs, expenses, suits, causes of action or judgments of any
kind or character with respect to any and all liabilities and
obligations or alleged or threatened liabilities and obligations,
including, but not limited to, any interest, penalty and any
attorneys' fees and other costs and expenses incurred in connection
with investigating or defending any claims or actions, whether or not
resulting in any liability, attributable to or arising out of (i)
Seller's ownership or operation of the Interests prior to the
Effective Time, (ii) the breach by Seller of the representations and
warranties contained in Sections 7 and 22 hereof, (iii) the breach by
Seller of the covenants contained in Sections 9, 16 and 23 hereof, and
(iv) the sale, conveyance, transfer, assignment and delivery of the
Interests from Seller to Buyer.
12. ASSUMPTION OF OBLIGATIONS AND INDEMNITIES OF BUYER. Buyer shall
assume, as of the Effective Time, all contractual obligations of
Seller related to the Interests which are recorded or were disclosed
by Seller to Buyer in the Records; provided, however, Buyer shall not
assume any obligation of Seller to pay for another party's debts,
expenses or costs incurred prior to the Effective Time owed to an
operator of an Interest pursuant to the terms of an Operating
Agreement applicable to any of the Interests. Buyer shall, to the
fullest extent permitted by law, protect, defend, indemnify and hold
Seller and its directors, officers, employees, agents and
representatives of each of them, harmless from and against any and all
claims, losses, damages, costs, expenses, suits, causes of action or
judgments of any kind or character with respect to any and all
liabilities and obligations or alleged or threatened liabilities and
obligations, including, but not limited to, any interest, penalty and
any attorneys' fees and other costs and expenses incurred in
connection with investigating or defending any claims or actions,
whether or not resulting in any liability, attributable to or arising
out of (i) Buyer's ownership or operation of the Interests subsequent
to the Effective Time, including the proper plugging and abandonment
of all wells now or hereafter located on the Leases which have not
heretofore been plugged and abandoned (including, but not limited to,
all wells not currently producing or temporarily abandoned on said
Leases), and the removal of all equipment and facilities and the
restoration of the surface, (ii) the breach by Buyer of the
representations contained in Section 8 hereof, and (iii) the breach by
Buyer of the covenants contained in Section 16 hereof.
13. NOTICE OF CLAIMS. In reference to the indemnities set forth in this
Agreement, as soon as reasonably practical after obtaining knowledge
thereof, the indemnified party shall notify the indemnifying party of
any claim or demand which the
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<PAGE> 18
indemnified party has determined has given or could give rise to a
claim for indemnification. Such notice shall specify the
agreement,representation or warranty with respect to which the claim
is made, the facts giving rise to the claim, the alleged basis for the
claim, and the amount (to the extent then determinable) of liability
for which indemnity is asserted. In the event any action, suit or
proceeding is brought with respect to which a party may be liable
under the provisions of this Agreement, the defense of the action,
suit or proceeding (including all settlement negotiations and
arbitration, trial, appeal, or other proceeding) shall be at the
discretion of and conducted by the indemnifying party. If an
indemnified party shall settle any such action, suit or proceeding
without the written consent of the indemnifying party (which consent
shall not be unreasonably withheld), the right of the indemnified
party to make any claim against the indemnifying party on account of
such settlement shall be deemed conclusively denied. An indemnified
party shall have the right to be represented by its own counsel at its
own expense in any such action, suit or proceeding, and if an
indemnified party is named as the defendant in any action, suit or
proceeding, it shall be entitled to have its own counsel and defend
such action, suit or proceeding with respect to itself at its own
expense. Subject to the foregoing provisions, neither party shall,
without the other party's written consent, settle, compromise, confess
judgment or permit judgment by default in any action, suit or
proceeding if such action would create or attach liability or
obligation to the other party. The parties agree to make available to
each other, and to their respective counsel and accountants, all
information and documents reasonably available to them which relate to
any action, suit or proceeding, and the parties agree to render to
each other such assistance as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such
action, suit or proceeding.
14. ENVIRONMENTAL MATTERS.
(a) NORM. The Interests have been used for the purpose of
exploration, development and production of oil and gas. Buyer
acknowledges that some production equipment may contain
asbestos and/or Naturally Occurring Radioactive Material
(hereinafter referred to as "NORM"). In this regard, Buyer
expressly understands that NORM may affix or attach itself to
the inside of wells, materials and equipment as scale, or in
other forms, and that the wells, materials, and Equipment
located on or included in the Interests may contain NORM.
Buyer also expressly understands that special procedures may
be required for the remediation, removal, transportation and
disposal of asbestos and NORM from the Interests where it may
be found and that subject to the other provisions of this
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<PAGE> 19
Agreement, Buyer assumes all liability for or in connection
with assessment, remediation, removal, transportation and
disposal of any such materials and associated activities in
accordance with all rules, regulations and requirements of
governmental agencies.
(b) Environmental Assessment. Subject to restrictions on Seller
with respect to access to the Interests, Buyer shall have the
right until June 15, 1994, at its own risk and expense, to
conduct an environmental assessment of the Interests. All
information obtained by Buyer in the environmental assessment
shall be used solely for the purpose of an environmental
evaluation of the Interests. Buyer shall provide Seller two
(2) days written notice of a desired time for such testing or
assessment. Seller shall have the right to be present during
any testing or assessment.
Buyer agrees to release, indemnify, defend and hold harmless
Seller against any liability, loss or damage to persons or
property arising out of such access or environmental
assessment. Such indemnity shall also apply where the
liability, loss or damage arises in whole or in part from (i)
the negligence of Seller or Buyer, whether such negligence is
active or passive, joint, sole or concurrent or (ii) Seller's
or Operator's strict liability, but such indemnity shall not
apply where the liability, loss or damage arises in whole or
in part from the gross negligence or willful misconduct of
Seller.
If during Buyer's environmental assessment, Buyer, in its sole
discretion, determines that there is a condition or
circumstance which could reasonably constitute a violation of
any environmental law or regulation ("Identified Defect"), on
or before June 15, 1994, Buyer shall deliver to Seller written
notice of such Identified Defect with supporting evidence,
including any data and conclusions associated with the
Identified Defect which shall be kept strictly confidential by
Buyer and Seller unless otherwise required by law. If the cost
to remediate such Identified Defect is reasonably determined
to be more than twenty percent (20%) of the value allocated to
such Interests on Exhibit "A", Buyer shall have the right to
terminate this Agreement as to the Interests affected by the
Identified Defect and receive a Purchase Price adjustment
equal to the amount allocated to such Interests on Exhibit
"A". If Buyer does not elect to terminate this Agreement in
accordance with the foregoing, Buyer and Seller shall meet and
attempt in good faith to agree on the best estimate of the
cost and method of curing such Identified Defect. After
receipt of such notice and validation of such Identified
Defect,
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<PAGE> 20
Seller shall (i) remedy such Identified Defect, at its sole
cost, to the reasonable satisfaction of Buyer and Seller and
in accordance with applicable laws and regulations, (ii) agree
to reduce the Purchase Price by the estimated cost of curing
such Identified Defect, or (iii) terminate this Agreement as
to the Interests affected by the Identified Defect and the
Purchase Price shall be reduced by the amount allocated to
such Interests on Exhibit "A". Notwithstanding the foregoing,
Seller shall not be liable for any amount in respect of the
costs to cure an Identified Defect unless the aggregate of
such costs equals or exceeds $100,000. If the aggregate
amount exceeds $100,000 and Seller makes a payment in respect
of costs to cure an Identified Defect, such payment by Seller
shall release Seller from its obligations in respect of each
such Identified Defect for which payment is made and Buyer
shall thereafter indemnify and hold Seller harmless in respect
of such Identified Defect. If the aggregate amount exceeds
$100,000 and Seller elects to remedy an Identified Defect,
Seller shall remain liable in respect of such Identified
Defect, but shall be released from its obligations in respect
of the Interests affected by the Identified Defect when the
Identified Defect is cured to the reasonable satisfaction of
Buyer and Seller and in accordance with applicable laws and
regulations, and Buyer shall thereupon indemnify and hold
Seller harmless in respect of such Identified Defect. If the
aggregate amount of costs to cure all Identified Defects is
less than $100,000, Seller shall be released of its
obligations in respect of the Identified Defects and Buyer
shall indemnify and hold Seller harmless in respect of such
Identified Defects.
If Buyer and Seller cannot agree on the estimated cost for any
Identified Defect, Buyer shall have the right to proceed with
Closing and accept the Interests with the Identified Defect.
If Buyer does not so elect, either Buyer or Seller shall have
the right to terminate this Agreement as to the Interests
affected by the Identified Defect and receive a Purchase Price
reduction equal to the amount allocated to the Interests on
Exhibit "A".
(c) Sale "As Is, Where Is". BUYER UNDERSTANDS AND AGREES THAT
THIS SALE IS MADE ON AN "AS IS, WHERE IS" BASIS AND, EXCEPT AS
SPECIFICALLY PROVIDED TO THE CONTRARY IN SECTION 14 (d), BUYER
RELEASES SELLER FROM ANY LIABILITY WITH RESPECT TO THE
INTERESTS WHETHER OR NOT CAUSED BY OR ATTRIBUTABLE TO SELLER'S
NEGLIGENCE AND WHETHER OR NOT ARISING FROM OR DURING THE
PERIOD OF OR IN CONNECTION WITH SELLER'S OWNERSHIP OR USE OF
THE INTERESTS. WITHOUT LIMITING THE ABOVE, SUBJECT TO THE
OTHER PROVISIONS OF
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<PAGE> 21
THIS AGREEMENT, BUYER WAIVES ITS RIGHT TO RECOVER FROM SELLER
AND FOREVER RELEASES AND DISCHARGES SELLER AND AGREES TO HOLD
SELLER HARMLESS FROM ANY AND ALL DAMAGES, CLAIMS, LOSSES,
LIABILITIES, PENALTIES, FINES, LIENS, JUDGMENTS, COSTS OR
EXPENSES WHATSOEVER, (INCLUDING WITHOUT LIMITATION,
ATTORNEYS' FEES AND COSTS), WHETHER DIRECT OR INDIRECT, KNOWN
OR UNKNOWN, FORESEEN OR UNFORESEEN, THAT MAY ARISE ON ACCOUNT
OF OR IN ANY WAY BE CONNECTED WITH THE PHYSICAL CONDITION OF
THE INTERESTS AND PROPERTY OR ANY LAW OR REGULATION APPLICABLE
THERETO, INCLUDING, WITHOUT LIMITATION, THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED (42 U.S.C. Section Section 9601 et. seq.),
THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 (42 U.S.C.
Section Section 6901 et. seq.), THE CLEAN WATER ACT (33
U.S.C. Section Section 466 et. seq.), THE SAFE DRINKING WATER
ACT (14 U.S.C. Section Section 1401-1450), THE HAZARDOUS
MINERALS TRANSPORTATION ACT (49 U.S.C. Section Section 1801
et. seq.), THE CLEAN AIR ACT, AS AMENDED (42 U.S.C. Section
Section 7401 et. seq.), AND THE CLEAN AIR ACT AMENDMENTS OF
1990.
(d) Environmental Indemnifications.
(i) Subject to the limitations set forth in Section
14(d)(iii), from and after the Effective Time, Seller
shall indemnify, hold harmless and defend Buyer , its
successors and assigns, from and against all damages,
losses and other costs and liabilities (including,
but not limited to, attorney's fees and court costs,
any civil fines, penalties, expenses, costs of
clean-up, cost of removal or modification of
facilities on the Interests) which arise from or in
connection with any environmental condition on the
Interests to the extent arising from or based upon
events, actions, conditions, circumstances or
omissions occurring or existing on or prior to the
Effective Time.
(ii) Buyer shall assume responsibility for and indemnify,
hold harmless and defend Seller, its successors and
assigns, from and against all damages, losses and
other costs and liabilities (including, but not
limited to, attorney's fees and court costs, any
civil fines, penalties, expenses, costs of clean-up,
costs of removal or modification of facilities on the
Interests) which arise from or in connection with any
environmental condition on the Interests to the
extent arising from or
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<PAGE> 22
based upon events, actions, conditions, circumstances
or omissions (i) occurring or existing after (but not
on or before) the Effective Time or (ii) occurring or
existing prior to the Effective Time and which are
not covered by Seller's indemnification set forth in
Section 14(d)(i).
(iii) The obligations of Seller to indemnify Buyer under
Section 14(d)(i) shall be limited as follows:
(1) Such indemnification shall apply only to
claims arising from or in connection with any
environmental condition on the Interests for
which Buyer gives Seller notice of a claim
for indemnification on or before the second
anniversary of the Effective Time.
(2) Notwithstanding anything to the contrary
contained in this Agreement, with respect to
any environmental condition on the Interests
for which Buyer gives notice to Seller after
the Closing Date (but on or before the second
anniversary of the Effective Time), Seller
shall not be liable for any amount in respect
of the costs to cure such environmental
condition unless and until the aggregate of
such costs equals or exceeds $750,000.
(3) Such indemnification shall only apply to
claims arising from or in connection with any
environmental condition on the Interests that
could reasonably constitute a violation of
any environmental law or regulation.
(4) Seller's indemnification liability after the
Closing Date shall be limited to claims
asserted by third parties or governmental
agencies; provided, however, nothing herein
shall preclude Seller from reporting any
environmental condition on the Interests as
required by any laws, rules or regulations.
The act of reporting shall not negate the
provisions of this Section if a third party
claim results from such action.
- 22 -
<PAGE> 23
(5) Such indemnification shall not apply to the
extent that the liability for which such
indemnification is sought is increased by
acts or omissions of Buyer after the
Effective Time.
(6) Such indemnification shall not apply to any
Identified Defect for which Seller has
remedied or made an adjustment to the
Purchase Price pursuant to Section 14(b).
(iv) SELLER'S AND BUYER'S INDEMNIFICATION UNDER THIS
SECTION 14 SHALL INCLUDE, BUT NOT BE LIMITED TO,
LIABILITY OR OBLIGATIONS UNDER THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY
ACT OF 1980, AS AMENDED (42 U.S.C. Section Section
9601 et. seq.), THE RESOURCE CONSERVATION AND RECOVERY
ACT OF 1976 (42 U.S.C. Section Section 466 et.
seq.), THE SAFE DRINKING WATER ACT (14 U.S.C. Section
Section 1401-1450), THE HAZARDOUS MINERALS
TRANSPORTATION ACT (49 U.S.C. Section Section
1801 et. seq.), THE TOXIC SUBSTANCES CONTROL ACT (15
U.S.C. Section Section 2601-2629) THE CLEAN AIR ACT,
AS AMENDED (42 U.S.C. Section Section 7401 et. seq.),
AND THE CLEAN AIR ACT AMENDMENTS OF 1990.
15. ACCESS OF BUYER. Seller will make available to Buyer for examination
and copying at Seller's office at 717 North Harwood Street, Dallas,
Texas, any of the Records as Buyer may reasonably request, including,
but not limited to, raw engineering, geological, and geophysical data,
and reports, maps, electric logs, mud logs, production logs, and well
records relating to the Interests to the extent such data and records
are in Seller's possession and relate to the Interests; provided,
however, Seller shall have no obligation to provide Buyer access to
any interpretive or predictive data or information which Seller
considers confidential, proprietary, or privileged to it or which
access Seller cannot lawfully provide Buyer because of third-party
restrictions on Seller. Seller shall permit Buyer's authorized
representatives to consult with Seller's employees during reasonable
business hours and to conduct, at Buyer's sole risk and expense,
on-site inspections and inventories of the Interests subject to
restriction on Seller or Buyer with respect to access to the
Interests. Buyer shall provide Seller two (2) days written notice of
the desired date for inspection purposes.
16. CONFIDENTIALITY. All engineering, geological and geophysical data,
reports and maps, and all other confidential data provided to Buyer,
whether before or after the date of this
- 23 -
<PAGE> 24
Agreement, relating to the Interests shall be treated by Buyer as
strictly confidential, and shall not be disclosed to any person, firm
or corporation without the prior written consent of Seller. In the
event this purchase and sale does not close, this covenant shall
survive termination of this Agreement; and in the event the sale
closes, this covenant with respect to Buyer shall terminate at
Closing. After Closing, any information, data or records, either
originals or copies thereof, relating to the Interests and retained by
Seller shall be treated by Seller as strictly confidential and shall
not be disclosed to any person, firm or corporation without the prior
written consent of Buyer.
17. CLOSING. The Closing shall be held at 9:00 a.m., on or before July 1,
1994, at the offices of Seller at 717 North Harwood Street, Dallas,
Texas 75201-6594 or at such other time and place as Seller and Buyer
may mutually agree in writing (the "Closing" or the "Closing Date").
18. TRANSACTIONS AT CLOSING. On the Closing Date:
(a) Seller shall execute, acknowledge and deliver to Buyer an
Assignment and Bill of Sale in the form as set forth in
Exhibit "B" hereto (in sufficient counterparts to facilitate
recording in applicable counties and filing with any
applicable governmental authorities) conveying the Interests;
(b) Seller and Buyer shall execute and deliver a Preliminary
Statement as provided in Section 2(c) that shall set forth the
purchase price and each adjustment and the calculation of such
adjustments used to determine such amount;
(c) Seller shall deliver to Buyer originals of the Records;
(d) Seller and Buyer shall execute, acknowledge and deliver
transfer orders or letters-in-lieu prepared by Seller, and
approved by Buyer, directing all purchasers of production to
make payment to Buyer of proceeds attributable to production
from the Interests;
(e) Seller and Buyer shall deliver the legal opinions and
certificates required by Sections 5 and 6 hereof;
(f) Seller shall deliver to Buyer exclusive possession of the
Interests; and
(g) Buyer shall deliver to Seller cash by wire transfer or a
cashier's check in the amount of the Closing Amount.
- 24 -
<PAGE> 25
19. PROCEEDS OF PRODUCTION AND PROCEEDS IN SUSPENSE. Seller shall be
entitled to all proceeds of production attributable to the Interests
and accruing to the period prior to the Effective Time. Buyer shall
be entitled to all proceeds of production attributable to the
Interests and accruing to the period on and after the Effective Time.
All proceeds held in suspense or escrow from the sale of production by
Seller prior to the Effective Time attributable to the Interests shall
be delivered to Buyer at Closing. Seller shall have no responsibility
or liability for the proper distribution of proceeds from and after
the Closing Date; provided, however, in the event Seller receives
distributions for proceeds of production after the Closing Date for
production on or after the Effective Time, Seller will promptly remit
such proceeds, along with the supporting documentation, to Buyer.
20. NOTICES. All communications required or permitted under this
Agreement shall be in writing and any communication or delivery
hereunder shall be deemed to have been fully made if actually
delivered, or if mailed by registered or certified mail, postage
prepaid, return receipt requested, to the address as set forth below:
SELLER BUYER
Maxus Exploration Company Meridian Oil Inc.
717 North Harwood Street P.O. Box 4239
Dallas, Texas 75201-6594 Houston, Texas 77210-4239
Attention: Steven G. Crowell Attention: Randolph P. Mundt
21. FURTHER ASSURANCE. Incidental and subsequent to Closing, each of the
parties shall execute, acknowledge, and deliver to the other such
further instruments, and take such other actions as may be reasonably
necessary to carry out the provisions of this Agreement.
22. WARRANTIES. THE ASSIGNMENT AND BILL OF SALE EXECUTED PURSUANT HERETO
SHALL BE EXECUTED WITHOUT ANY WARRANTY OF TITLE, EITHER EXPRESS OR
IMPLIED; PROVIDED, HOWEVER, SELLER SHALL SPECIALLY WARRANT AND AGREE
TO DEFEND THE TITLE TO THE INTERESTS AS SET FORTH ON EXHIBIT "A"
HERETO AGAINST THE LAWFUL CLAIMS AND DEMANDS OF ALL PERSONS OR
ENTITIES CLAIMING THE SAME OR ANY PART THEREOF BY, THROUGH OR UNDER
SELLER, BUT NOT OTHERWISE. SELLER MAKES NO EXPRESS OR IMPLIED WARRANTY
OR REPRESENTATION AS TO THE EQUIPMENT, WHICH SHALL BE CONVEYED TO
BUYER "AS IS, WHERE IS," AND WITH ALL FAULTS AND DEFECTS,
- 25 -
<PAGE> 26
INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR ANY PURPOSE.
23. CASUALTY LOSS. Each of the following shall be deemed a "Casualty
Loss": any material adverse change in the Interests caused by or
occurring by reason of matters beyond the reasonable control of
Seller, including but not limited to acts of God, fire, earthquake,
wind storm, strike, lockout, combination of workmen, flood, drought,
war, embargo, riot, condemnation, exercise of any right of eminent
domain, confiscation or operation of law, (regardless of whether
covered by insurance, but excepting depletion due to normal
production, depreciation of equipment through ordinary wear and tear
and transactions permitted under this Agreement).
If prior to the Closing Date any of the Interests is damaged or
destroyed due to a Casualty Loss, Seller shall immediately notify
Buyer and the Purchase Price shall be reduced by an amount estimated
by Seller and as agreed to by Buyer, to be equal to the repair or
replacement costs of that Interest. In no event shall the reduction
of Purchase Price exceed the amount allocated to the applicable
Interest as set forth on Exhibit "A". Any insurance proceeds payable
to Seller with respect to the Casualty Loss shall be retained by
Seller. In the event Seller and Buyer are unable to agree upon the
value of the estimated damage, then either Seller or Buyer shall have
the right to terminate this Agreement as to the Interest affected by
the Casualty Loss and the Purchase Price shall be reduced by the value
allocated to such Interest on Exhibit "A". The risk of casualty loss
relating to the Interests shall pass from Seller to Buyer as of the
Closing Date.
24. TERMINATION. This Agreement may be terminated at any time by mutual
consent of Seller and Buyer. In addition, this Agreement may be
terminated (i) by Seller by notice to Buyer if all conditions
described in Section 6 shall not have been met and such non-compliance
shall not have been caused or waived by the actions or inactions of
Seller (ii) by Buyer by notice to Seller if all conditions described
in Section 5 shall not have been met and such non-compliance shall not
have been caused or waived by the actions or inactions of Buyer, or
(iii) by Buyer or Seller by notice to the other party if purchase
price adjustments for Title Defects required by Section 4 hereof
exceed SIX MILLION DOLLARS ($6,000,000), or (iv) as otherwise
expressly provided in this Agreement. Upon termination of this
Agreement, the parties shall thereafter be under no further obligation
to one another hereunder.
25. EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto
- 26 -
<PAGE> 27
shall pay its own fees and expenses incident to the negotiation,
preparation and execution of this Agreement, including attorneys' and
accountants' fees.
26. ENTIRE AGREEMENT. This instrument states the entire agreement between
the parties and may be supplemented, altered, amended, modified or
revoked by writing only, signed by both parties.
27. SURVIVAL OF REPRESENTATIONS AND COVENANTS.
(a) The respective representations of Seller and Buyer shall
survive for a period of two (2) years after the Closing.
(b) Except as otherwise specifically provided in this Agreement,
the respective warranties and indemnities of Seller and Buyer
shall survive for a period three (3) years after Closing.
(c) Upon termination of the time periods set forth above, the
representations, warranties and indemnities provided for
herein shall be of no further force and effect. The
respective liabilities and responsibilities of the parties
shall thereafter be determined as otherwise provided by law.
28. INTERNAL REVENUE CODE Section 1031. Buyer shall have the option, at
or before Closing, to structure the Closing of this transaction in
such a manner so as to qualify as part of a like-kind exchange
pursuant to Section 1031 of the Internal Revenue Code. Buyer agrees to
indemnify and hold Seller harmless from and against all reasonable
costs, expenses, liabilities and obligations which arise as a result
of any such like-kind exchange.
29. COUNTERPART. This Agreement may be executed by Buyer and Seller in
any number of counterparts, each of which shall be deemed an original
instrument, but all of which together shall constitute one and the
same instrument.
30. TIME OF ESSENCE. Time is of the essence in this Agreement.
31. ANNOUNCEMENTS. Seller and Buyer shall consult with each other prior
to the release of any press releases and other announcements
concerning this Agreement or the transactions contemplated hereby.
32. SEVERABILITY. If, at any time subsequent to the date hereof, any
provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision
shall be of no force and effect, but the illegality or
unenforceability of such provision shall have no
- 27 -
<PAGE> 28
effect upon and shall not impair the enforceability of any other
provision of this Agreement.
33. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas. The validity of the
various conveyances and transfers affecting the title to the Interests
shall be governed by and construed in accordance with the laws of the
jurisdiction in which such Interests are situated.
EXECUTED as of the date first above mentioned.
SELLER
MAXUS EXPLORATION COMPANY
BY: /s/ MICHAEL J. BARRON
NAME: MICHAEL J. BARRON
TITLE: VICE PRESIDENT
BUYER
MERIDIAN OIL INC.
BY: /s/ RANDOLPH P. MUNDT
NAME: RANDOLPH P. MUNDT
TITLE: SENIOR VICE PRESIDENT
- 28 -
<PAGE> 1
PRELIMINARY COPY
DIAMOND SHAMROCK OFFSHORE
PARTNERS LIMITED PARTNERSHIP
5051 WESTHEIMER
SUITE 1400
HOUSTON, TEXAS 77056
------------------------------------------
INFORMATION STATEMENT
------------------------------------------
This Information Statement is being furnished by Diamond Shamrock Offshore
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), to holders of record as of the close of business on
, 1994 of limited partnership units of the Partnership (the "Units")
represented by depositary receipts (the "Depositary Units"), in connection with
an Agreement and Plan of Merger dated as of April 28, 1994 (the "Merger
Agreement"), between the Partnership and Meridian Offshore Company, a Delaware
corporation (the "Company") which is a direct wholly owned subsidiary of
Meridian Oil Inc., a Delaware corporation ("Meridian"), and an indirect wholly
owned subsidiary of Burlington Resources Inc., a Delaware corporation ("BR").
Pursuant to the Merger Agreement (i) the Partnership will be merged with and
into the Company (the "Merger") and (ii) holders of record of Depositary Units
on the effective date of the Merger will receive $4.485 in cash for each Unit
(the "Merger Consideration").
The Merger is the second step in a transaction pursuant to which (i) on
April 26, 1994, the Company acquired the managing general partnership interest
of Maxus Offshore Exploration Company ("Maxus Offshore") in the Partnership and
64,163,885 Units held by Maxus Exploration Company ("Maxus Exploration"), and
Meridian Offshore Acquisition Company, a Delaware corporation which is an
affiliate of the Company ("Acquisition"), acquired the special general
partnership interest of Maxus Energy Corporation ("Maxus Energy" and, together
with Maxus Offshore and Maxus Exploration, "Maxus") in the Partnership, for an
aggregate purchase price of $291,088,000 (of which $3,341,230 was attributable
to the general partnership interests in the Partnership) or approximately $4.485
per Unit, and (ii) on April 28, 1994, the Partnership and the Company entered
into the Merger Agreement, pursuant to which holders of Units will receive
$4.485 per Unit in cash, the same price paid to Maxus for its interests in the
Partnership.
The Merger Agreement and the Merger have each been approved by the Board of
Directors of the Company, on behalf of the Company, and by the Company, in its
capacity as managing general partner of the Partnership, on behalf of the
Partnership. The Company, as the holder of the managing general partnership
interest in the Partnership and of 64,163,885 Units, and Meridian Offshore
Acquisition Company, a Delaware corporation which is an affiliate of the Company
("Acquisition"), as the holder of the special general partnership interest in
the Partnership, have each executed a written consent approving the Merger.
Under Delaware law and the Second Amended and Restated Agreement of Limited
Partnership of the Partnership, as amended (the "Partnership Agreement"), the
Merger does not require the vote or consent of any other Unit holder.
NO MEETING OF UNIT HOLDERS WILL BE HELD TO CONSIDER APPROVAL OF THE MERGER
AND NO VOTE OR CONSENT OF UNIT HOLDERS IS BEING SOLICITED.
---------------------
NEITHER THE PARTNERSHIP NOR THE COMPANY IS ASKING YOU FOR A PROXY OR
CONSENT AND YOU ARE REQUESTED NOT TO SEND THE PARTNERSHIP OR THE COMPANY A PROXY
OR CONSENT.
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
THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IN UNLAWFUL.
---------------------
THE DATE OF THIS INFORMATION STATEMENT IS , 1994.
<PAGE> 2
AVAILABLE INFORMATION
The Partnership and BR are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements (in the case of BR only)
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements (in the case of BR) and other
information filed with the Commission can be inspected and copied at the public
reference facility maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and should also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, New York, New York 10048 and Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
Although the Company and the Partnership believe that the Merger is not a
"Rule 13e-3 transaction" within the meaning of Rule 13e-3 under the Exchange
Act, the Company and the Partnership have filed with the Commission a Rule 13e-3
Transaction Statement under the Exchange Act in connection with the Merger. This
Information Statement also constitutes a part of such Rule 13e-3 Transaction
Statement. The Rule 13e-3 Transaction Statement and any amendments thereto,
including exhibits filed as a part thereof, are available for inspection and
copying as set forth above.
DOCUMENTS INCORPORATED BY REFERENCE
This Information Statement incorporates by reference documents relating to
the Partnership and BR which are not presented herein or delivered herewith.
Documents relating to the Partnership and BR (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference) are
available to any person, including any beneficial owner, to whom this
Information Statement is delivered, on written or oral request, without charge,
from Meridian Offshore Company, 5051 Westheimer, Suite 1400, Houston, Texas
77056, Attention: Wendi L. Shackelford, Corporate Secretary, Telephone: (713)
624-9000. Copies of documents so requested will be sent by first class mail,
postage paid, within one business day of the receipt of such request.
The following Partnership documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the year ended December 31, 1993
(the "1993 Partnership 10-K").
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1994
(the "1994 Partnership 10-Q").
The following BR documents are incorporated by reference herein:
1. Annual Report on Form 10-K for the year ended December 31, 1993
(the "1993 BR 10-K").
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1994
(the "1994 BR 10-Q").
All documents filed by the Partnership or BR with the Commission pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof
and prior to the date of the Merger shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents. Any statements contained in a document incorporated by reference
herein or contained in this Information Statement shall be deemed to be modified
or superseded for purposes hereof to the extent that a statement contained
herein (or in any other subsequently filed document which also is incorporated
by reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except as
so modified or superseded.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS INFORMATION STATEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED.
ii
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NO.
---
<S> <C>
AVAILABLE INFORMATION................................................................ ii
DOCUMENTS INCORPORATED BY REFERENCE.................................................. ii
GLOSSARY............................................................................. iv
INTRODUCTION......................................................................... 1
SPECIAL FACTORS...................................................................... 2
Background......................................................................... 2
Purpose and Structure of the Merger................................................ 3
Fairness of the Merger............................................................. 4
Effect of the Merger on the Market for Units; NYSE and PSE Listing and Exchange Act
Registration.................................................................... 5
Financing of the Merger............................................................ 5
Appraisal Rights................................................................... 5
Certain Federal Income Tax Consequences............................................ 6
Accounting Treatment............................................................... 7
Certain Litigation................................................................. 7
THE MERGER........................................................................... 8
Approval of the Merger............................................................. 8
Terms of the Merger................................................................ 8
CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS.................. 9
Unit Purchase Agreement............................................................ 9
Transition Agreement............................................................... 10
Purchase and Sale Agreement........................................................ 11
INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES............................ 11
Business and Properties............................................................ 11
Oil and Gas Reserves............................................................... 14
Future Net Cash Flows.............................................................. 15
Certain Projections................................................................ 16
Selected Financial Data............................................................ 18
PRICE RANGE OF UNITS; CASH DISTRIBUTIONS............................................. 21
INFORMATION CONCERNING THE COMPANY, ACQUISITION, MERIDIAN AND BR..................... 19
Business of BR and its Subsidiaries................................................ 19
Selected Financial Data............................................................ 19
FEES AND EXPENSES.................................................................... 21
REGULATORY APPROVALS................................................................. 22
INDEX TO FINANCIAL INFORMATION....................................................... F-1
SCHEDULE 1 -- DIRECTORS AND EXECUTIVE OFFICERS OF BR AND THE COMPANY................. S-1
APPENDIX A -- AGREEMENT AND PLAN OF MERGER DATED AS OF APRIL 28, 1994 BETWEEN DIAMOND
SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP AND MERIDIAN OFFSHORE COMPANY.......
</TABLE>
iii
<PAGE> 4
GLOSSARY
Certain terms used in this Information Statement have the following
meanings:
"Bbl" means barrel.
"Bcf" means billion cubic feet of gas.
"Bcfe" means billion cubic feet of gas equivalent. Oil is converted
into cubic feet of gas equivalent based on 6 Mcf of gas to one barrel of
oil.
"MB" means thousands of barrels.
"MBO" means thousands of barrels of oil.
"Mcf" means thousand cubic feet of gas.
"Mmcf" means million cubic feet of gas.
"Proved reserves" are those estimated quantities of crude oil, natural
gas and natural gas liquids, which, upon analysis of geological and
engineering data, appear with reasonable certainty to be recoverable in the
future from known oil and gas reservoirs under existing economic and
operating conditions. The categories of proved reserves are as follows:
"Proved developed reserves" are those proved reserves which can be
expected to be recovered through existing wells with existing equipment
and operating methods.
"Proved undeveloped reserves" are those proved reserves which are
expected to be recovered from new wells on undrilled acreage, or from
existing wells where a relatively major expenditure is required.
"Unproved reserves" are potential oil and gas reserves that currently
have a degree of uncertainty that precludes them from being classified as
proved reserves. The classifications of unproved reserves, based upon
increasing degrees of uncertainty, are probable reserves, possible reserves
and speculative reserves. In all cases, the degree of uncertainty relates
to the geological, geophysical and engineering knowledge of the area. The
categories of unproved reserves are as follows:
"Probable reserves" are unproved reserves in an area of known
commercial oil and/or gas production where there is either an absence
of, or insufficient, geological, geophysical and/or engineering data
from which to have adequate certainty that the reserves can be
classified as proved reserves.
"Possible reserves" are unproved reserves in an area where
engineering, geological and geophysical data indicate the existence of
hydrocarbons but further data (particularly drilling) is required to
prove the presence of oil and/or gas.
"Speculative reserves" are unproved reserves in an area which has
characteristics analogous to known hydrocarbon producing environments
but where there is a lack of information to indicate the presence of
hydrocarbons.
iv
<PAGE> 5
INTRODUCTION
This Information Statement is being furnished to Unit holders by the
Partnership in connection with the Merger, pursuant to which (i) the Partnership
will be merged with and into the Company and (ii) each outstanding Unit (other
than Units held by the Company and its affiliates) will be converted into the
right to receive the Merger Consideration in cash, without interest. The Merger
is the second step in a transaction pursuant to which (i) on April 26, 1994, the
Company acquired the managing general partnership interest of Maxus Offshore in
the Partnership (representing a 0.99% economic interest in the Partnership) and
64,163,885 Units held by Maxus Exploration, and Acquisition acquired the special
general partnership interest of Maxus Energy in the Partnership (representing a
0.01% economic interest in the Partnership), for an aggregate purchase price of
$291,088,000 or approximately $4.485 per Unit, and (ii) on April 28, 1994, the
Partnership and the Company entered into the Merger Agreement, pursuant to which
holders of Units will receive $4.485 per Unit, the same price paid to Maxus for
its interests in the Partnership.
The principal executive offices of the Partnership and the Company are each
located at 5051 Westheimer, Suite 1400, Houston, Texas 77056. The telephone
number of each of the Partnership and the Company at such address is (713)
624-9000.
The Partnership is engaged in the exploration for, and the development and
production of, oil and gas on federal offshore leases located off the coast of
Louisiana and Texas. The Company is a direct wholly owned subsidiary of Meridian
and was formed for the purposes of acquiring the .99% managing general
partnership interest of Maxus Offshore in the Partnership and the 64,163,885
Units owned by Maxus Exploration and effecting the Merger. BR is a holding
company whose principal operating subsidiary, Meridian, is engaged in the
exploration, development and production of oil and gas and related marketing
activities.
The Company and the Partnership have entered into the Merger Agreement,
which provides for the consummation of the Merger. The Company, as the holder of
the managing general partnership interest in the Partnership and 64,163,885
Units, and Acquisition, as the holder of the special general partnership
interest in the Partnership, have each executed a written consent approving the
Merger. Under Delaware law and the Partnership Agreement, the Merger does not
require the consent of any other Unit holder.
As of the date of this Information Statement, there are 73,761,740 Units
outstanding held by approximately 14,679 Unit holders of record, of which
64,163,885 Units or approximately 87% are owned by the Company.
---------------------
NO MEETING OF UNIT HOLDERS WILL BE HELD TO CONSIDER APPROVAL OF THE MERGER
AND NO VOTE OR CONSENT OF UNIT HOLDERS IS BEING SOLICITED.
NEITHER THE PARTNERSHIP NOR THE COMPANY IS ASKING YOU FOR A PROXY OR
CONSENT AND YOU ARE REQUESTED NOT TO SEND THE PARTNERSHIP OR THE COMPANY A PROXY
OR CONSENT.
---------------------
<PAGE> 6
SPECIAL FACTORS
BACKGROUND
On March 8, 1994, Meridian was contacted by a representative of Smith
Barney Shearson who advised Meridian that he understood that Maxus was
interested in selling all of its general and limited partnership interests in
the Partnership (the "Maxus Interests"). The representative advised Meridian
that Smith Barney Shearson was not acting on behalf of Maxus. Meridian was told
that Maxus would provide information concerning the Partnership assets to
Meridian and that Maxus would permit access to Maxus employees for discussions
concerning those assets. Meridian indicated to the representative of Smith
Barney that Meridian might be interested in acquiring the Maxus Interests.
On March 29, 1994, Randolph P. Mundt, Senior Vice President of Meridian,
was contacted by W. H. Bagley, Vice President of Maxus, to discuss Meridian's
potential interest in acquiring the Maxus Interests.
On March 30, 1994, Maxus and Meridian executed a Confidentiality Agreement
under which Meridian was provided with data relating to the oil and gas
properties owned by the Partnership (the "Properties") and two other oil and gas
properties owned by Maxus and operated by the same Maxus regional staff (the
"Maxus Fee Properties"). On April 5, 1994, a group of Maxus employees made a
presentation to representatives of Meridian concerning the operational
attributes of the Properties and the Maxus Fee Properties, marketing
arrangements, the Partnership's structure, and staffing requirements associated
with the management of the Partnership. Additional data was provided to Meridian
personnel during the week of April 11, 1994.
On April 15, 1994, the parties met and Meridian presented Maxus with
preliminary indications of interest with respect to the acquisition of the
Properties and the Maxus Fee Properties. On April 18, 1994, Maxus indicated that
it was interested in pursuing the negotiation of definitive agreements that
would specify the terms and conditions under which the Partnership Interests and
the Maxus Fee Properties would be purchased.
Between April 19 and April 25, 1994, representatives of the Company and
Maxus negotiated with respect to the terms of an acquisition of the Maxus
Interests by the Company and Acquisition, including the structure of the
transaction and representations and warranties and indemnities to be provided by
Maxus. In the course of these negotiations, the Company agreed to make an upward
adjustment to the purchase price to be paid to Maxus of approximately $15
million (an increase from approximately $4.25 per Unit to approximately $4.485
per Unit) to reflect Maxus' pro rata share of the cash proceeds of the sale by
the Partnership of its interests in Main Pass blocks 72, 73 and 74 to Pogo
Producing Company. During the same period, representatives of the Company and
Maxus prepared drafts of an acquisition agreement for the transaction and
negotiated and prepared drafts of an agreement for certain transition services
to be provided by Maxus to the Partnership. The parties also negotiated the
terms of the purchase of the Maxus Fee Properties during the same period.
On April 25, 1994, Maxus issued a press release disclosing that it was
negotiating with an unidentified third party with respect to a sale of the Maxus
Interests at a price of approximately $4.48 per Unit.
On April 26, 1994, the parties executed a unit purchase agreement (the
"Unit Purchase Agreement") with respect to the sale of the managing general
partnership interest of Maxus Offshore and the 64,163,885 Units held by Maxus
Exploration to the Company and the sale of the special general partnership
interest of Maxus Energy to Acquisition, for a total purchase price of
$291,088,000 (of which $3,341,230 was attributable to the general partnership
interests in the Partnership), or approximately $4.485 per Unit. The closing of
the sale and purchase took place simultaneously with the execution of the Unit
Purchase Agreement. Immediately following the closing of this transaction, Maxus
Exploration paid to the Partnership $36,849,635 in satisfaction of the amount
estimated to be outstanding under a promissory note of Maxus Exploration to the
Partnership and $253,050 in satisfaction of the Partnership's share of the value
of certain hedging transactions undertaken by Maxus, approximately 35% of which
were allocated for the account of the Partnership.
In addition, Maxus Exploration and the Company entered into a transition
services agreement (the "Transition Agreement"), which provides that Maxus will
continue, for a period of up to 90 days after April 26, 1994, to provide certain
services to the Partnership.
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<PAGE> 7
Also on April 26, 1994, Maxus Exploration and Meridian entered into a
separate purchase and sale agreement (the "Purchase and Sale Agreement")
pursuant to which Meridian agreed to purchase the Maxus Fee Properties for
approximately $58,000,000.
For additional information concerning the foregoing agreements, see
"CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS."
On April 28, 1994, the Company and the Partnership entered into the Merger
Agreement, and the Company and Acquisition each executed a written consent
approving the Merger.
PURPOSE AND STRUCTURE OF THE MERGER
The purpose of the Merger is to acquire all of the outstanding Units,
thereby acquiring the entire equity interest in the Partnership. Since 1988, BR
has been selling its nonstrategic real estate, minerals and forest product
assets and reinvesting the net proceeds in domestic oil and gas reserves and in
the repurchase of its common stock. BR's current strategy is to increase
reserves principally through capital improvements to its existing properties and
through acquisitions of proved properties. The Company acquired the Maxus
Interests and is effecting the Merger at this time in furtherance of this
strategy. The Company has structured the acquisition of the Partnership
essentially as a unitary transaction involving a negotiated acquisition of the
Maxus Interests to be followed by a merger at the same purchase price per unit
that was negotiated with the holders of 87.1% of the Partnership interests.
The Company believes that the acquisition of the Maxus Interests in
conjunction with the Merger represents an opportunity for BR and the Company to
establish an operating position in a high priority, strategic area. The Company
believes that the Properties have access to premium gas markets in the
northeastern United States and that the acquisition will provide further
diversification from BR's existing gas markets (a significant portion of which
includes highly competitive markets in California). In addition, the Company
believes that the Properties have high growth and exploratory potential.
Meridian's staff and management have considerable operating experience in
offshore waters and Meridian believes this experience increases the potential
for further growth through exploration and exploitation of the Properties.
Moreover, the Partnership's proved reserves have a reserve to production ratio
of between five and seven years, which complements the higher reserve to
production ratio of BR's existing asset base.
Because the Company and Acquisition own all of the outstanding general
partnership interests in the Partnership and the Company owns approximately 87%
of the outstanding Units, under the Partnership Agreement and Delaware law the
Company and Acquisition currently have the power to approve a merger without the
consent of any other Unit holder. On April 28, 1994, the Company, as the holder
of a .99% managing general partnership interest in the Partnership and
64,163,885 Units, and Acquisition, as the holder of a .01% special general
partnership interest in the Partnership, each executed a written consent
approving the Merger. Under applicable federal securities laws, the Merger
cannot be effected until at least 20 calendar days after this Information
Statement has been sent or given to Unit holders. Accordingly, the Company
expects that the Merger will be consummated on , 1994 or as promptly
as practicable thereafter, assuming that the conditions to the Merger set forth
in the Merger Agreement have been satisfied. See "THE MERGER -- Terms of the
Merger." As a result of the Merger, the interest of the Company in the net book
value and net income of the Partnership will increase from 87.1% to 100%.
Except as described above, BR, the Company and the Partnership have no
present plans or proposals that would relate to or result in any extraordinary
corporate transaction, such as a merger, reorganization or liquidation involving
the Partnership or its subsidiaries, a sale or transfer of a material amount of
assets of the Partnership or its subsidiaries, any change in the Partnership's
management, any material change in the Partnership's distribution rate or policy
or indebtedness or capitalization, or any other material change in the
Partnership's structure or business.
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<PAGE> 8
FAIRNESS OF THE MERGER
The Company believes that the Merger is fair to Unit holders. In reaching
this conclusion, the Company considered the factors discussed below.
(i) The purchase price of $4.485 per Unit pursuant to the Merger is the
same price paid by the Company and Acquisition to acquire the Maxus Interests
from Maxus on April 26, 1994. See "SPECIAL FACTORS -- Background of the Merger."
The Company views the acquisition of the Maxus Interests and the Merger as
essentially a unitary transaction, on terms which were approved by the holders
of 87% of the Units, and in which Unit holders are being treated alike (except
that, as noted in clauses (ii) and (iii) below, certain aspects of the Merger
are more favorable to Unit holders than the terms of the purchase of the Maxus
Interests). The purchase price was negotiated in an arm's length transaction
with Maxus, which the Company believed to be sophisticated and experienced in
purchase and sale transactions involving oil and gas properties. The Company
believed that, prior to selling the Maxus Interests to the Company and
Acquisition, Maxus had solicited offers from other third parties and that the
price paid by the Company and Acquisition to acquire the Maxus Interests
represented the most favorable offer received by Maxus.
(ii) Unit holders of record as of May 13, 1994 will receive the Partnership
distribution of $.13 declared on April 25, 1994, which is payable on June 7,
1994. Maxus will not receive any such distribution.
(iii) Under the Unit Purchase Agreement, Maxus made certain representations
and warranties to the Company and Acquisition regarding, among other things, the
financial condition, assets, liabilities and operations of the Partnership.
Maxus is obligated to indemnify the Company against all damages incurred by the
Company or Acquisition arising out of a breach of any representation, warranty
or agreement by Maxus in the Unit Purchase Agreement, any filings by the
Partnership with the Commission prior to April 26, 1994, and certain other
matters. Accordingly, the purchase price received by Maxus could be reduced in
the future by indemnification payments to the Company. Unit holders are not
being asked to make any of the foregoing representations or warranties or to
indemnify the Company against any of the foregoing matters, and therefore the
Merger Consideration of $4.485 per Unit to be received by Unit holders will not
be subject to any such potential future reduction. Although as of the date of
this Information Statement the Company has not asserted any claims for
indemnification against Maxus, for the foregoing reasons the Merger
Consideration could be greater than the per Unit consideration retained by
Maxus. See "CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND
MAXUS -- Unit Purchase Agreement."
(iv) The Company considered conditions in the oil and gas industry in
general, and the current environment for acquisitions of oil and gas properties
(including offshore oil and gas properties).
(v) The Company considered the current market price of the Units (the
closing sales price of the Units on April 25, 1994, the last trading day prior
to the announcement of the acquisition of the Maxus Interests, was $4.625) and
historical market prices for the Units during the past two years. See "PRICE
RANGE OF UNITS; CASH DISTRIBUTIONS." There is limited liquidity in the market
for the Units and the Merger represents an opportunity for holders to liquidate
their investment which might not otherwise be available to Unit holders. While
the Units had historically traded at prices higher than the Merger Consideration
(the high sales price of the Units for the year ended December 31, 1993 was
$6.875), the Units had also traded at lower prices (the closing price for the
Units on March 31, 1994 was $4.00 per Unit; the average closing price for the
Units for the 30 days prior to the announcement of the acquisition of the Maxus
Interests was $4.494), and the Company believed historical prices to be less
significant given that (i) the same purchase price was paid to Maxus for its
87.1% interest in the Partnership in a negotiated transaction and (ii) Maxus had
had the opportunity to seek other offers and the Company believed that Maxus had
done so.
(vi) The Company also considered information relating to the Properties,
including the historical operations of the Properties, current operations and
potential of the Properties, levels of oil and gas reserves, the ratio of oil
reserves to gas reserves, and programs for development and production
optimization. See "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES."
(vii) Unit holders are not entitled to appraisal rights in connection with
the Merger. See "SPECIAL FACTORS -- Appraisal Rights."
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<PAGE> 9
In view of the number and variety of factors considered, the Company did
not find it practicable to, and did not, assign relative weights to the factors
described above. However, the Company believes that the factors described in
(i), (ii), (iii) and (iv) above are favorable to its determination of fairness,
factors (v) and (vi) are neutral, and factor (vii) is negative.
The Company did not believe current net book value per Unit to be relevant
to its determination of fairness because such value (approximately $2.00 per
Unit at March 31, 1994 on a pro forma basis giving effect to the sale of the
Partnership's interests in Main Pass blocks 72, 73 and 74 on April 25, 1994 to
Pogo Producing Company) is substantially less than the Merger Consideration and
historical trading prices for the Units. The Company did not consider
liquidation value to be relevant to its determination of fairness because the
Company intends to continue to operate the business currently conducted by the
Partnership as a going concern and therefore the Company evaluated the
Partnership on a going concern basis. However, the Company believed that
estimates of future net revenue, information concerning historical operations,
current operations and potential of the Properties, levels of reserves, the
ratio of oil reserves to gas reserves, programs for development and production
optimization, estimates of future oil and gas prices and general economic and
market conditions, which were considered by it in its determination of fairness,
would also be taken into account in determining liquidation value.
Neither Meridian nor the Company received any report, opinion or appraisal
from an outside party in connection with the acquisition of the Maxus Interests
or the Merger.
The Merger is not structured to require the approval of a majority of
unaffiliated Unit holders. In addition, neither Meridian, the Company, the
Partnership nor a majority of the non-employee directors of Meridian or the
Company retained an unaffiliated representative to act solely on behalf of
unaffiliated Unit holders for the purpose of negotiating the terms of the Merger
or preparing a report concerning the fairness of the Merger. While these factors
could be viewed as unfavorable to a determination of fairness, the Company
believes, based upon the factors listed above, that the terms of the Merger are
fair to Unit holders.
EFFECT OF THE MERGER ON THE MARKET FOR UNITS; NYSE AND PSE LISTING AND EXCHANGE
ACT REGISTRATION
As a result of the Merger, the Units will cease to be outstanding and will
be delisted from the New York Stock Exchange (the "NYSE") and the Pacific Stock
Exchange (the "PSE"), and the registration of the Units under the Exchange Act
will be terminated.
FINANCING OF THE MERGER
The amount of funds needed by the Company to purchase all of the
outstanding Units pursuant to the Merger and to pay related fees and expenses
will be approximately $45 million. See "FEES AND EXPENSES." The Company plans to
obtain all of such funds through capital contributions or advances made by
Meridian. Meridian plans to obtain the funds for such capital contributions or
advances from working capital.
APPRAISAL RIGHTS
Holders of Units do not have appraisal rights in connection with the
Merger. The Partnership is a Delaware limited partnership and the Partnership
Agreement provides that the Partnership Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware. The Company
is not aware of any provisions of Delaware law expressly providing rights to
holders of interests in a Delaware limited partnership in lieu of appraisal
rights. In cases involving corporations, courts applying Delaware law have held
that a controlling stockholder of a corporation involved in a merger has a
fiduciary duty to other stockholders that requires that the merger be fair to
other stockholders. In determining whether a merger is fair to minority
stockholders of a corporation, these courts have considered, among other things,
the type and amount of consideration to be received by stockholders and whether
there was fair dealing among the parties. These courts have held that a damages
remedy may be available in a merger which is the result of procedural
unfairness, including fraud, misrepresentation or other misconduct.
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<PAGE> 10
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the Federal income tax
consequences of the Merger to Unit holders. This discussion does not address the
particular Federal income tax consequences that may be relevant to certain types
of taxpayers subject to special treatment under the Federal income tax laws
(such as life insurance companies, banks, tax-exempt organizations, foreign
corporations and nonresident aliens). Moreover, because certain of the tax
consequences of the Merger are uncertain (due to the absence of precedental
authority), Unit holders are strongly urged to consult with their own tax
advisors regarding the Federal (as well as state, local and foreign) tax
consequences of the Merger.
Upon the Merger, a Unit holder will generally recognize gain or loss, for
Federal income tax purposes, measured by the difference between the amount
realized by the Unit holder in the Merger (which will include not only the cash
received by the Unit holder, but also the Unit holder's proportionate share of
the liabilities of the Partnership at the time of the Merger) and the Unit
holder's aggregate basis in his Units (which will generally equal the price paid
by the Unit holder for his Units, increased by the amount of income and gain
allocated to the Unit holder through and including the date of the Merger and
the Unit holder's proportionate share of the liabilities of the Partnership at
the time of the Merger, and decreased by the amount of deduction and loss
allocated to the Unit holder through and including the date of the
Merger - including depletion allowances to which the Unit holder was entitled
but, as to any depletable property, not in excess of the Unit holder's
proportionate share of the Partnership's basis in such depletable property - and
the amount of any cash distributions made to the Unit holder prior to the
Merger). Assuming that the Units were held by the Unit holder as a capital
asset, such gain or loss will be capital gain or loss (long term or short term
depending upon whether or not the Unit holder has held his Units for more than a
year at the time of the Merger), except to the extent provided in the following
paragraph.
A Unit holder will recognize ordinary income for Federal income tax
purposes (which may be substantial in amount) to the extent that the amount
realized by the Unit holder in the Merger, determined as set forth above, is
attributable to (1) inventory items which have "appreciated substantially in
value" and (2) unrealized receivables (which includes, generally, the
depreciation and intangible drilling deductions previously allocated to the Unit
holder as well as the depletion deductions to which the Unit holder was entitled
with respect to the depletable properties of the Partnership - but, as to any
depletable property, not in excess of the Unit holder's proportionate share of
the Partnership's basis in such depletable property). In the case of a Unit
holder realizing an overall gain in connection with the Merger, the ordinary
income which the Unit holder must recognize pursuant to the foregoing rule will
reduce the amount of capital gain that the Unit holder would otherwise recognize
(assuming, as stated above, that the Units are held by the Unit holder as a
capital asset). The amount of ordinary income which a Unit holder must recognize
pursuant to the foregoing rule may, however, be in excess of the Unit holder's
overall gain on the Merger, in which event the Unit holder will recognize no
capital gain but, instead, will recognize a capital loss in an amount equal to
the excess. In the case of a Unit holder who realizes an overall loss on the
Merger, any ordinary income which the Unit holder is required to recognize under
the foregoing rule will result in a corresponding increase in the amount of the
Unit holder's capital loss (assuming again that the Units are held by the Unit
holder as a capital asset).
The foregoing rules are complicated by a relatively recently enacted
provision of the Internal Revenue Code of 1986, as amended (the "Code"), under
which no regulations have yet been issued. This provision provides that if a
partner contributes property to a partnership having a value that does not equal
its basis and, within five years of the date of the contribution, the property
is distributed by the partnership (other than to the contributing partner), the
contributing partner must recognize gain or loss for Federal income tax purposes
equal to the difference between the fair market value of the contributed
property and its basis at the time of the contribution (with appropriate
adjustments being made to the contributing partner's basis in the partnership).
For Federal income tax purposes, the sale of the Units which was effected on
April 26, 1994 pursuant to the Unit Purchase Agreement (the "Sale Transaction")
resulted in a termination of the Partnership under Section 708(b)(1)(B) of the
Code, a theoretical distribution of the assets of the Partnership to the
partners existing immediately subsequent to the Sale Transaction, including the
Unit holders, and a theoretical recontribution of these assets to a newly formed
partnership. As a result, Unit holders are treated, for Federal income tax
purposes, as having made property contributions to the Partnership
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<PAGE> 11
immediately subsequent to the Sale Transaction, and, in most if not all cases,
the value of the assets that the Unit holders are treated as having contributed
to the Partnership will not be equal to the Unit holder's basis in those assets
(which, in the aggregate, will equal the Unit holder's basis in his Units
immediately subsequent to the Sale Transaction). Accordingly, this new provision
of the Code would appear to apply to Unit holders. Arguments can be made,
however, based on the legislative history of the provision, that the foregoing
provision should only apply to property which was not contributed to the
Partnership in connection with the Partnership's formation in 1985 or, if so
contributed, should only apply to the extent of the Unit holder's pro rata share
of any decrease or increase in the value of the property occurring between the
time of the Partnership's formation and the date of the Sale Transaction.
Additionally, arguments can be made that, as a policy matter, the provision
should not apply at all in a situation such as the Merger where,
contemporaneously with the distribution of the property that the Unit holders
are treated as having contributed to the Partnership, the contributing partners
are recognizing the full amount of gain or loss attributable to their Units.
However, in the absence of any controlling precedental authority, no assurance
can be given that the provision will not apply.
Assuming that the provision does apply, any Unit holder at the time of the
Merger who was also a Unit holder at the time of the Sale Transaction will be
required, for Federal income tax purposes, to recognize gain or loss in the
Merger in a net amount equal to the difference between the Unit holder's basis
in his Units and the fair market value of those Units at the time of the Sale
Transaction. A Unit holder at the time of the Merger who acquired his Units
subsequent to the Sale Transaction will have to recognize gain or loss in an
amount equal to that which the person who held the Units at the time of the Sale
Transaction would have had to recognize pursuant to the foregoing rule,
generally increased or decreased by the amount of any adjustment made to the
Unit holder's share of the Partnership's basis in its assets, under Section 754
of the Code, in connection with the Unit holder's acquisition of his Units
(although, as a practical matter, the subsequent Unit holder will not know the
prior Unit holder's basis in his Units at the time of the Sale Transaction and,
therefore, will not be able to determine the amount of the prior holder's gain
or loss or the amount of the Section 754 adjustment resulting from the
subsequent Unit holder's acquisition of his Units). The character of the
foregoing gain or loss will be determined by reference to each property that the
Unit holder is deemed as having contributed to the Partnership at the time of
the Sale Transaction, with the amount of the gain or loss being computed
separately with respect to each property (but with the aggregate, net amount of
the gain or loss being as set forth above). Any gain or loss recognized under
this provision will result in a corresponding increase or decrease in the Unit
holder's basis in his Units and, therefore, in a corresponding reduction in the
overall gain or a corresponding increase in the overall loss recognized by the
Unit holder in connection with the Merger (pursuant to the rules discussed in
the second and third paragraphs under this heading, "Special Factors -- Certain
Federal Income Tax Consequences"). As a result, application of the foregoing
provision will not alter the net amount of gain or loss that must be recognized
by a Unit holder as a result of the Merger, but may alter the character of all
or a portion of that gain or loss.
ACCOUNTING TREATMENT
The acquisition of the Units pursuant to the Merger will be accounted for
as a purchase of assets whereby the oil and gas reserves underlying the Units
will be consolidated with the Company's reserves.
CERTAIN LITIGATION
On April 27, 1994, a purported class action entitled Susser vs. Burlington
Resources Inc., et al. (C.A. No. 13483) (the "Action") was filed in the Delaware
Chancery Court. The complaint (which names as defendants BR, the Partnership,
Maxus Energy, Maxus Offshore and three officers and directors of Maxus Offshore)
alleges, among other things, (i) that the proposed purchase price to be paid to
Unit holders does not represent the true value of the assets and future
prospects underlying the limited partnership interests in the Partnership, but
is an attempt to benefit BR unfairly at the expense of Unit holders, that the
market value and intrinsic value of the Units was and is materially in excess of
$4.48 per Unit and that the purchase price is not the result of arm's length
negotiations, (ii) that Maxus was under pressure to sell its stake in the
Partnership due to growing financial problems at Maxus, (iii) that defendants'
announcement of the proposed Merger fails
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<PAGE> 12
to adequately disclose, inter alia, whether defendants obtained a fairness
opinion from an independent investment bank and that allegedly the Partnership
was on the verge of reporting sustained and significant profits, and (iv) that
Maxus and BR have breached and continue to breach their purported fiduciary
duties as past and present controlling security holders of the Partnership,
including that Maxus did not attempt to achieve the highest possible price for
the Partnership. The complaint seeks, among other things, preliminary and
permanent injunctive relief and unspecified damages. BR and the Company believe
that the Action is wholly without merit and intend to defend it vigorously.
THE MERGER
APPROVAL OF THE MERGER
On April 28, 1994, the Board of Directors of the Company approved on behalf
of the Company, and the Company, in its capacity as managing general partner of
the Partnership, approved on behalf of the Partnership, the Merger, upon the
terms and subject to the conditions set forth in the Merger Agreement. Also on
April 28, 1994, the Company, as the holder of a .99% managing general
partnership interest in the Partnership and of 64,163,885 Units, and
Acquisition, as the holder of a .01% special general partnership interest in the
Partnership, executed written consents approving the Merger. Under Delaware law
and the Partnership Agreement, by reason of such consents, no other vote or
consent of Unit holders is required in order to consummate the Merger.
TERMS OF THE MERGER
Merger Consideration
At the Effective Time (as defined below), each partnership interest in the
Partnership held by the Company or any of its affiliates will be cancelled and
each outstanding Unit (other than Units held the Company or any of its
affiliates) will be converted into the right to receive the Merger Consideration
of $4.485 per Unit in cash, without interest, and all such Units will
automatically cease to be outstanding and will be cancelled and retired and
cease to exist.
Effective Time
The Merger will become effective (the "Effective Time") at the time a
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware in accordance with the Delaware General Corporation Law and the
Delaware Revised Uniform Limited Partnership Act or at such other time as may be
specified in the Certificate of Merger. Provided the conditions to the Merger
have been satisfied or waived, it is anticipated that the Merger will be
consummated on , 1994 or as promptly as practicable thereafter.
Parties; Surviving Corporation
In the Merger, the Partnership will be merged with and into the Company,
whereupon the separate existence of the Partnership will cease. The Company will
be the surviving corporation in the Merger and will continue its existence under
the laws of the State of Delaware. At the election of the Company, any direct or
indirect wholly owned subsidiary of Meridian Oil Holding Inc. ("MOHI") may be
substituted for the Company as a party in the Merger.
Conditions to the Merger
The obligations of the Company and the Partnership to effect the Merger are
each subject to (i) no statute, rule, regulation, executive order, decree,
injunction or other order having been executed, entered, promulgated or enforced
by any court or governmental authority which is in effect and has the effect of
prohibiting consummation of the Merger, (ii) the waiting period applicable to
the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), having expired or been terminated, and (iii) a 20
calendar day period having elapsed from the date of mailing of this Information
Statement to Unit holders.
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<PAGE> 13
Procedures for Exchange of Units
Prior to the Effective Time, the Company will appoint a bank or trust
company to act as disbursing agent (the "Disbursing Agent") for the payment of
the Merger Consideration upon surrender of certificates representing the Units.
Promptly after the Effective Time, the Company will cause the Disbursing Agent
to mail to each person who was a record holder as of the Effective Time of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented Depositary Units (the "Certificates"), a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Disbursing Agent) and instructions for use in effecting the
surrender of the Certificate in exchange for payment of the Merger
Consideration. Upon surrender to the Disbursing Agent of a Certificate, together
with such letter of transmittal duly executed and such other documents as may be
reasonably required by the Disbursing Agent, the holder of such Certificate will
be paid in exchange therefor cash in an amount equal to the product of the
number of Units represented by such Certificate multiplied by the Merger
Consideration, and such Certificate shall forthwith be cancelled. No interest
will be paid or accrued on the cash payable upon the surrender of the
Certificates.
At and after the Effective Time, there will be no registration of transfers
of Units and the Partnership will instruct the depositary for the Depositary
Units not to register transfers of the Depositary Units. From and after the
Effective Time, the holders of Units outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such Units except
as otherwise provided in the Merger Agreement or by applicable law.
At any time more than one year after the Effective Time, the Company will
be entitled to require the Disbursing Agent to deliver to it any funds made
available to the Disbursing Agent and not disbursed in exchange for
Certificates. Thereafter, holders of Units will be entitled to look only to the
Company (subject to abandoned property, escheat and other similar laws) as
general creditors thereof with respect to any Merger Consideration that may be
payable upon due surrender of the Certificates held by them. Neither the Company
nor the Disbursing Agent will be liable to any holder of a Unit for any Merger
Consideration delivered to a public official pursuant to any abandoned property,
escheat or other similar law.
Distribution
Unit holders of record on May 13, 1994 will receive the Partnership
distribution of $.13 per Unit declared on April 25, 1994, which is payable on
June 7, 1994.
The foregoing summary of the Merger Agreement is qualified in its entirety
by reference to the complete text of the Merger Agreement, a copy of which is
attached as Appendix A.
CERTAIN AGREEMENTS BETWEEN THE COMPANY AND ITS AFFILIATES AND MAXUS
UNIT PURCHASE AGREEMENT
On April 26, 1994, the Company and Acquisition purchased the Maxus
Interests for an aggregate purchase price of $291,088,000 (of which $3,341,230)
was attributable to the general partnership interests in the Partnership) or
approximately $4.485 per Unit, pursuant to the Unit Purchase Agreement. In
accordance with the terms of the Unit Purchase Agreement, Maxus Exploration used
$36,849,635 of the purchase price to repay the amount estimated to be
outstanding under a promissory note of Maxus in favor of the Partnership
(subject to post-closing adjustment based on the actual amount of the note as of
April 26, 1994) and used $253,050 of the purchase price to pay the Partnership
its share of the value of certain hedging transactions undertaken by Maxus,
approximately 35% of which were allocated for the account of the Partnership.
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<PAGE> 14
In the Unit Purchase Agreement, Maxus made certain representations and
warranties to the Company and Acquisition, including representations and
warranties with respect to (i) the organization and qualification of Maxus, the
Partnership and its subsidiary, Diamond Shamrock Offshore Pipeline Company
("Pipeline"), (ii) the power and authority of Maxus to consummate the purchase
and sale of the Maxus Interests, (iii) the absence of any material adverse
change affecting the Partnership since December 31, 1993, (iv) the absence of
pending or threatened litigation affecting the Partnership or Pipeline, (v) the
accuracy of all filings of the Partnership with the Commission since December
31, 1990, including the Partnership's financial statements, (vi) the absence of
consent or approval requirements for consummation of the purchase and sale,
(vii) compliance by the Partnership with applicable laws, (viii) title of Maxus
to the Maxus Interests, (ix) rights of the Partnership under oil and gas leases
and (x) the absence of material liabilities or obligations of the Partnership
other than those reflected in its financial statements at December 31, 1993 or
incurred subsequently in the ordinary course of business.
Under the Unit Purchase Agreement, Maxus agreed to indemnify and hold
harmless the Company and Acquisition from and against all damages incurred by
the Company or Acquisition or any of their affiliates, arising out of, resulting
from or relating to (i) a breach of any representation, warranty or agreement of
Maxus contained in or made pursuant to the Unit Purchase Agreement or any facts
or circumstances constituting such a breach, (ii) the Partnership's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994 and all other forms,
reports and documents filed by the Partnership with the Commission prior to
April 26, 1994, (iii) any indebtedness of Maxus or any of its affiliates to the
Partnership, or any transaction or arrangement (contractual or otherwise)
involving the Partnership and Maxus or any of its affiliates, other than
transactions or arrangements set forth in the Transition Agreement, and (iv) the
transactions under an agreement of purchase and sale dated as of March 28, 1994,
pursuant to which the Partnership sold certain oil and gas properties to Pogo
Producing Company.
TRANSITION AGREEMENT
Concurrently with the execution of the Unit Purchase Agreement, Maxus
Exploration and the Company entered into the Transition Agreement, pursuant to
which Maxus Exploration will continue to provide management, operations,
accounting, tax, marketing, technical and administrative services to the
Partnership of the same type, level and quality provided prior to April 26,
1994, for a period of up to 90 days after April 26, 1994, to the extent Maxus
Exploration is capable of providing such services and such services are not
terminated by the Company. Under the Transition Agreement, Maxus Exploration
will also assist the Company in preparing tax returns of the Partnership
covering periods through December 31, 1994.
The Company agreed (i) to cause the Partnership to reimburse Maxus
Exploration as provided in the Partnership Agreement with respect to service
relating to periods prior to April 26, 1994, (ii) on behalf of the Partnership,
to pay Maxus Exploration a fixed fee of $375,000 for services for each of the
periods ending May 31, 1994 and June 30, 1994, and (iii) on behalf of the
Partnership, to reimburse Maxus Exploration as provided in the Partnership
Agreement for any services thereafter. The Company also agreed to indemnify and
hold harmless Maxus Exploration against damages incurred by it arising out of
the performance of the services, except to the extent arising from its gross
negligence or willful misconduct.
The Transition Agreement also permits the Company to terminate certain
existing marketing arrangements between Maxus and the Partnership pursuant to
which Maxus markets gas produced by the Partnership, at no cost to the
Partnership, and to require Maxus to assign to the Partnership all of its right,
title and interest under certain gas sales and exchange contracts for which
Maxus previously obtained gas supplies under the marketing arrangements referred
to above.
Maxus further agreed that, to the extent the Company incurs damages arising
out of matters for which Maxus could bring a claim under its insurance policies,
Maxus will use its best efforts to bring a claim under such policies and will
remit the net proceeds of any such claim to the Company.
10
<PAGE> 15
PURCHASE AND SALE AGREEMENT
Also on April 26, 1994, Meridian and Maxus Exploration entered into the
Purchase and Sale Agreement, pursuant to which Meridian agreed to acquire the
interests of Maxus in the Maxus Fee Properties for $58,000,000, subject to
certain adjustments. The Purchase and Sale Agreement contains representations
and warranties, covenants, closing conditions and indemnities customary for
purchase and sale transactions involving oil and gas properties.
INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES
BUSINESS AND PROPERTIES
The following information is excerpted from the 1993 Partnership 10-K,
which was prepared by Maxus Offshore, which at that time was the managing
general partner of the Partnership:
"The Partnership is engaged in oil and gas exploration and production
activities in federal waters offshore Texas and Louisiana. The Partnership
was formed in Delaware in 1985 to succeed to the oil and gas exploration
and production business previously conducted by [Maxus] Exploration, a
wholly owned subsidiary of Maxus [Energy], in federal waters offshore Texas
and Louisiana. . . ."
"The Partnership properties include interests in 82 offshore federal
leases within 45 fields. The Partnership is the operator of 46 of such
leases. Of the leases, 49 are held by either oil or gas production, with
sales being made from all of such leases in 1993. During 1993, the
Partnership properties produced approximately 74 Mmcf of gas per day and
4,100 barrels of oil per day."
"The following table sets forth information with respect to certain of
the Partnership properties. The blocks shown in the table are listed in
descending order based upon the present value of estimated future net cash
flows from production at December 31, 1993, before income taxes, discounted
at 10% per annum ("Discounted Present Value"), with the total proved
reserves from such blocks accounting for 55% of the Discounted Present
Value attributable to the Partnership properties as of December 31, 1993.
The two largest blocks, accounting for approximately 28% of the Partnership
properties on a percentage of Discounted Present Value basis, are discussed
in greater detail below.
<TABLE>
<CAPTION>
1993 AVERAGE NET
% OF YEAR DAILY PRODUCTION
WORKING PRODUCTION -----------------
BLOCKS INTEREST(1) COMMENCED(2) BBL MCF
----------------------------------------- ------ ---------- ----- ------
<S> <C> <C> <C> <C>
Green Canyon 18.......................... 15.00 1987 1,149 1,341
West Cameron 142......................... 100.00 1993 3(3) 102(3)
Ewing Banks 944, 988..................... 15.00 1988 588 633
Main Pass 127 Complex.................... 100.00 1980 8 23,526
Vermilion 225/226........................ 68.16 1983; 1992 119 8,592
</TABLE>
- ---------------
(1) A working interest entitles the owner to explore, develop, operate and
receive the production from a property, subject usually to a royalty and
sometimes to other non-operating interests. The working interest bears the
operating and development costs. If more than one block is shown and
different ownership interests occur in each block, then the working
interest shown is a unitized working interest.
(2) For blocks with platforms that commenced production in different years, the
year production commenced is shown for each platform.
(3) Average is for eight days of production during 1993."
"Green Canyon Block 18 accounts for approximately 15.2% of the Discounted
Present Value of the Partnership properties. The block contains 5,760 acres in
which the Partnership holds a 15% working interest. A total of 14 wells are
currently producing."
11
<PAGE> 16
"West Cameron Block 142 accounts for approximately 12.9% of the Discounted
Present Value of the Partnership properties. The block was discovered and
developed in 1993. Two wells were drilled on the block and current net
production is approximately 13 Mmcf per day and 340 barrels of oil per day."
"During 1993, the Partnership had gas discoveries at West Cameron 142, Main
Pass 181 and Main Pass 111, blocks where it had a 100% working interest. The
Partnership's reserve additions resulted in replacement of approximately 122% of
the year's production."
Developed and Undeveloped Properties
"The following table sets forth information at December 31, 1993 with
respect to the developed and undeveloped oil and gas properties owned by the
Partnership. As used in this report, "gross" acres are the total number of acres
in which the Partnership owns any interest. "Net" acres are the sum of the
fractional working interests the Partnership owns in gross acres.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
------------------ --------------------
GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
------ ------ ------- -------
<S> <C> <C> <C> <C>
Offshore Louisiana......................... 26,383 9,686 219,005 145,707
Offshore Texas............................. 12,478 2,800 132,761 77,319
------ ------ ------- -------
Total............................ 38,861 12,486 351,766 223,026
</TABLE>
The Managing General Partner believes that the time remaining under the
primary terms of the leases covering undeveloped acreage included in the
Partnership properties is, as a whole, sufficient for their exploration and
development under current conditions."
Drilling Activity
"The following table sets forth information regarding exploratory and
development wells drilled for the three years ended December 31, 1993. As used
in this report, "gross" wells are the total number of wells in which the
Partnership owns any interest. "Net" wells are the sum of the fractional
interests the Partnership owns in gross wells. "Productive" wells are either
producing wells or wells capable of commercial production although currently
shut-in. One or more completions in the same bore hole are counted as one well.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1993 1992 1991
--- --- ---
<S> <C> <C> <C>
Net Exploratory Wells Drilled
Productive............................................ 2.0 0 2.3
Dry................................................... 1.0 1.0 1.6
--- --- ---
Total......................................... 3.0 1.0 3.9
Net Development Wells Drilled
Productive............................................ 1.5 3.2 .4
Dry................................................... .1 .0 2.1
--- --- ---
Total......................................... 1.6 3.2 2.5
</TABLE>
At February 28, 1994, the Partnership had 5 gross wells (.9 net wells) in
progress."
12
<PAGE> 17
Productive Wells
"The following table sets forth the Partnership's total gross and net
productive oil and gas wells, including multiple completions, at December 31,
1993.
<TABLE>
<CAPTION>
GROSS NET
----- ----
<S> <C> <C>
Productive oil wells.......................................... 101 20.4
Productive gas wells.......................................... 103 36.2
Multiple completions.......................................... 11 3.7
</TABLE>
Production and Sales of Oil and Gas
"The following table sets forth the average sales prices and production
costs of crude oil and natural gas produced for the three years ended December
31, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Average Sales Price
Crude Oil (per barrel)....................... $17.12 $18.61 $20.16
Natural Gas (per Mcf)........................ $ 2.21 $ 2.01 $ 1.88
Average Production Cost (per barrel)*.......... $ 2.72 $ 2.33 $ 2.49
</TABLE>
- ---------------
* Production or lifting cost is exclusive of depreciation and depletion
applicable to capitalized lease acquisition, exploration and development
expenditures. The gas production was converted to equivalent barrels of crude
oil by dividing the Mcf volume by six. Six Mcf of gas have approximately the
heating value of one barrel of crude oil."
Regulation of Crude Oil and Natural Gas Production
"Domestic exploration for and production and sale of oil and gas are
extensively regulated at both the national and local levels. The heavy
regulatory burden on the oil and gas industry increases its costs of doing
business and consequently affects its profitability."
Environmental Regulation
"Various federal, state and local laws and regulations covering the
discharge of materials into the environment or otherwise relating to the
protection of the environment may affect the Partnership's operations and costs.
Environmental protection laws to date have not required the Partnership to make
any significant additional capital outlays. It is not anticipated that the
Partnership will be required in the near future to expend amounts that are
material in relation to its total capital expenditure program by reason of
environmental laws and regulations, but inasmuch as such laws and regulations
are constantly being revised and changed, the Managing Partner is unable to
predict the ultimate cost of complying with present and future environmental
laws and regulations."
Competition and Marketing
"The Partnership's production represents only a small fraction of the total
world markets for oil and natural gas. As a result, the prices the Partnership
receives depend primarily on the relative balance between supply and demand in
these markets."
"The Managing General Partner believes that the longer term potential for
growth in natural gas demand remains high due to the abundance of the fuel,
environmental awareness and price advantages; however, market prices remain
extremely volatile with weather and regional supply and demand imbalances
causing the potential for large monthly price swings. To counteract the
potential for pricing swings, the Managing General Partner entered into a
hedging program that essentially fixed prices beginning with June 1993
production for approximately 40% of the Partnership's gas production. The
program has been extended through 1994 and
13
<PAGE> 18
may cover a larger portion of the Partnership's gas production. Overall, the
Partnership has been able to realize premium gas prices resulting from focused
marketing efforts and the addition of aggregated supply, which enables the
marketing staff to offer large volumes backed by diversified supply sources."
"The Partnership's natural gas volumes are combined with aggregated, third
party supplies for ultimate sale to several different types of customers under
various sales arrangements, all of which are classified as either spot or term
sales. Spot sales are made on a day-to-day basis, generally under contracts
having terms of approximately one calendar month or less. Term sales are firm
commitments that are made on a multi-month basis. Pricing is predominately set
as a function of market clearing prices (index prices) which will fluctuate with
the market, or fixed prices which will remain steady with the market. Index
prices may be converted to a fixed price via the hedging program described
above. Of the Partnership's total natural gas sales volumes and gas sales
revenue in 1993, approximately 41% was ultimately sold directly to local
distribution companies and end-users with the remaining 58% ultimately being
sold to pipelines and gas marketing companies."
"The world oil market continues to be subject to uncertainty. Iraq has not
yet resumed oil sales due to its failure to agree to United Nations imposed
conditions on such sales, but the threat of increased Iraqi production continues
to overhang the market. Oil prices have recently decreased primarily due to
additional availabilities from non-OPEC countries and excessive OPEC production
coupled with limited demand growth in developed countries."
OIL AND GAS RESERVES
The following information is excerpted from the 1993 Partnership 10-K:
"Net proved developed and undeveloped reserves are the estimated quantities
of crude oil and natural gas which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are proved reserve volumes that can be expected to be recovered through
existing wells with existing equipment and operating methods. Proved undeveloped
reserves are proved reserve volumes that are expected to be recovered from new
wells on undrilled acreage or from existing wells where a significant
expenditure is required for recompletion."
14
<PAGE> 19
"The following table represents the Partnership's net interests in
estimated quantities of proved developed and undeveloped reserves of crude oil,
including condensate (in thousands of barrels), and natural gas (in millions of
cubic feet) at December 31, 1993, 1992 and 1991, and changes in such estimated
quantities for the years then ended:
<TABLE>
<CAPTION>
OIL GAS
(MB) (MMCF)
------ -------
<S> <C> <C>
NET PROVED DEVELOPED AND UNDEVELOPED RESERVES
January 1, 1991................................................. 11,354 186,846
Revisions of previous estimates................................. 760 (5,257)
Extensions, discoveries and other additions..................... 122 2,945
Production...................................................... (2,061) (32,778)
Purchase of reserves in place................................... 207 26,752
------ -------
December 31, 1991............................................... 10,382 178,508
Revisions of previous estimates................................. 953 (192)
Extensions, discoveries and other additions..................... 307 10,852
Production...................................................... (1,583) (31,559)
------ -------
December 31, 1992............................................... 10,059 157,609
Revisions of previous estimates................................. 487 (9,692)
Extensions, discoveries and other additions..................... 660 47,223
Production...................................................... (1,517) (27,181)
------ -------
December 31, 1993............................................... 9,689 167,959
------ -------
------ -------
NET PROVED DEVELOPED RESERVES
January 1, 1991................................................. 10,805 137,731
December 31, 1991............................................... 9,806 141,641
December 31, 1992............................................... 9,287 120,328
December 31, 1993............................................... 9,046 118,567
</TABLE>
FUTURE NET CASH FLOWS
The following information is excerpted from the 1993 Partnership 10-K:
"The standardized measure of discounted future net cash flows
("standardized measure") relating to proved oil and gas reserves is calculated
and presented in accordance with Statement of Financial Accounting Standards No.
69. The standardized measure has been prepared assuming year-end selling prices
(adjusted for future fixed and determinable contractual price changes) for the
Partnership's estimated share of future production from proved oil and gas
reserves. Future production and development costs were computed by applying
year-end costs to future years. A prescribed 10% discount factor was applied to
future net cash flows. Because prices fluctuate, a calculation of the
standardized measure utilizing current prices would result in different
discounted future net cash flows for 1993 than is presented."
15
<PAGE> 20
"The Partnership cautions that this standardized measure is not
representative of fair market value, and the standardized measure presented for
the Partnership's proved oil and gas reserves is not representative of the
reserve value. The standardized measure is intended only to assist financial
statement users in making comparisons between companies."
<TABLE>
<CAPTION>
1993 1992 1991
--------- -------- ---------
<S> <C> <C> <C>
Future cash inflows............................ $ 522,176 $546,581 $ 580,780
Future production and development costs........ (179,006) (87,974) (200,596)
--------- -------- ---------
Future net cash flows.......................... 343,170 358,607 380,184
Annual discount at 10% rate.................... (96,820) (79,706) (77,528)
--------- -------- ---------
Standardized measure of discounted future net
cash flows................................... $ 246,350 $278,901 $ 302,656
--------- -------- ---------
--------- -------- ---------
</TABLE>
"The following are the principal sources of change in the standardized
measure:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
January 1,..................................... $278,901 $302,656 $417,655
Sales and transfers of oil and gas produced,
net of production costs................... (71,482) (79,701) (85,962)
Net changes in prices and production costs... (6,474) (9,504) (119,686)
Extensions, discoveries and improved
recovery, less related costs.............. 48,483 15,152 6,051
Previously estimated development costs
incurred during the year.................. 6,099 (2,966) 5,719
Revisions of previous quantity estimates..... (12,710) 28,433 17,855
Purchase of reserves in place................ 3,509 -- 20,682
Accretion of discount........................ 27,890 30,266 41,766
Other........................................ (27,866) (5,435) (1,424)
-------- -------- --------
December 31,................................... $246,350 $278,901 $302,656
-------- -------- --------
-------- -------- --------
</TABLE>
CERTAIN PROJECTIONS
In connection with its evaluation of the acquisition of the Maxus Interests
and the Merger, the Company prepared for internal use certain estimates of
future oil and gas production and net cash flows from the Properties. The
Company and BR do not as a matter of course make public forecasts or estimates
of future sales, production, capital expenditures, earnings or cash flows. The
projections and estimates set forth below were not prepared with a view to
public disclosure and are based upon numerous assumptions with respect to future
prices of oil and gas, future production levels, results of development
programs, timing of production and of development programs, future development
costs and economic and other factors which are subject to significant
uncertainties and conditions, many of which are beyond the control of the
Company and BR. Neither the Company nor BR assumes any responsibility for the
accuracy of the projections or estimates set forth below and there can be no
assurance that such projections or estimates will be realized and actual results
may be higher or lower than those shown. Such projections or estimates were not
prepared with a view to complying with published guidelines of the Commission
regarding projections and forecasts and were not prepared in accordance with
guidelines published by the American Institute of Certified Public Accountants.
Oil and Gas Production from Proved Reserves
Approximately 42% of the proved reserves attributable to the Properties as
of December 31, 1993 consisted of proved developed reserves which were currently
producing and approximately 58% of the proved reserves attributable to the
Properties as of December 31, 1993 were either proved developed reserves which
were not currently producing or proved undeveloped reserves. The Company
currently estimates that capital expenditures for the development of such
non-producing reserves will aggregate approximately $11 million in
16
<PAGE> 21
1994, $17.5 million in 1995, $2.5 million in 1996, $2 million in 1997 and $2
million in 1998. The Company believes that these capital expenditure programs
should result in increases in oil and gas production. Based upon numerous
assumptions, including the capital expenditures program described above, future
oil and gas prices, rates of development of proved undeveloped reserves and a
variety of other assumptions, the Company prepared estimates of oil and gas
production of the Properties from proved reserves. The Company estimated oil
production from proved reserves of 1,405 MBO, 1,446 MBO, 1,149 MBO, 803 MBO and
924 MBO for the years 1994, 1995, 1996, 1997 and 1998, respectively (of which 39
MBO, 139 MBO, 111 MBO, 76 MBO and 97 MBO were estimated to be attributable to
production from proved undeveloped reserves), compared with historical oil
production of the Partnership of 1,583 MBO and 1,517 MBO for the years 1992 and
1993, respectively. The Company estimated gas production from proved reserves of
27,156 Mmcf, 31,642 Mmcf, 27,896 Mmcf, 19,785 Mmcf and 14,263 Mmcf for the years
1994, 1995, 1996, 1997 and 1998, respectively (of which 3,836 Mmcf, 10,529 Mmcf,
10,490 Mmcf, 7,498 Mmcf and 5,634 Mmcf were estimated to be attributable to
production from proved undeveloped reserves), compared with historical gas
production of the Partnership of 31,559 Mmcf and 27,181 Mmcf for the years 1992
and 1993, respectively.
Cash Flows from Proved Reserves
In connection with the Company's evaluation of the acquisition of the Maxus
Interests and the Merger, the Company prepared for internal use projections of
net cash flow of the Properties (cash flow from operations of the Properties
less capital expenditures for proved reserves) from proved reserves for the
years 1994 through 1998. The assumptions underlying these projections were as
follows: (a) the levels of production described above would be achieved; (b)
capital expenditures would be equal to the amounts set forth above; (c) the
Company used for this purpose estimates of future gas and oil prices based upon
the actual average oil and gas prices received by the Partnership for 1993, with
escalators, which were gas prices of $2.28, $2.40, $2.55, $2.71 and $2.82 per
Mcf and oil prices of $15.39, $16.07, $16.58, $17.00 and $17.53 per Bbl for the
years 1994, 1995, 1996, 1997 and 1998, respectively (for the quarter ended March
31, 1994, the Partnership reported that it had received average gas and oil
prices of $2.37 per Mcf and $12.71 per Bbl, respectively); (d) royalty payments
would remain a constant percentage of revenue; and (e) lease operating expenses
would be equal to those incurred in 1993 and increase by 4% annually. These
projections do not include any capital expenditures for the exploration,
exploitation and development of probable, possible and speculative reserves or
cash flows attributable to production from probable, possible or speculative
reserves. Forecasts of future oil and gas prices are subject to numerous
uncertainties. Actual future prices may be higher or lower than the prices set
forth above and none of the Company, BR or the Partnership assumes any
responsibility for the accuracy of such price estimates. Based upon the
foregoing, the Company projected that net cash flow of the Properties (after
capital expenditures for proved reserves) from proved reserves would be $56
million, $64 million, $70 million, $49 million and $41 million for the years
1994, 1995, 1996, 1997 and 1998, respectively, compared with historical net cash
flow of the Partnership of $48 million and $38 million for the years 1992 and
1993, respectively.
Unproved Reserves
A substantial portion of the Properties consists of undeveloped acreage
(approximately 225,000 net undeveloped acres at December 31, 1993), and the
Company currently anticipates additional exploration and exploitation of the
Properties in the future. In connection with the Company's evaluation of the
acquisition of the Maxus Interests, the Company identified several major areas
which it believes, based upon two dimensional and three dimensional seismic
data, merit exploitation activity. Based upon the Company's review of such data,
the Company estimates that these areas contain approximately 115 Bcfe of
probable reserves (in addition to the 224 Bcfe of proved reserves attributable
to the Properties as of December 31, 1993). The Company currently intends to
drill wells in these areas commencing in 1994 or 1995. Such wells would involve
capital expenditures not reflected in the projections set forth above and,
depending upon the outcome of such activities, significant additional capital
expenditures to develop these properties could be made in the future. The
Company believes that, if these activities are successful, these properties
would generate significant increases in proved reserves, production, cash flow
and operating income in the future, which are not reflected in the projections
described above. In addition, other activities could result in material future
increases in
17
<PAGE> 22
proved reserves, production, cash flow and operating income from the Properties.
In the course of discussions between the parties, Maxus provided the Company
with certain estimates prepared by Maxus of possible reserves and speculative
reserves associated with the Properties, which indicated that Maxus believed
that the Properties included possible reserves of approximately 500 Bcfe and
speculative reserves of approximately 1,325 Bcfe. However, the Company has not
independently verified this data. Estimates of probable reserves, possible
reserves and speculative reserves are highly uncertain and there can be no
assurance as to the level of reserves which may ultimately be recovered from the
Properties. Future development and production of reserves is subject to numerous
uncertainties, and will be substantially affected by changes in market prices
for oil and gas and advances in drilling, completion and production
technologies. Given the high level of uncertainty associated with possible and
speculative reserves, the Company believes that information concerning such
reserves is substantially less significant than information with respect to
proved reserves.
SELECTED FINANCIAL DATA
The following selected financial data relating to the Partnership
(including pro forma data to reflect the sale by the Partnership on April 25,
1994 of its interests in Main Pass Blocks 72, 73 and 74 to Pogo Producing
Company for approximately $18.2 million) has been taken from the 1993
Partnership 10-K for the five years ended December 31, 1993 as contained in
reports filed with the Commission or as contained in the 1994 Partnership 10-Q.
More comprehensive information is included in such reports and other documents
filed by the Partnership with the Commission, and the financial data set forth
below is qualified in its entirety by reference to such reports and other
documents, including the financial statements and related notes contained
therein. The selected financial data set forth below should be read in
conjunction with the financial statements and the notes thereto as listed in the
Index to Financial Information on Page F-1.
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 MARCH 31, MARCH 31, -------------------------------------------------------------
PRO FORMA 1994 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Assets................. $171,975 $167,941 $184,780 $ 164,861 $ 193,692 $ 222,084 $ 222,357 $ 217,149
Net Assets................... 147,885 143,851 158,315 139,081 164,557 192,121 190,009 183,979
Book Value per Unit.......... 2.00 1.95 2.15 1.89 2.23 2.70 2.78 3.11
</TABLE>
SELECTED INCOME STATEMENT DATA
<TABLE>
<CAPTION>
THREE
MONTHS THREE THREE
ENDED MONTHS MONTHS YEAR ENDED
MARCH 31, ENDED ENDED DECEMBER 31, FOR THE YEAR ENDED DECEMBER 31,
1994 MARCH 31, MARCH 31, 1993 ------------------------------------------------------------
PRO FORMA 1994 1993 PRO FORMA 1993 1992 1991 1990
--------- --------- --------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and Operating
Revenues......... $19,180 $20,694 $24,377 $ 78,620 $ 87,069 $ 95,871 $ 104,696 $ 111,767
Net Income......... 4,023 4,770 5,679 8,744 12,522 20,865 11,420 26,766
Net Income per
Unit............. .05 .06 .08 .12 .17 .28 .16 .39
Cash Distributions
per Unit......... -- -- .16 .51 .51 .65 .44 .30
<CAPTION>
1989
------------
<S> <C<C>
Sales and Operating
Revenues......... $ 115,752
Net Income......... 2,931
Net Income per
Unit............. .05
Cash Distributions
per Unit......... 2.80
</TABLE>
18
<PAGE> 23
PRICE RANGE OF UNITS; CASH DISTRIBUTIONS
The Units are listed and traded on the NYSE and the PSE under the symbol
DSP. The following table sets forth, for the periods indicated, the reported
high and low sales prices for the Units as reported in the Partnership 1993 10-K
with respect to the years 1992 and 1993, and thereafter the high and low closing
sale prices for the Units on the NYSE as reported in published financial
sources.
<TABLE>
<CAPTION>
DISTRIBUTIONS
HIGH LOW PAID
---- ---- ----
<S> <C> <C> <C>
1992
First quarter.............................................. $ 4 $ 2 3/8 $ .14
Second quarter............................................. 3 5/8 2 3/4 .17
Third quarter.............................................. 4 3/4 3 1/8 .15
Fourth quarter............................................. 5 5/8 4 1/2 .19
1993
First quarter.............................................. $ 6 7/8 $ 4 5/8 $ .16
Second quarter............................................. 6 7/8 6 .10
Third quarter.............................................. 6 3/4 5 5/8 .12
Fourth quarter............................................. 6 3/8 5 .13
1994
First quarter.............................................. $ 6 $ 4 --
Second quarter (through , 1994).................. 5 4 $ .13
</TABLE>
On April 25, 1994, the last full trading day prior to the announcement of
the sale and purchase of the Maxus Interests and the proposed Merger, the high
and low sales prices for the Units on the NYSE were $4 5/8 and $4 1/2,
respectively. On , 1994, the last full trading day prior to the date
of this Information Statement, the high and low sales prices for the Units on
NYSE were $ and . UNIT HOLDERS ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR THE UNITS.
INFORMATION CONCERNING THE COMPANY,
ACQUISITION, MERIDIAN AND BR
BUSINESS OF BR AND ITS SUBSIDIARIES
The Company is a Delaware corporation which was formed for the purposes of
acquiring the .99% managing general partnership interest of Maxus Offshore in
the Partnership and the 64,163,885 Units held by Maxus Exploration, and
effecting the Merger. Acquisition is a Delaware corporation which was formed for
the purpose of acquiring the .01% special general partnership interest of Maxus
Energy in the Partnership. It is anticipated that prior to the Merger,
Acquisition will be merged with and into the Company, as a result of which the
Company will be the sole general partner of the Partnership. Each of the Company
and Acquisition is a direct wholly owned subsidiary of Meridian, which in turn
is a direct wholly owned subsidiary of MOHI. MOHI is a direct wholly owned
subsidiary of BR. Each of such corporations is a Delaware corporation with its
principal executive offices at 5051 Westheimer, Suite 1400, Houston, Texas
77056.
BR is a holding company whose principal operating subsidiary is Meridian.
Meridian is engaged in (i) the exploration, development and production of oil
and gas, and (ii) related marketing activities which include aggregation and
resale of third-party oil and gas, operating intrastate natural gas pipelines
and holding interests in crude oil pipelines. MOHI is the largest independent
(nonintegrated) oil and gas company in the United States with total domestic
proved equivalent reserves of approximately 6 trillion cubic feet of gas
equivalent.
SELECTED FINANCIAL DATA
The following selected consolidated financial data relating to BR has been
taken from the 1993 BR 10-K for the five years ended December 31, 1993 as
contained in reports filed with the Commission or as contained
19
<PAGE> 24
in the 1994 BR 10-Q. More comprehensive information is included in such reports
and other documents filed by BR with the Commission, and the financial data set
forth below is qualified in its entirety by reference to such reports and other
documents, including the financial statements and related notes contained
therein.
BURLINGTON RESOURCES INC.
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SELECTED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, MARCH 31, ----------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets..................... $ 4,469 $4,405 $4,448 $4,470 $5,480 $5,250 $4,625
Long-Term Debt(a)................ 817 935 819 1,003 1,298 529 87
Stockholders' Equity(b).......... 2,639 2,455 2,608 2,406 2,907 3,024 3,223
Book Value per Common Share...... 20.35 18.94 20.11 18.67 22.11 21.92 22.08
</TABLE>
SELECTED CONSOLIDATED INCOME STATEMENT DATA -- CONTINUING OPERATIONS
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED FOR THE YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, --------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 320 $ 316 $1,249 $1,141 $1,036 $1,025 $ 797
Operating Income........ 69 66 256 240 177 216 90
Income from Continuing
Operations............ 48 45 255 190 100 124 77
Earnings per Common
Share(c).............. 0.37 0.35 1.95 1.44 0.75 0.87 0.52
Ratio of Earnings to
Fixed Charges(d)...... 3.48x 3.11x 4.79x 3.49x 1.95x 2.97x 3.27x
Cash Dividends Declared
per Common Share(e)... 0.1375 0.1375 0.55 0.60 0.70 0.70 0.61
</TABLE>
- ---------------
(a) Excludes current maturities.
(b) On June 30, 1992 BR distributed its El Paso Natural Gas Company ("EPNG")
common stock to BR's stockholders of record as of June 15, 1992. The
distribution was accounted for as a $575 million non-cash dividend.
(c) Excluding non-recurring items totaling $0.45, $0.24, and $0.08 per share,
earnings per common share from continuing operations would have been $1.50,
$1.20 and $0.67 for the years ended 1993, 1992 and 1991, respectively.
(d) Earnings represent pretax income from continuing operations available for
fixed charges, less equity in undistributed earnings of 20-50% owned
companies, together with a portion of rent under long-term operating leases
representative of an interest factor. Fixed charges represent interest
expense, capitalized interest and a portion of rent under long-term
operating leases representative of an interest factor.
(e) On April 7, 1994 BR's Board of Directors declared dividends of $0.1375 per
common share, payable on July 1, 1994. In July 1992, the quarterly dividend
rate was reduced to $0.125 per share to reflect the June 30, 1992 spin-off
of EPNG to BR's stockholders.
20
<PAGE> 25
FEES AND EXPENSES
As described above, Smith Barney Shearson informed Meridian of Maxus'
potential interest in selling the Maxus Interests. In connection with the
acquisition of the Maxus Interests and the Merger, Meridian has agreed to pay
Smith Barney Shearson a fee of $500,000. Smith Barney Shearson was not asked to,
and did not, provide any report, opinion or appraisal in connection with the
purchase of the Maxus Interests or the Merger.
The Company has retained Georgeson & Company Inc. to act as the Information
Agent and The First National Bank of Boston to act as the Disbursing Agent in
connection with the Merger. Each of the Information Agent and the Disbursing
Agent will receive reasonable and customary compensation for its services, will
be reimbursed for certain reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith.
It is estimated that the expenses incurred in connection with the purchase
of the Maxus Units and the Merger will be approximately as set forth below.
<TABLE>
<S> <C>
Filing Fees.............................................................. $
Financial Advisory Fees and Expenses.....................................
Information Agent Fees and Expenses......................................
Disbursing Agent Fees and Expenses.......................................
Legal Fees...............................................................
Printing and Mailing Costs...............................................
Miscellaneous............................................................
--------
Total..........................................................
--------
--------
</TABLE>
Meridian and the Company will be responsible for all of the foregoing fees
and expenses.
Brokers, dealers, commercial banks and trust companies will, upon request
only, be reimbursed by the Company for customary mailing and handling expenses
incurred by them in forwarding material to their customers.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
specified waiting period requirements have been satisfied. The Company and the
Partnership filed notification and report forms under the HSR Act with the FTC
and the Antitrust Division on May , 1994. The required waiting period under
the HSR Act will expire at 11:59 p.m. on June , 1994, unless extended by a
request for additional information or documentary material or unless early
termination of the waiting period is granted. If a request for additional
information or documentary material is received, the waiting period will
terminate 20 days after the Company and the Partnership have substantially
complied with such request. The Company and the Partnership are not aware of any
other regulatory approvals required in connection with the Merger. If any other
regulatory approvals are required, the Company and the Partnership intend to
seek such approvals as promptly as practicable.
21
<PAGE> 26
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
INDEX TO FINANCIAL INFORMATION
FINANCIAL INFORMATION FROM ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PAGES
----
<S> <C>
SELECTED FINANCIAL DATA.............................................................. F-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................................... F-3
FINANCIAL STATEMENTS:
Report of Independent Accountants.................................................. F-6
Statement of Income for the three years ended December 31, 1993.................... F-7
Balance Sheet at December 31, 1993 and 1992........................................ F-8
Statement of Cash Flows for the three years ended December 31, 1993................ F-9
Statement of Changes in Partners' Capital for the three years ended December 31,
1993............................................................................ F-10
Notes to Financial Statements...................................................... F-11
Supplementary Financial Information................................................ F-15
Financial Statement Schedules:
For the three years ended December 31, 1993
II. Related Party Receivables................................................ F-19
V. Oil and Gas Properties and Equipment...................................... F-20
VI. Accumulated Depreciation and Depletion -- Oil and Gas Properties and
Equipment.................................................................... F-21
</TABLE>
All other schedules have been omitted because they are not applicable or
the required information
is shown in the Financial Statements or the Notes to Financial Statements.
FINANCIAL INFORMATION FROM QUARTERLY REPORT ON
FORM 10-Q FOR THE UNAUDITED QUARTERLY PERIOD ENDED MARCH 31, 1994
INTERIM FINANCIAL STATEMENTS:
<TABLE>
<S> <C>
Statement of Income............................................................. F-23
Balance Sheet................................................................... F-24
Statement of Cash Flows......................................................... F-25
Statement of Changes in Partners' Capital....................................... F-26
Notes to Interim Financial Statements........................................... F-27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FIRST QUARTER 1994....................................... F-28
PRO FORMA INFORMATION................................................................ F-29
UNAUDITED PRO FORMA BALANCE SHEET AS OF MARCH 31, 1994............................... F-30
UNAUDITED PRO FORMA STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1993......... F-31
UNAUDITED PRO FORMA STATEMENT OF INCOME FOR THE QUARTER ENDED MARCH 31, 1994......... F-32
</TABLE>
F-1
<PAGE> 27
PRELIMINARY NOTE
The information on pages F-2 through F-32 of this Information Statement has
been taken directly from historical Securities and Exchange Commission (the
"Commission") filings of Diamond Shamrock Offshore Partners Limited Partnership
(the "Partnership"), which were prepared by Maxus Offshore Exploration Company
("Maxus Offshore"), the predecessor managing general partner of the Partnership,
and relate to periods prior to the date on which Meridian Offshore Company
became the managing general partner of the Partnership. Certain textual
information, including information with respect to the distribution policy of
the Partnership, future capital expenditures plans of the Partnership, the
future outlook of the Partnership and arrangements between the Partnership and
Maxus Offshore and its affiliates, is included solely because such information
was contained in the Partnership's historical filings with the Commission for
the relevant periods and does not take into account the transfer to Meridian
Offshore Company of the managing general partnership interest in the Partnership
or the proposed merger of the Partnership into Meridian Offshore Company. For
additional information, see "SPECIAL FACTORS -- Purpose and Structure of the
Merger" and "INFORMATION CONCERNING THE PARTNERSHIP AND THE PROPERTIES" in this
Information Statement.
FINANCIAL INFORMATION FROM ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1993
The information on pages F-2 through F-21 is from the Diamond Shamrock
Offshore Partners Limited Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993, as filed with the Securities and Exchange Commission by
Maxus Offshore Exploration Company, which at that time was the managing general
partner of Diamond Shamrock Offshore Partners Limited Partnership.
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales and operating revenues (including
$49,081 to related parties in 1993)..... $ 87,069 $ 95,871 $104,696 $111,767 $115,752
Net income................................ 12,522 20,865 11,420 26,766 2,931
Net income per Unit....................... .17 .28 .16 .39 .05
Cash distributions per Unit............... .51 .65 .44 .30 2.80
Total assets.............................. 164,861 193,692 222,084 222,357 217,149
Net assets................................ 139,081 164,557 192,121 190,009 183,979
</TABLE>
F-2
<PAGE> 28
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Diamond Shamrock Offshore Partners Limited Partnership ("Partnership")
reported net income of $12.5 million for the year ended December 31, 1993, $8.3
million less than 1992, primarily due to lower sales and operating revenues of
$8.8 million, resulting chiefly from lower oil prices and lower gas volumes.
Loss on the sales of assets, an exploratory dry hole in the fourth quarter and
higher geological and geophysical costs also contributed to the lower reported
net income. Net income for 1992 was $9.4 million higher than 1991 due to lower
production costs, lower exploration costs and a decline in depreciation and
depletion.
Lower natural gas sales volumes accounted for $10.7 million of the sales
and operating revenue decline in 1993; however, the Partnership benefited from
$5.4 million of higher gas prices. Average production was 74 million cubic feet
per day ("mmcfpd"), 14% lower than 1992. Natural declines in production at
Vermilion 226/237, Main Pass 116, Main Pass 73, High Island 365/376 and Brazos
412 were partially offset by new volumes at Vermilion 225. The 1992 gas volumes
of 86 mmcfpd were 4 mmcfpd below the 1991 level primarily due to natural
declines, along with sanding problems at West Cameron 648. This drop was
partially offset by new production from Main Pass 181 and the Vermilion blocks
acquired in 1991. The 1993 average gas price was $2.21 per thousand cubic feet
("mcf"), up $.20 per mcf from $2.01 per mcf in 1992. Gas prices averaged $1.88
per mcf in 1991.
Crude oil and condensate sales revenues were down in 1993 due to both lower
prices ($2.3 million) and volumes ($1.2 million). Crude oil and condensate sales
volumes averaged 4,157 barrels per day ("bpd") in 1993, compared to 4,325 bpd in
1992 and 5,647 bpd in 1991. Green Canyon 18 and Ewing Bank 944/988 accounted for
almost 700 BPD of the decline from 1991 to 1992 due to casing pressure problems.
During 1993, new development wells at Green Canyon 18 replaced production lost
in 1992. However, natural declines on this and other blocks still resulted in a
slight decrease during 1993. Prices for 1993 averaged $17.12 per barrel, down
from an average realized price of $18.61 per barrel in 1992 and $20.16 per
barrel in 1991.
In 1993, other revenues, net included a loss of $3.3 million from the sale
of the Partnership's interest in East Cameron Block 220. Other revenues, net in
1991 reflected a $2.2 million adverse pricing adjustment.
The Partnership reported production and operating costs in 1993 of $17.6
million, compared to $18.3 million and $20.1 million in 1992 and 1991,
respectively. The higher 1991 costs, relative to 1993 and 1992, were due
primarily to workovers performed in 1991 at Green Canyon 18 and Main Pass
72/73/74.
Exploration costs totaled $8.5 million in 1993, up slightly from 1992, due
to higher geological and geophysical costs. In 1992, exploration costs were $7.8
million compared to $16.9 million in 1991 resulting from less drilling activity
and lower geological and geophysical costs.
General and administrative costs were $5.6 million and $6.8 million during
1993 and 1992, respectively, compared to 1991 general and administrative costs
of $7.2 million, resulting from lower direct and allocated administrative
charges.
The decline in depreciation and depletion expense of $3.3 million during
1993 to $39.6 million was primarily due to lower gas production. A $4.7 million
decrease in depreciation and depletion expense during 1992 as compared to 1991
was also due to lower production, offset somewhat by a rise in impairments for
unproven acreage.
The Partnership is not required to pay federal income taxes on its income
and, therefore, no tax provision or benefit is reflected in the Statement of
Income.
FINANCIAL CONDITION
Net cash provided by operating activities for the Partnership during 1993
decreased 10% to $61.8 million compared to $68.7 million in 1992 and $62.8
million in 1991. Compared to 1992, lower 1993 sales and
F-3
<PAGE> 29
operating revenues were offset in part by lower general and administrative costs
and working capital requirements. For 1992, lower exploration costs and lower
working capital requirements more than offset sales declines resulting in an
increase in net cash provided by operating activities from 1991.
The ratio of current assets to current liabilities (current ratio) was 1.2
at December 31, 1993 versus 2.1 at December 31, 1992. Most of the change
resulted from a reduction in the note receivable with Maxus Energy Corporation
("Maxus") due to an increase in capital expenditures. The 1992 current ratio
remained essentially unchanged from 1991.
Expenditures for oil and gas properties and equipment, including dry hole
costs, in 1993 were $36.1 million compared to $18.4 million in 1992 and $63.0
million in 1991. Higher expenditures for exploratory and development drilling,
production equipment and property and lease acquisitions contributed to the
increase over 1992 spending levels. During 1993, the Partnership was the
successful bidder for seven offshore federal blocks at a cost of $4.3 million.
The Partnership also drilled successful exploratory wells on West Cameron Block
142, Main Pass 111 and Main Pass 181. The reduction in 1992 from 1991 was
largely due to lower property acquisition costs as the 1991 expenditures
included the purchase of Freeport-McMoRan Inc.'s interest in producing oil and
gas leases on Blocks 225 and 226, Vermilion area, offshore Louisiana, for $29.0
million. In addition, lower exploratory and development drilling expenditures
also contributed to the decline in 1992 from 1991.
The 1991 acquisition of the interests in the Vermilion area was funded by
cash from operations and by proceeds from the issuance to Maxus Exploration
Company ("Exploration") of newly issued units of the limited partnership
("Units") in the amount of $21.0 million. No additional Units were issued in
1992 or 1993 and, at December 31, 1993, Exploration owned approximately 87.0% of
the Units outstanding.
The Partnership distributed $38.0 million in cash ($.51 per Unit) to its
partners during 1993, compared to total distributions of $48.4 million ($.65 per
Unit) and $30.5 million ($.44 per Unit) in 1992 and 1991, respectively.
The Partnership presently intends to continue its distribution policy,
which commenced in January 1990, of distributing on a quarterly basis
substantially all distributable cash. For this purpose, distributable cash means
net cash provided by operating activities and proceeds from the sale of assets,
less (i) expenditures for oil and gas properties and equipment, including dry
hole costs, (ii) reserves for future operating and capital requirements and
contingencies and (iii) other Partnership obligations.
Because of the uncertainties of future oil and gas prices, production
levels, future expenditures for properties and equipment and other factors, the
amount of cash distributions for 1994 cannot be predicted but, as in 1993, is
expected to vary quarterly based upon the levels of distributable cash available
to the Partnership and changes, if any, in the Partnership's distribution
policy. No cash distribution will be made for the first quarter 1994 due to the
Partnership's lack of distributable cash for such quarter.
The Partnership has an agreement with Maxus providing for the Partnership
to invest its surplus funds with Maxus at an interest rate not less than the
rate (including points or other financing charges or fees) that Maxus would be
charged by unrelated lenders on comparable loans. At December 31, 1993, the
aggregate principal amount of such investment, evidenced by a note receivable,
was $7.4 million and, at December 31, 1992, such amount was $21.5 million. Since
its formation, the Partnership has incurred no debt.
During 1993, the Partnership entered into a hedging program with respect to
natural gas based on an average of approximately 35 billion British thermal
units per day. The program began with June production and has been extended
through December 1994. Throughout 1993, this program enhanced net cash provided
from operating activities by $.8 million.
F-4
<PAGE> 30
FUTURE OUTLOOK
Natural gas prices continue to be somewhat volatile, primarily due to
weather and regional supply and demand imbalances. Maxus Offshore Exploration
Company ("Managing Partner") believes the desirability of natural gas as a fuel
alternative will result in continued stability in demand with prices as strong
or stronger than in recent years, but subject to seasonal and other periodic
fluctuations.
Oil prices decreased substantially during the second half of 1993 and have
remained at reduced levels. Although oil markets remain unstable, general price
levels will likely continue to be negatively impacted by excess production,
especially from non-OPEC countries, limited worldwide demand growth and the
overhang from potential Iraqi oil exports in the future.
For 1994, gas production is expected to equal 1993 while oil production is
anticipated to increase slightly. Normal declines are expected to be offset by
new oil volumes at Green Canyon 18 and new gas volumes from West Cameron 142,
which was placed into production in the fourth quarter of 1993.
The Managing Partner has planned an exploratory and development program of
approximately $22.5 million for 1994, about half the 1993 actual program
spending of $41.6 million. Emphasis in 1994 will be placed on maximizing the
value of existing assets while maintaining the flexibility to respond to changes
which would make further exploratory activity economical. Currently, the
Partnership anticipates expenditures for platforms at High Island 376, Main Pass
181 and Main Pass 111. In addition, development drilling activity is planned for
Main Pass 111, High Island 376 and Main Pass 288.
With current market expectations for 1994, the Managing Partner is of the
opinion that the Partnership has the financial resources to meet anticipated
needs for future operations. Net cash provided by operating activities is
expected to be adequate to fund the Partnership's planned program for 1994.
F-5
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Diamond Shamrock Offshore Partners
Limited Partnership
In our opinion, the financial statements listed in the index appearing on
page F-1 present fairly, in all material respects, the financial position of
Diamond Shamrock Offshore Partners Limited Partnership at December 31, 1993 and
1992, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Dallas, Texas
February 22, 1994
F-6
<PAGE> 32
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
REVENUES
Sales and operating revenues (including $49,081 to
related parties in 1993).............................. $87,069 $95,871 $104,696
Other revenues, net...................................... (3,395) 720 (1,523)
------- ------- --------
83,674 96,591 103,173
------- ------- --------
COSTS AND EXPENSES
Production and operating costs........................... 17,551 18,291 20,121
Exploration, including exploratory dry holes............. 8,484 7,846 16,926
Depreciation and depletion............................... 39,564 42,824 47,494
General and administrative expenses...................... 5,553 6,765 7,212
------- ------- --------
71,152 75,726 91,753
------- ------- --------
NET INCOME................................................. 12,522 20,865 11,420
General Partners' Interest............................... 125 209 114
------- ------- --------
NET INCOME APPLICABLE TO LIMITED PARTNERS.................. $12,397 $20,656 $ 11,306
------- ------- --------
------- ------- --------
PER UNIT
Net income............................................... $ .17 $ .28 $ .16
Cash distributions....................................... $ .51 $ .65 $ .44
AVERAGE UNITS OUTSTANDING.................................. 73,761,740 73,761,740 71,116,991
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE> 33
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Note receivable -- Maxus Energy Corporation.......................... $ 7,428 $ 21,487
Accounts receivable -- oil & gas..................................... 9,335 14,849
Accounts receivable -- joint interest................................ 1,817 1,242
Other................................................................ 1,105 1,780
-------- --------
Total Current Assets......................................... 19,685 39,358
-------- --------
Oil and Gas Properties and Equipment................................... 698,798 697,333
Less -- Accumulated depreciation and depletion......................... 553,622 542,999
-------- --------
145,176 154,334
-------- --------
$164,861 $193,692
-------- --------
-------- --------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable..................................................... $ 15,081 $ 17,586
Take-or-pay liability................................................ 1,600 934
-------- --------
Total Current Liabilities.................................... 16,681 18,520
Other Liabilities and Deferred Credits................................. 3,766 3,549
Take-or-pay Liability.................................................. 5,333 7,066
Partners' Capital...................................................... 139,081 164,557
-------- --------
$164,861 $193,692
-------- --------
-------- --------
</TABLE>
See "Commitments and Contingencies."
The Partnership uses the successful efforts method to account for its oil and
gas producing activities.
See Notes to Financial Statements.
F-8
<PAGE> 34
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 12,522 $ 20,865 $ 11,420
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and depletion........................... 39,564 42,824 47,494
Dry hole costs....................................... 3,050 4,136 7,660
Other, including net (gain) loss on sales of
assets............................................ 3,522 -- (514)
Changes in components of working capital:
Accounts receivable............................... 4,939 2,282 290
Other current assets.............................. 675 (801) (608)
Accounts payable.................................. (2,505) (626) (2,909)
-------- -------- --------
Net cash provided by operating activities............ 61,767 68,680 62,833
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties and equipment,
including dry hole costs................................ (36,135) (18,375) (63,010)
Proceeds from sales of assets.............................. -- 72 1,050
(Increase) decrease in current note receivable............. 14,059 (1,634) 8,630
Other...................................................... (1,693) (314) (195)
-------- -------- --------
Net cash used in investing activities................... (23,769) (20,251) (53,525)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid.................................... (37,998) (48,429) (30,520)
Proceeds from sale of Units and reinvestments.............. -- -- 21,000
Proceeds from capital contributions by general partners.... -- -- 212
-------- -------- --------
Net cash used in financing activities................... (37,998) (48,429) (9,308)
Net change in cash........................................... -- -- --
Cash at beginning of year.................................... -- -- --
-------- -------- --------
Cash at end of year.......................................... $ -- $ -- $ --
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Financial Statements.
F-9
<PAGE> 35
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED PARTNERS
--------------------------
MAXUS
GENERAL EXPLORATION
PARTNERS COMPANY UNITHOLDERS TOTAL
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
January 1, 1991.................................... $4,699 $ 124,303 $61,007 $190,009
Net income....................................... 114 9,772 1,534 11,420
Distributions.................................... (305) (25,959) (4,256) (30,520)
Repurchase of Units.............................. -- 656 (656) --
Reinvestments.................................... 212 21,000 -- 21,212
-------- ----------- ----------- --------
December 31, 1991.................................. 4,720 129,772 57,629 192,121
Net income....................................... 209 17,969 2,687 20,865
Distributions.................................... (484) (41,706) (6,239) (48,429)
-------- ----------- ----------- --------
December 31, 1992.................................. 4,445 106,035 54,077 164,557
Net income....................................... 125 10,784 1,613 12,522
Distributions.................................... (380) (32,724) (4,894) (37,998)
-------- ----------- ----------- --------
December 31, 1993.................................. $4,190 $ 84,095 $50,796 $139,081
-------- ----------- ----------- --------
-------- ----------- ----------- --------
</TABLE>
See Notes to Financial Statements.
F-10
<PAGE> 36
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Data is as of December 31 of each year or for the year then ended and dollar
amounts in tables are in thousands. Certain balance sheet amounts have been
reclassified to conform to the 1993 presentation.
(1) ORGANIZATION AND CONTROL
Diamond Shamrock Offshore Partners Limited Partnership ("Partnership") is a
Delaware limited partnership formed to succeed to substantially all of the oil
and gas exploration and production business previously conducted by Maxus
Exploration Company ("Exploration") in federal waters offshore Texas and
Louisiana. Exploration is a wholly owned subsidiary of Maxus Energy Corporation
("Maxus") through which Maxus conducts all of its North American oil and gas
exploration and production operations.
The Partnership was formed in 1985 when it sold to the public five million
units of limited partnership interest ("Units") and issued 37.5 million Units to
Exploration in exchange for its transfer of oil and gas properties.
Maxus Offshore Exploration Company ("Managing Partner"), a wholly owned
subsidiary of Maxus, and Maxus have a combined 1% general partners' interest in
the Partnership and are the managing general partner and special general
partner, respectively. Maxus' aggregate interest in the Partnership was
approximately 87.1% at December 31, 1993, 1992 and 1991.
The Partnership has no officers, directors or employees. Certain employees
of Exploration are engaged principally in the conduct of the Partnership's oil
and gas exploration and production business and certain officers of Maxus
perform all management functions required for the Partnership.
Neither Maxus nor the Managing Partner receive, as general partners of the
Partnership, any carried interests, promotions, back-ins or other compensation.
The Partnership reimburses Maxus for all direct costs incurred in managing the
Partnership and all indirect costs (principally salaries and other general and
administrative costs) allocable to the Partnership. The allocation between the
Partnership and Maxus of direct and indirect costs incurred by Maxus and its
subsidiaries is made by Maxus. Maxus believes that the method of allocation is
reasonable.
(2) SIGNIFICANT ACCOUNTING POLICIES
Exploration and Development Costs
Oil and gas exploration and development activities are accounted for at
cost under the successful efforts method of accounting. Costs of acquiring
unproved oil and gas leasehold acreage are capitalized. Lease rentals and
geological and geophysical costs are charged to expense as incurred. If, and
when, exploratory wells are determined to be nonproductive, the related costs
are charged to expense.
Costs incurred to drill and equip development wells, including production
facilities, are capitalized.
Depreciation and Depletion
Depreciation and depletion related to the capitalized costs of all
development drilling, successful exploratory drilling and related production
equipment, and estimated future abandonment and dismantlement costs for offshore
production platforms are provided by the unit of production method based upon
estimated proved recoverable reserves. A valuation allowance is provided by a
charge against earnings to reflect the impairment of unproved acreage.
F-11
<PAGE> 37
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Retirements and Property Dispositions
Gains or losses on sales or retirements are reflected in earnings when
related to complete production units for which individual depreciation and
depletion allowances are accumulated. Gains or losses from other sales or
retirements are charged to accumulated depreciation and depletion.
Income Taxes
The Partnership is not subject to federal or state income taxes;
accordingly, no recognition has been given to income taxes in the accompanying
financial statements. The income or loss of the Partnership is to be included in
the tax returns of the individual partners. The tax returns of the Partnership
are subject to examination by federal and state taxing authorities. If such
examinations result in adjustments to distributive shares of taxable income or
loss, the tax liability of the partners could be adjusted accordingly.
The partners will have different investment bases depending upon the timing
and prices of Units acquired, and each partner's tax accounting, which is
partially dependent upon their individual tax situation, may differ from the
accounting methods followed in the financial statements. Accordingly, there
could be significant differences between the partners' tax bases and their
proportionate shares of the net assets reported in the financial statements.
In 1993, the Partnership adopted the provisions of Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS
109 requires disclosure by a publicly held partnership of the aggregate
difference in the bases of its net assets for financial and tax reporting
purposes. Because the aggregate tax bases of the partners cannot be readily
determined, the difference in the financial and tax bases of the partnership's
net assets cannot be disclosed. Further, since taxes relating to the partners'
distributive shares of the partnership income or loss are determined at the
partners' level, rather than at the partnership level, the adoption of SFAS 109
had no effect on the Partnership's financial statements.
Revenue Recognition
Oil and natural gas revenues are accounted for using the sales method.
Under this method, sales are recorded on all production sold by the Partnership
regardless of the Partnership's ownership interest in the respective property.
Imbalances result when sales differ from the seller's net revenue interest in
the particular property's gas reserves and are recorded to reflect the
Partnership's balancing position. At year-end 1993 and 1992, the volumetric
imbalance and related values were immaterial.
Take-or-Pay Liability
In 1988, the Partnership received cash under provisions of a take-or-pay
contract and recognized a liability to provide gas. The contract stipulated that
the liability would be repaid if it was not eliminated by gas deliveries. During
1993, a portion of the take-or-pay liability was repaid at the option of the
natural gas purchaser. Such payments will continue during 1994 and into 1997.
Hedging
The Partnership periodically hedges against the effects of fluctuations in
the price of natural gas through price swap agreements. Gains or losses on these
hedges are deferred until the related sales are recognized. The Partnership's
hedging program began with June 1993 production based on approximately 35
billion British Thermal Units ("BTUs") per day. The program has been extended
through December 1994 and may cover a larger portion of the Partnership's
production.
F-12
<PAGE> 38
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) DISTRIBUTION POLICY
The Partnership presently intends to continue its current distribution
policy, which commenced in January 1990, of distributing on a quarterly basis
substantially all distributable cash. For this purpose, distributable cash means
net cash provided by operating activities and proceeds from the sale of assets,
less (i) expenditures for oil and gas properties and equipment, including dry
hole costs, (ii) reserves for future operating and capital requirements and
contingencies and (iii) other Partnership obligations.
During 1993, 1992 and 1991, the Partnership made per Unit distributions of
cash in the aggregate of $.51, $.65 and $.44, respectively. Because of the
uncertainties of future oil and gas prices, production levels, future
expenditures for properties and equipment and other factors, the amount of cash
distributions for 1994 cannot be predicted but is expected to vary quarterly
based upon the levels of distributable cash available to the Partnership and
changes, if any, in the Partnership's distribution policy. On January 25, 1994,
the Managing Partner of the Partnership announced that no cash distribution
would be paid to any partner or unitholder of the Partnership for the first
quarter of 1994 due to the Partnership's lack of distributable cash for such
quarter.
(4) RELATED PARTY TRANSACTIONS
The Partnership is charged for all direct costs and expenses associated
with its operations. Additionally, general and administrative costs are
allocated to the Partnership by Maxus. Allocation percentages are generally
determined from studies of time devoted to specific services and utilization of
jointly shared facilities as determined on an annual basis. Such direct and
allocated administrative charges amounted to $5,553,000, $6,765,000 and
$7,212,000 in 1993, 1992 and 1991, respectively.
During 1993, the Partnership entered into an agreement with Maxus Gas
Marketing Company ("MGMC"), a wholly owned subsidiary of Maxus, to sell
substantially all of the Partnership's gas production to MGMC at prices
comparable to those received for like sales at similar properties. For the year
1993, such sales amounted to $45,944,000. An additional $3,137,000 of oil was
sold during 1993 to Maxus.
The Partnership has invested its excess funds with Maxus (See Note 6: "Note
Receivable -- Maxus Energy Corporation").
(5) SALES TO MAJOR CUSTOMERS
Sales of oil and gas to major customers (over 10% of sales) are summarized
below:
<TABLE>
<S> <C> <C>
1993
Maxus Gas Marketing Company.................................. $45,944 53%
1992
Amoco Production Company..................................... $12,917 13%
Arkla Energy Resources....................................... $ 9,533 10%
1991
Shell Oil Company............................................ $12,736 12%
</TABLE>
F-13
<PAGE> 39
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) NOTE RECEIVABLE -- MAXUS ENERGY CORPORATION
The Partnership has an agreement to invest its surplus funds with Maxus.
This investment is evidenced by a promissory note, including amendments or
extensions. The note bears interest at a rate adjusted monthly not less than the
rate (including points or other financing charges or fees) that Maxus would be
charged by unrelated lenders on comparable loans. Interest earned on this note,
which is included in "Other revenues, net," was $930,000, $1,262,000 and
$1,210,000 in 1993, 1992 and 1991, respectively.
(7) VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Partnership's natural gas price swap agreements is
the estimated amount the Partnership would receive to terminate the swap
agreements at the reporting date. At December 31, 1993, the estimated fair value
was $2.2 million. The fair value of all other financial instruments approximate
their recorded value.
(8) ACCOUNTS RECEIVABLE
The Partnership's accounts receivable relate primarily to sales of oil and
gas and amounts due from joint interest partners for expenditures made by the
Partnership on their behalf. In addition to sales made to MGMC, sales are made
to several major oil and gas and gas pipeline companies. The Partnership reviews
the financial condition of potential purchasers and partners prior to signing
sales or joint interest agreements. Payment terms are on a short term basis and
in accordance with industry standards.
(9) PROPERTY AND EQUIPMENT
Summarized below is detail of the Partnership's property and equipment
holdings:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Proved properties....................................... $661,252 $665,222
Unproved properties..................................... 37,546 32,111
-------- --------
698,798 697,333
Less -- Accumulated depreciation and depletion.......... 553,622 542,999
-------- --------
$145,176 $154,334
-------- --------
-------- --------
</TABLE>
(10) PROPERTY SALES AND ACQUISITIONS
During fourth quarter 1993, the Partnership recorded in "Other revenues,
net," the $3.3 million loss on the sale of its entire interest in East Cameron
220, offshore Louisiana. Although a loss was recorded on the sale of the
property, the disposition did not have a material effect on the ongoing results
of operations or financial position of the Partnership for the year 1993. In
July 1991, the Partnership purchased an interest in producing oil and gas leases
on Blocks 225 and 226, Vermilion area, offshore Louisiana, for $29.0 million. On
a pro forma basis, the acquisition did not have a material impact on 1991
operations.
(11) COMMITMENTS AND CONTINGENCIES
In instances where the Partnership owns less than a 100% of the working
interest in a particular property, it is subject to joint operating agreements,
area of mutual interest agreements, bidding agreements, and similar agreements
which commit the Partnership for its share of any options, benefits or
contingencies as covered by the terms and conditions of any such agreements.
F-14
<PAGE> 40
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
SUPPLEMENTARY FINANCIAL INFORMATION
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT)
QUARTERLY DATA
<TABLE>
<CAPTION>
1993
--------------------------------------------------------------
FOR THE
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, YEAR
--------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Sales and operating revenues (a).......... $24,377 $ 23,551 $19,344 $ 19,797 $ 87,069
Gross profit (b).......................... 8,079 9,526 5,929 6,420 29,954
Net income (loss)......................... 5,679 6,095 4,335 (3,587) 12,522
Per Unit
Net income (loss)....................... .08 .08 .06 (.05) .17
Distributions........................... .16 .10 .12 .13 .51
Market price per Unit
High.................................... 6 7/8 6 7/8 6 3/4 6 3/8 6 7/8
Low..................................... 4 5/8 6 5 5/8 5 4 5/8
</TABLE>
<TABLE>
<CAPTION>
1992
--------------------------------------------------------------
FOR THE
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, YEAR
--------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Sales and operating revenues.............. $25,051 $ 22,701 $23,383 $ 24,736 $ 95,871
Gross profit (b).......................... 7,359 8,071 8,697 10,629 34,756
Net income................................ 833 6,272 6,475 7,285 20,865
Per Unit
Net income (c).......................... .01 .09 .09 .10 .28
Distributions........................... .14 .17 .15 .19 .65
Market price per Unit
High.................................... 4 3 5/8 4 3/4 5 5/8 5 5/8
Low..................................... 2 3/8 2 3/4 3 1/8 4 1/2 2 3/8
</TABLE>
- ---------------
(a) Includes related party sales of $7,189, $15,211, $12,192 and $14,489 for
quarters ended March 31, June 30, September 30 and December 31,
respectively.
(b) Gross profit is sales and operating revenues less production costs and
depreciation and depletion.
(c) As net income per unit is rounded, the sum of net income per unit does not
equal the annual per unit amount.
F-15
<PAGE> 41
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
SUPPLEMENTARY FINANCIAL INFORMATION -- (CONTINUED)
OIL AND GAS PRODUCING ACTIVITIES
The following are disclosures about the oil and gas producing activities of
the Partnership as required by Statement of Financial Accounting Standards No.
69:
RESULTS OF OPERATIONS
Results of operations relating to all of the Partnership's oil and gas
activity are shown below. These results exclude revenues and expenses related to
the purchase and resale of natural gas, administrative overhead and interest
income.
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Sales (including $49,081 to related parties in 1993)... $85,984 $93,399 $103,329
Production costs....................................... 16,466 15,819 18,754
Exploration costs...................................... 8,484 7,846 16,926
Depreciation and depletion............................. 39,564 42,824 47,494
(Gain)/loss on sales of assets......................... 3,522 -- (514)
Other.................................................. 802 542 3,247
------- ------- --------
Results of operations.................................. $17,146 $26,368 $ 17,422
------- ------- --------
------- ------- --------
</TABLE>
CAPITALIZED COSTS
Capitalized costs applicable to the Partnership's oil and gas producing
activities, all of which are conducted in the United States, include the cost of
mineral interests in properties, completed and incomplete wells and related
support equipment as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Proved properties.................................... $661,252 $665,222 $650,527
Unproved properties.................................. 37,546 32,111 38,880
-------- -------- --------
698,798 697,333 689,407
Less -- Accumulated depreciation and depletion....... 553,622 542,999 506,528
-------- -------- --------
$145,176 $154,334 $182,879
-------- -------- --------
-------- -------- --------
</TABLE>
COSTS INCURRED
Costs incurred by the Partnership in its oil and gas producing activities
(whether capitalized or charged against earnings) were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Property acquisition costs.............................. $ 5,111 $ 637 $36,629
Exploration costs....................................... 17,048 6,942 20,449
Development costs....................................... 19,410 14,506 15,198
------- ------- -------
$41,569 $22,085 $72,276
------- ------- -------
------- ------- -------
</TABLE>
F-16
<PAGE> 42
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
SUPPLEMENTARY FINANCIAL INFORMATION -- (CONTINUED)
OIL AND GAS RESERVES
Net proved developed and undeveloped reserves are the estimated quantities
of crude oil and natural gas which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed
reserves are proved reserve volumes that can be expected to be recovered through
existing wells with existing equipment and operating methods. Proved undeveloped
reserves are proved reserve volumes that are expected to be recovered from new
wells on undrilled acreage or from existing wells where a significant
expenditure is required for recompletion.
The following table represents the Partnership's net interests in estimated
quantities of proved developed and undeveloped reserves of crude oil, including
condensate (in thousands of barrels), and natural gas (in millions of cubic
feet) at December 31, 1993, 1992 and 1991, and changes in such estimated
quantities for the years then ended:
<TABLE>
<CAPTION>
OIL GAS
(MB) (MMCF)
------ -------
<S> <C> <C>
NET PROVED DEVELOPED AND UNDEVELOPED RESERVES
January 1, 1991.................................................. 11,354 186,846
Revisions of previous estimates.................................. 760 (5,257)
Extensions, discoveries and other additions...................... 122 2,945
Production....................................................... (2,061) (32,778)
Purchase of reserves in place.................................... 207 26,752
------ -------
December 31, 1991................................................ 10,382 178,508
Revisions of previous estimates.................................. 953 (192)
Extensions, discoveries and other additions...................... 307 10,852
Production....................................................... (1,583) (31,559)
------ -------
December 31, 1992................................................ 10,059 157,609
Revisions of previous estimates.................................. 487 (9,692)
Extensions, discoveries and other additions...................... 660 47,223
Production....................................................... (1,517) (27,181)
------ -------
December 31, 1993................................................ 9,689 167,959
------ -------
------ -------
NET PROVED DEVELOPED RESERVES
January 1, 1991.................................................. 10,805 137,731
December 31, 1991................................................ 9,806 141,641
December 31, 1992................................................ 9,287 120,328
December 31, 1993................................................ 9,046 118,567
</TABLE>
F-17
<PAGE> 43
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
SUPPLEMENTARY FINANCIAL INFORMATION -- (CONTINUED)
FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows ("standardized
measure") relating to proved oil and gas reserves is calculated and presented in
accordance with Statement of Financial Accounting Standards No. 69. The
standardized measure has been prepared assuming year-end selling prices
(adjusted for future fixed and determinable contractual price changes) for the
Partnership's estimated share of future production from proved oil and gas
reserves. Future production and development costs were computed by applying
year-end costs to future years. A prescribed 10% discount factor was applied to
future net cash flows. Because prices fluctuate, a calculation of the
standardized measure utilizing current prices would result in different
discounted future net cash flows for 1993 than is presented.
The Partnership cautions that this standardized measure is not
representative of fair market value, and the standardized measure presented for
the Partnership's proved oil and gas reserves is not representative of the
reserve value. The standardized measure is intended only to assist financial
statement users in making comparisons between companies.
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Future cash inflows.................................. $522,176 $546,581 $580,780
Future production and development costs.............. (179,006) (87,974) (200,596)
-------- -------- --------
Future net cash flows................................ 343,170 358,607 380,184
Annual discount at 10% rate.......................... (96,820) (79,706) (77,528)
-------- -------- --------
Standardized measure of discounted future net cash
flows.............................................. $246,350 $278,901 $302,656
-------- -------- --------
-------- -------- --------
</TABLE>
The following are the principal sources of change in the standardized
measure:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
January 1,........................................... $278,901 $302,656 $417,655
Sales and transfers of oil and gas produced, net of
production costs................................ (71,482) (79,701) (85,962)
Net changes in prices and production costs......... (6,474) (9,504) (119,686)
Extensions, discoveries and improved recovery, less
related costs................................... 48,483 15,152 6,051
Previously estimated development costs incurred
during the year................................. 6,099 (2,966) 5,719
Revisions of previous quantity estimates........... (12,710) 28,433 17,855
Purchase of reserves in place...................... 3,509 -- 20,682
Accretion of discount.............................. 27,890 30,266 41,766
Other.............................................. (27,866) (5,435) (1,424)
-------- -------- --------
December 31,......................................... $246,350 $278,901 $302,656
-------- -------- --------
-------- -------- --------
</TABLE>
F-18
<PAGE> 44
SCHEDULE II
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
RELATED PARTY RECEIVABLES
FOR THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DEDUCTIONS BALANCE AT
BALANCE AT ---------- END OF PERIOD
YEAR BEGINNING OF AMOUNTS -------------
ENDED NAME OF DEBTOR PERIOD ADDITIONS COLLECTED CURRENT
- --------------------------- ------------------ ------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1991.......... Maxus Energy Corp. $ 28,483 -- $ 8,630 $19,853
December 31, 1992.......... Maxus Energy Corp. $ 19,853 $ 1,634 -- $21,487
December 31, 1993.......... Maxus Energy Corp. $ 21,487 -- $ 14,059 $ 7,428
</TABLE>
- ---------------
Refer to Note 6 to the Financial Statements, "Note Receivable -- Maxus Energy
Corporation."
F-19
<PAGE> 45
SCHEDULE V
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
OIL AND GAS PROPERTIES AND EQUIPMENT
FOR THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS DISPOSALS END OF
OF PERIOD AT COST AND TRANSFERS PERIOD
---------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1991...................... $ 682,135 $63,010 $ (55,738) $ 689,407
Year ended December 31, 1992...................... $ 689,407 $18,375 $ (10,449) $ 697,333
Year ended December 31, 1993...................... $ 697,333 $36,135 $ (34,670) $ 698,798
</TABLE>
F-20
<PAGE> 46
SCHEDULE VI
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
ACCUMULATED DEPRECIATION AND DEPLETION
OIL AND GAS PROPERTIES AND EQUIPMENT
FOR THREE YEARS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT DISPOSALS BALANCE AT
BEGINNING ADDITIONS AND END OF
OF PERIOD AT COST TRANSACTIONS PERIOD
---------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1991...................... $ 507,100 $47,494 $ (48,066) $ 506,528
Year ended December 31, 1992...................... $ 506,528 $42,824 $ (6,353) $ 542,999
Year ended December 31, 1993...................... $ 542,999 $39,564 $ (28,941) $ 553,622
</TABLE>
F-21
<PAGE> 47
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
FINANCIAL INFORMATION FROM QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1994
The information on pages F-22 through F-32 is from the Diamond Shamrock
Offshore Partners Limited Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994.
The accompanying financial statements have not been examined by independent
accountants, but in the opinion of Diamond Shamrock Offshore Partners Limited
Partnership's management all adjustments (consisting only of normal accruals)
necessary for a fair presentation of results of operations, changes in partners'
capital, financial position and cash flows at the date and for the periods
indicated have been included.
F-22
<PAGE> 48
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
STATEMENT OF INCOME -- (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1994 1993
------- -------
<S> <C> <C>
REVENUES
Sales and operating revenues -- trade.............................. $ 3,476 $17,188
Sales and operating revenues -- associated companies............... 17,218 7,189
Other revenues, net................................................ 443 144
------- -------
21,137 24,521
COSTS AND EXPENSES
Production and operating costs..................................... 3,943 5,514
Exploration, including exploratory dry holes....................... 794 506
Depreciation and depletion......................................... 10,334 10,784
General and administrative expenses (b)............................ 1,296 2,038
------- -------
16,367 18,842
NET INCOME........................................................... 4,770 5,679
General Partners' Interest......................................... 48 57
------- -------
NET INCOME APPLICABLE TO LIMITED PARTNERS............................ $ 4,722 $ 5,622
------- -------
------- -------
NET INCOME PER UNIT (c).............................................. $ .06 $ .08
AVERAGE UNITS OUTSTANDING............................................ 73,761,740 73,761,740
</TABLE>
See Notes to Interim Financial Statements (Unaudited).
F-23
<PAGE> 49
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1994 DECEMBER 31,
(UNAUDITED) 1993
--------- ------------
<S> <C> <C>
ASSETS
Current Assets
Note receivable -- Maxus Energy Corporation.......................... $ 17,328 $ 7,428
Accounts receivable -- oil and gas sales............................. 8,819 9,335
Accounts receivable -- joint interest................................ 1,519 1,817
Other................................................................ 454 1,105
--------- ------------
Total Current Assets......................................... 28,120 19,685
--------- ------------
Oil and Gas Properties and Equipment -- held for sale, net............. 14,116 --
--------- ------------
Oil and Gas Properties and Equipment................................... 598,496 698,798
Less -- Accumulated depreciation and depletion....................... 472,791 553,622
--------- ------------
125,705 145,176
--------- ------------
$ 167,941 $164,861
--------- ------------
--------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable..................................................... $ 13,660 $ 15,081
Take-or-pay liability................................................ 1,600 1,600
--------- ------------
Total Current Liabilities.................................... 15,260 16,681
Other Liabilities and Deferred Credits................................. 3,763 3,766
Take-or-Pay Liability.................................................. 5,067 5,333
Partners' Capital...................................................... 143,851 139,081
--------- ------------
$ 167,941 $164,861
--------- ------------
--------- ------------
</TABLE>
The Partnership uses the successful efforts method to account for its oil and
gas producing activities.
See Notes to Interim Financial Statements (Unaudited).
F-24
<PAGE> 50
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS -- (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 4,770 $ 5,679
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and depletion...................................... 10,334 10,784
Dry hole costs.................................................. (9) (332)
(Gain)/Loss on sale of assets................................... (42) --
Changes in components of working capital:
Accounts receivable.......................................... 814 1,596
Other current assets......................................... 651 237
Accounts payable............................................. (1,421) (2,710)
-------- --------
Net cash provided by operating activities....................... 15,097 15,254
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for oil and gas properties and equipment, including dry
hole costs........................................................ (4,951) (8,029)
(Increase) decrease in current note receivable....................... (9,900) 4,654
Other................................................................ (246) 42
-------- --------
Net cash used in investing activities............................. (15,097) (3,333)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid.............................................. -- (11,921)
-------- --------
Net cash used in financing activities............................. -- (11,921)
-------- --------
Net change in cash..................................................... -- --
Cash at beginning of period............................................ -- --
-------- --------
Cash at end of period.................................................. $ -- $ --
-------- --------
-------- --------
</TABLE>
See Notes to Interim Financial Statements (Unaudited).
F-25
<PAGE> 51
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL -- (UNAUDITED)(A)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED PARTNERS
--------------------------
MAXUS
GENERAL EXPLORATION
PARTNERS COMPANY UNITHOLDERS TOTAL
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
December 31, 1993.................................. $4,190 $84,095 $50,796 $139,081
Net income....................................... 48 4,108 614 4,770
-------- ----------- ----------- --------
March 31, 1994..................................... $4,238 $88,203 $51,410 $143,851
-------- ----------- ----------- --------
-------- ----------- ----------- --------
</TABLE>
See Notes to Interim Financial Statements (Unaudited).
F-26
<PAGE> 52
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
(A) ORGANIZATION
Diamond Shamrock Offshore Partners Limited Partnership ("Partnership") is a
Delaware limited partnership formed in 1985 to succeed to substantially all of
the oil and gas exploration and production business previously conducted by
Maxus Exploration Company ("Exploration"), a wholly owned subsidiary of Maxus
Energy Corporation ("Maxus"), in federal waters offshore Texas and Louisiana. In
exchange for its contribution of properties to the Partnership, Exploration
received units of limited partnership interest ("Units") in the Partnership. As
of March 31, 1994, Maxus Offshore Exploration Company ("MOEC"), a wholly owned
subsidiary of Maxus, was the managing general partner of the Partnership and
Maxus was the special general partner.
On April 26, 1994, Maxus, MOEC and Exploration sold all their partnership
interests consisting of general partners' interests and Units to affiliates of
Burlington Resources Inc. for an aggregate $291.1 million. Maxus' aggregate
ownership interest in the Partnership was approximately 87.1%. As a result of
the sale, Meridian Offshore Company, a Burlington Resources Inc. affiliate,
became the managing general partner of the Partnership and Meridian Offshore
Acquisition Company became the special general partner.
(B) GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses represent allocations from Maxus. Maxus
believes that the method of allocation is reasonable.
(C) INCOME PER UNIT
Net Income per Unit is calculated for financial reporting purposes only.
Income or loss for federal income tax purposes will be calculated and
communicated separately for each Unitholder subsequent to December 31, 1994.
(D) FINANCIAL INSTRUMENTS
As discussed in the Partnership's Annual Report on Form 10-K for year ended
December 31, 1993, the Partnership hedged against the effects of fluctuations in
the price of natural gas through price swap agreements. As of April 26, 1994,
the Partnership settled all then-outstanding hedged positions for a $253,050
gain.
(E) DISPOSITION OF ASSETS
On April 25, 1994, the Partnership sold its interests in Main Pass Blocks
72, 73 and 74, offshore Louisiana, to Pogo Producing Company for approximately
$18.2 million. The net book value of the properties was $14.1 million. The
unaudited pro forma financial statements are presented on pages F-30 through
F-32.
F-27
<PAGE> 53
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER, 1994
RESULTS OF OPERATIONS
Diamond Shamrock Offshore Partners Limited Partnership ("Partnership")
reported net income of $4.8 million for the first three months of 1994, a $.9
million decline over the same period in 1993. This decrease was a result of
lower sales and operating revenues, despite lower production costs and lower
administrative expenses. Sales and operating revenues for the first three months
of 1994 were $20.7 million, down from $24.4 million recorded for the same period
of 1993.
Average gas production in the first three months of 1994 was down 18% to 73
million cubic feet ("mmcf") per day compared to 89 mmcf per day in the same
period of 1993. Contributing to the volume decline were watering and sanding at
Main Pass 116/126 (7 mmcf per day) and watering at Vermilion 226/237 (3 mmcf per
day) and Main Pass 181 (5 mmcf per day) partially offset by new production at
West Cameron 142 (8 mmcf per day). The average gas price in the first quarter
1994 was $2.37 per thousand cubic feet ("mcf"), up $.31 per mcf from $2.06 per
mcf in the first quarter last year.
Crude oil and condensate sales revenues were down in the first three months
of 1994 due to lower oil prices which averaged $12.71 per barrel compared to
$18.05 per barrel in the first quarter last year. Production increased to 4,468
barrels ("bbls") per day compared to 4,246 bbls per day in the same period in
1993. New production from West Cameron 142 (252 bbls per day) and Ewing Bank
944/988 (420 bbls per day) were partially offset by watering at Vermilion 226
and field decline at Main Pass 288/289.
Production and operating costs were $3.9 million in the first quarter 1994
as compared to $5.5 million in the first quarter 1993. The decrease resulted
from third-party gas purchase costs of $1.1 million recorded in first quarter
1993.
Depreciation and depletion expense was $10.3 million in the first quarter
of 1994, $.5 million below the same period last year. Lower production was
responsible for the decline, despite higher depletion rates.
FINANCIAL CONDITION
Net cash provided by operating activities for the Partnership during the
first three months of 1994 decreased slightly to $15.1 million from $15.3
million in the same period in 1993. Lower working capital requirements offset
the decline in operating cash income.
Expenditures for oil and gas properties and equipment, including dry hole
costs, in the first three months of 1994 were $5.0 million compared to $8.0
million in 1993. The decrease in 1994 was largely due to lower spending on
exploratory wells. During the first quarter 1994, the Partnership was high
bidder at the Federal lease sale on two blocks offshore Louisiana. One of these,
Eugene Island 395 (100% working interest) has been awarded to the Partnership.
The bid for the other, West Cameron 54 (100% working interest), must be accepted
or rejected by the Minerals Management Service on or before June 29, 1994.
At March 31, 1994, the Partnership's ratio of current assets to current
liabilities (current ratio) equaled 1.8 compared to a ratio of 1.2 at December
31, 1993. Current assets rose primarily due to an increase in the note
receivable with Maxus Energy Corporation ("Maxus") which, at March 31, 1994, was
$17.3 million, an increase of $9.9 million from December 31, 1993. This note was
repaid in full on April 26, 1994 upon sale of Maxus' interest to Meridian
Offshore Company and the proceeds from the repayment have been advanced to
Meridian Offshore Company.
No cash distribution was made for the first quarter 1994 due to the
Partnership's lack of distributable cash for the quarter. A second quarter cash
distribution, payable June 7, 1994, was declared at $.13 per Unit to Unitholders
of record on May 13, 1994.
F-28
<PAGE> 54
OTHER EVENTS
On April 25, 1994 the Partnership sold its interest in Main Pass 72, 73 and
74 to Pogo Producing Company for $18.2 million. The net book value of the
properties was $14.1 million.
On April 26, 1994, Maxus, the special general partner of the Partnership,
Maxus Offshore Exploration Company, the managing general partner, and Maxus
Exploration Company sold all of their interests in the Partnership consisting of
general partners' interests and 64,163,885 Units to affiliates of Burlington
Resources Inc. for an aggregate of $291.1 million. Units were sold at an
equivalent of approximately $4.48 per Unit. Maxus' aggregate ownership interest
in the Partnership was approximately 87.1%. As a result of the sale, Meridian
Offshore Company, a Burlington Resources Inc. affiliate, became the managing
general partner of the Partnership and Meridian Offshore Acquisition Company
became the special general partner.
Also, on April 26, 1994, Burlington Resources Inc. announced that it
intends to acquire the remaining Units through merger for $4.48 per unit.
F-29
<PAGE> 55
PRO FORMA INFORMATION
On April 25, 1994, the Partnership sold its interests in Main Pass Blocks
72, 73 and 74, offshore Louisiana, to Pogo Producing Company for approximately
$18.2 million. The net book value of these properties was $14.1 million. An
unaudited pro forma balance sheet as of March 31, 1994 has been prepared as if
the sale had occurred at that date. The unaudited pro forma statements of income
for the year ended December 31, 1993 and the three months ended March 31, 1994
have been prepared as if the sale had occurred at January 1, 1993 and January 1,
1994, respectively. The pro forma data are not necessarily indicative of the
financial results which would have occurred had the sale been effective on those
dates and should not be viewed as indicative of the Partnership in future
periods. The unaudited pro forma financial statements are presented on pages
F-30 through F-32.
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1994
<TABLE>
<CAPTION>
PRO-FORMA
HISTORICAL ADJUSTMENTS
D.S. OFFSHORE ------------------
PARTNERS DEBIT CREDIT PRO-FORMA
------------- ------- ------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Note Receivable -- Maxus Energy Corporation........ $ 17,328 $18,150 -- $ 35,478
Accounts Receivable -- oil and gas sales........... 8,819 -- -- 8,819
Accounts Receivable -- joint interest.............. 1,519 -- -- 1,519
Other.............................................. 454 -- -- 454
------------- ------- ------- ---------
Total Current Assets....................... 28,120 18,150 -- 46,270
------------- ------- ------- ---------
Oil and Gas Properties and Equipment --
held for sale, net................................. 14,116 -- $14,116 --
------------- ------- ------- ---------
Oil and Gas Properties and Equipment................. 598,496 -- -- 598,496
Less -- Accumulated depreciation and depletion..... 472,791 -- -- 472,791
------------- ------- ------- ---------
125,705 -- -- 125,705
------------- ------- ------- ---------
$ 167,941 $18,150 $14,116 $171,975
------------- ------- ------- ---------
------------- ------- ------- ---------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts Payable................................... $ 13,660 -- -- $ 13,660
Take-or-pay liability.............................. 1,600 -- -- 1,600
------------- ------- ------- ---------
Total Current Liabilities.................. 15,260 -- -- 15,260
Other Liabilities and Deferred Credits............... 3,763 -- -- 3,763
Take-or-Pay Liability................................ 5,067 -- -- 5,067
Partners' Capital.................................... 143,851 -- $ 4,034 147,885
------------- ------- ------- ---------
$ 167,941 -- $ 4,034 $171,975
------------- ------- ------- ---------
------------- ------- ------- ---------
</TABLE>
F-30
<PAGE> 56
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO-FORMA
HISTORICAL ADJUSTMENTS
D.S. OFFSHORE ---------------
PARTNERS DEBIT CREDIT PRO FORMA
------------- ------ ------ ---------
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues -- trade............... $37,988 $6,600 -- $31,388
Sales and operating revenues -- associated
companies........................................ 49,081 1,849 -- 47,232
Other revenues, net................................. (3,395) -- -- (3,395)
------------- ------ ------ ---------
83,674 8,449 -- 75,225
COSTS AND EXPENSES
Production and operating costs...................... 17,551 -- $1,355 16,196
Exploration, including exploratory dry holes........ 8,484 -- -- 8,484
Depreciation and depletion.......................... 39,564 -- 3,316 36,248
General and administrative expenses................. 5,553 -- -- 5,553
------------- ------ ------ ---------
71,152 -- 4,671 66,481
NET INCOME............................................ 12,522 8,449 4,671 8,744
General Partner's Interest.......................... 125 85 47 87
------------- ------ ------ ---------
NET INCOME APPLICABLE TO LIMITED PARTNERS............. $12,397 $8,364 $4,624 $ 8,657
------------- ------ ------ ---------
------------- ------ ------ ---------
NET INCOME PER UNIT................................... $ .17 $ .12
------------- ---------
------------- ---------
AVERAGE UNITS OUTSTANDING............................. 73,761,740 73,761,740
</TABLE>
F-31
<PAGE> 57
DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
PRO-FORMA
HISTORICAL ADJUSTMENTS
D.S. OFFSHORE ----------------
PARTNERS DEBIT CREDIT PRO-FORMA
------------- ------ ------ ---------
<S> <C> <C> <C> <C>
REVENUES
Sales and operating revenues -- trade.............. $ 3,476 $1,116 -- $ 2,360
Sales and operating revenues -- associated
companies....................................... 17,218 398 -- 16,820
Other revenues, net................................ 443 -- -- 443
------------- ------ ------ ---------
21,137 1,514 -- 19,623
COSTS AND EXPENSES
Production and operating costs..................... 3,943 -- $118 3,825
Exploration, including exploratory dry holes....... 794 -- -- 794
Depreciation and depletion......................... 10,334 -- 649 9,685
General and administrative expenses................ 1,296 -- -- 1,296
------------- ------ ------ ---------
16,367 -- 767 15,600
NET INCOME........................................... 4,770 1,514 767 4,023
General Partner's Interest......................... 48 15 7 40
------------- ------ ------ ---------
NET INCOME APPLICABLE TO LIMITED
PARTNERS........................................... $ 4,722 $1,499 $760 $ 3,983
------------- ------ ------ ---------
------------- ------ ------ ---------
NET INCOME PER UNIT.................................. $ .06 $ .05
------------- ---------
------------- ---------
AVERAGE UNITS OUTSTANDING............................ 73,761,740 73,761,740
</TABLE>
F-32
<PAGE> 58
SCHEDULE 1
DIRECTORS AND EXECUTIVE OFFICERS OF BR AND THE COMPANY
The name, business address and present principal occupation or employment
and five year employment history of each director and executive officer of BR
and the Company are set forth below. The business address of each director and
executive officer, unless otherwise indicated below, is 5051 Westheimer,
Houston, Texas 77056. Each of the individuals listed below is a United States
citizen. To the knowledge of BR and the Company, none of such individuals owns
any Units.
DIRECTORS OF BR
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT,
NAME BUSINESS ADDRESS AND FIVE YEAR HISTORY
- ----------------------------------- --------------------------------------------------------
<S> <C>
John V. Byrne...................... President, Oregon State University, Corvallis, Oregon
97331 -- Education. Since November 1984, Dr. Byrne's
principal occupation has been as shown above.
S. Parker Gilbert.................. Retired. Mr. Gilbert's address is c/o Morgan Stanley
Group Inc., 1251 Avenue of the Americas, New York, New
York 10020. Mr. Gilbert has been retired since January
1991. From January 1984 until December 1990, Mr. Gilbert
was Chairman and Managing Director of Morgan Stanley
Group Inc.
James F. McDonald.................. President and Chief Executive Officer,
Scientific-Atlanta, Inc., One Technology Parkway South,
Norcross, Georgia 30092 -- Telecommunications. Since
July 1993, Mr. McDonald's principal occupation has been
as shown above. From July 1991 to July 1993, Mr.
McDonald was a partner with J.H. Whitney & Co. From
January 1991 until July 1991, Mr. McDonald was Vice
Chairman of the Board of Prime Computer Inc. From
January 1990 until January 1991, Mr. McDonald was Vice
Chairman of the Board and Chief Executive Officer of
Prime Computer, Inc. From September 1989 until January
1990, Mr. McDonald was President and Chief Executive
Officer of Prime Computer, Inc. From October 1988 until
August 1989, Mr. McDonald was Chairman of the Board,
President and Chief Executive Officer of Gould/
Computer Systems Inc. and Gould/IGD Inc.
Thomas H. O'Leary.................. Chairman of the Board, President and Chief Executive
Officer of BR. Since February 1993, Mr. O'Leary's
principal occupation has been as shown above. From July
1992 to February 1993, Mr. O'Leary was Chairman of the
Board and Chief Executive Officer of BR. From October
1990 until July 1992, Mr. O'Leary was Chairman of the
Board, President and Chief Executive Officer of BR. From
January 1989 until October 1990, Mr. O'Leary was
President and Chief Executive Officer of BR.
Donald M. Roberts.................. Vice Chairman and Treasurer, United States Trust Company
of New York, 114 West 47th Street, New York, New York
10036. Since February 1990, Mr. Roberts' principal
occupation has been as shown above. From January 1989 to
February 1990, Mr. Roberts was Treasurer of United
States Trust Company of New York.
Walter Scott, Jr................... Chairman and President, Peter Kiewit Sons', Inc., 1000
Kiewit Plaza, Omaha, Nebraska 68131 -- Construction,
Mining and Telecommunications. For over five years, Mr.
Scott's principal occupation has been as shown above.
</TABLE>
S-1
<PAGE> 59
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT,
NAME BUSINESS ADDRESS AND FIVE YEAR HISTORY
- ----------------------------------- --------------------------------------------------------
<S> <C>
William E. Wall.................... Of Counsel, Siderius Longergan, 847 Logan Building,
500 Union Street, Seattle, Washington 98101 -- Law.
above. For more than 5 years, Mr. Wall's principal
occupation has been as shown above.
EXECUTIVE OFFICERS OF BR;
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
John E. Hagale..................... Senior Vice President and Chief Financial Officer of BR
since April 1994. Executive Vice President and Chief
Financial Officer of Meridian since March 1993. Vice
President, Finance, of BR from April 1992 to February
1993. Vice President, Taxes, of BR from November 1990 to
April 1992. Assistant Vice President, Taxes, of BR from
January 1989 to November 1990. Executive Vice President
and Chief Financial Officer and Director of the Company.
Harold E. Haunschild............... Vice President, Human Resources, of BR since July 1992.
Executive Vice President, Human Resources and
Administration, of Meridian since May 1993. Assistant
Vice President, Com-
pensation and Benefits, of BR from May 1988 to July
1992. Executive Vice President of the Company.
George E. Howison.................. President and Chief Executive Officer of Meridian since
May 1993. Senior Vice President and Chief Financial
Officer of BR from November 1990 to April 1994. Vice
President, Planning and Treasurer, August 1988 to
October 1990. President of the Company.
L. Edward Parker................... Executive Vice President, Marketing, of Meridian since
February 1993. Senior Vice President, Marketing, of
Meridian from December 1990 to February 1993. Vice
President, Marketing, of Meridian from August 1988 to
November 1990. Executive Vice President of the Company.
Gerald J. Schissler................ Senior Vice President, Law, of BR since December 1993.
Executive Vice President, Law and Corporate Affairs, of
Meridian since July 1993. Consultant from June 1991 to
July 1993. Senior Vice President, Law, of Meridian
Minerals Company, a subsidiary of BR, from November 1987
to June 1991. Executive Vice President and Director of
the Company.
Bobby S. Shackouls................. Executive Vice President and Chief Operating Officer of
Meridian since June 1993. President and Chief Operating
Officer of Torch Energy Advisors, Inc., an affiliate of
Torchmark Corporation, from September 1988 to May 1993.
Executive Vice President and Director of the Company.
</TABLE>
S-2
<PAGE> 60
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 28, 1994
BETWEEN
DIAMOND SHAMROCK OFFSHORE PARTNERS
LIMITED PARTNERSHIP
AND
MERIDIAN OFFSHORE COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 61
TABLE OF CONTENTS
<TABLE>
<S> <C>
AGREEMENT AND PLAN OF MERGER............................................................. 1
Background............................................................................... 1
ARTICLE I THE MERGER..................................................................... 1
SECTION 1.01 The Merger................................................................ 1
SECTION 1.02 Effective Time............................................................ 2
SECTION 1.03 Effects of the Merger..................................................... 2
SECTION 1.04 Certificate of Incorporation and By-Laws.................................. 2
SECTION 1.05 Directors and Officers.................................................... 2
SECTION 1.06 Conversion of Units....................................................... 2
SECTION 1.07 Closing................................................................... 3
ARTICLE II EXCHANGE OF UNITS............................................................. 3
SECTION 2.01 Exchange of Certificates.................................................. 3
SECTION 2.02 Distribution.............................................................. 4
ARTICLE III CONDITIONS TO CONSUMMATION OF THE MERGER..................................... 4
SECTION 3.01 Conditions to Each Party's Obligation to Effect the Merger................ 5
ARTICLE IV MISCELLANEOUS................................................................. 5
SECTION 4.01 Amendment................................................................. 5
SECTION 4.02 Entire Agreement; Assignment.............................................. 5
SECTION 4.03 Validity.................................................................. 5
SECTION 4.04 Governing Law............................................................. 5
SECTION 4.05 Descriptive Headings...................................................... 6
SECTION 4.06 Parties in Interest....................................................... 6
SECTION 4.07 Counterparts.............................................................. 6
</TABLE>
(i)
<PAGE> 62
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of April 28, 1994 (the "Agreement"),
between DIAMOND SHAMROCK OFFSHORE PARTNERS LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Partnership"), and MERIDIAN OFFSHORE COMPANY, a
Delaware corporation (the "Company").
BACKGROUND
The Board of Directors of the Company has approved on behalf of the
Company, and the Company, in its capacity as managing general partner of the
Partnership, has approved on behalf of the Partnership, upon the terms and
subject to the conditions set forth in this Agreement, the merger of the
Partnership into the Company (the "Merger"), whereby each outstanding LP Unit
(as defined in the Second Amended and Restated Agreement of Limited Partnership
of the Partnership, as amended (the "Partnership Agreement")) not owned by the
Company or any of its affiliates will be converted into the right to receive the
Merger Consideration (as hereinafter defined). The Company, as the holder of a
.99% managing general partnership interest in the Partnership and 64,163,885 LP
Units, and Meridian Offshore Acquisition Company, as the holder of a .01%
special general partnership interest in the Partnership, have both executed a
written consent approving the Merger.
Now, therefore, the Partnership and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the Delaware General
Corporation Law (the "DGCL") and the Delaware Revised Uniform Limited
Partnership Act (the "DRULPA"), the Partnership shall be merged with and into
the Company as soon as practicable following the satisfaction or waiver, if
permissible, of the conditions set forth in Article III. Following the Merger,
the Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue its existence under the laws of the State of
Delaware, and the separate existence of the Partnership shall cease. At the
election of the Company, any direct or indirect wholly-owned subsidiary of
Meridian Oil Holding Inc. ("Parent") may be substituted for the Company as a
constituent party in the Merger.
SECTION 1.02 Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article III, the Merger
shall be consummated by filing with the Secretary of State of the State of
Delaware a certificate of merger or other appropriate documents (in any case,
the "Certificate of Merger") in accordance with the DGCL and the DRULPA. The
Merger shall become effective at such time as the Certificate of Merger is duly
filed, or at such other time as the Partnership and the Company shall specify in
the Certificate of Merger (the time the Merger becomes effective being the
"Effective Time").
SECTION 1.03 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 1.04 Certificate of Incorporation and By-Laws. The Certificate of
Incorporation and the By-Laws of the Company shall be the certificate of
incorporation and by-laws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
SECTION 1.05 Directors and Officers. The directors and officers of the
Company immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified.
<PAGE> 63
SECTION 1.06 Conversion of Units. At the Effective Time, by virtue of the
Merger and without any action on the part of the Partnership, the Company or the
holders of any of the following securities:
(a) each partnership interest in the Partnership held by the Company
or any affiliate of the Company shall be cancelled and retired and shall
cease to exist, and no payment or consideration shall be made with respect
thereto;
(b) each issued and outstanding LP Unit, other than LP Units included
in the partnership interests referred to in paragraph (a) above shall be
converted into the right to receive from the Surviving Corporation an
amount in cash, without interest, equal to $4.485 per LP Unit (the "Merger
Consideration"). At the Effective Time, all such LP Units shall cease to be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such LP Unit
shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration, without interest; and
(c) each issued and outstanding share of capital stock of the Company
shall remain outstanding and shall represent one fully paid and
nonassessable share of common stock, par value $.01, of the Surviving
Corporation.
SECTION 1.07 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction or waiver of the
conditions set forth in Article III, at the offices of Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, NY 10004, unless another date
or place is agreed to in writing by the parties hereto.
ARTICLE II
EXCHANGE OF UNITS
SECTION 2.01 Exchange of Certificates. (a) Prior to the Effective Time, the
Company shall appoint a bank or trust company to act as disbursing agent (the
"Disbursing Agent") for the payment of Merger Consideration upon surrender of
certificates representing the LP Units. Parent will enter into a disbursing
agent agreement with the Disbursing Agent, in form and substance reasonably
acceptable to the Company, and shall deposit or cause to be deposited with the
Disbursing Agent in trust for the benefit of the holders of LP Units cash in an
aggregate amount necessary to make the payments pursuant to Section 1.06 to
holders of LP Units (such amounts being hereinafter referred to as the "Exchange
Fund"). The Disbursing Agent shall, pursuant to irrevocable instructions, make
the payments provided for in the preceding sentence out of the Exchange Fund.
The Disbursing Agent shall invest portions of the Exchange Fund as the Company
directs, provided that such investments shall be in obligations of or guaranteed
by the United States of America, in commercial paper obligations receiving the
highest rating from either Moody's Investors Service, Inc. or Standard & Poor's
Corporation, or in certificates of deposit, bank repurchase agreements or
banker's acceptances of commercial banks with capital exceeding $100 million.
The Exchange Fund shall not be used for any other purpose, except as provided in
this Agreement.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause the Disbursing Agent to mail to each person who was a record holder as of
the Effective Time of an outstanding certificate or certificates which
immediately prior to the Effective Time represented Depositary Units (as defined
in the Partnership Agreement) representing LP Units (the "Certificates"), and
whose LP Units were converted into the right to receive Merger Consideration
pursuant to Section 1.06, a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Disbursing
Agent) and instructions for use in effecting the surrender of the Certificate in
exchange for payment of the Merger Consideration. Upon surrender to the
Disbursing Agent of a Certificate, together with such letter of transmittal duly
executed and such other documents as may be reasonably required by the
Disbursing Agent, the holder of such Certificate shall be paid in exchange
therefor cash in an amount equal to the product of the number of LP Units
represented by such Certificate multiplied by the Merger Consideration, and such
Certificate shall forthwith be cancelled. No interest will be paid or accrued on
the cash payable upon the surrender of the Certificates. If payment is to be
made to a person other
-2-
<PAGE> 64
than the person in whose name the Certificate surrendered is registered, it
shall be a condition of payment that the Certificate so surrendered be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment pay any transfer or other taxes required by reason of
the payment to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 2.01, each Certificate (other than
Certificates representing LP Units owned by the Company or any affiliate of the
Company shall represent for all purposes only the right to receive the Merger
Consideration in cash multiplied by the number of LP Units represented by such
Certificate, without any interest thereon.
(c) At and after the Effective Time, there shall be no registration of
transfers of LP Units and the Partnership shall instruct the depositary for the
Depositary Units not to register transfers of the Depositary Units which were
outstanding immediately prior to the Effective Time. From and after the
Effective Time, the holders of LP Units outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such LP Units
except as otherwise provided in this Agreement or by applicable law. All cash
paid upon the surrender of Certificates in accordance with the terms of this
Article II shall be deemed to have been paid in full satisfaction of all rights
pertaining to the LP Units previously represented by such Certificates. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, such Certificates shall be cancelled and exchanged
for cash as provided in this Article II.
(d) At any time more than one year after the Effective Time, the Surviving
Corporation shall be entitled to require the Disbursing Agent to deliver to it
any funds which had been made available to the Disbursing Agent and not
disbursed in exchange for Certificates (including, without limitation, all
interest and other income received by the Disbursing Agent in respect of all
such funds). Thereafter, holders of LP Units shall look only to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) as
general creditors thereof with respect to any Merger Consideration that may be
payable, without interest, upon due surrender of the Certificates held by them.
Notwithstanding the foregoing, neither the Surviving Corporation nor the
Disbursing Agent shall be liable to any holder of an LP Unit for any Merger
Consideration delivered in respect of such LP Unit to a public official pursuant
to any abandoned property, escheat or other similar law.
SECTION 2.02 Distribution. Nothing in this Agreement shall be construed as
affecting the rights of holders of LP Units to receive the distribution of $.13
per LP Unit to be paid on June 7, 1994 to holders of record of LP Units as of
May 13, 1994.
ARTICLE III
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 3.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver, where permissible, prior to the Effective Time, of the
following conditions:
(a) no statute, rule, regulation, executive order, decree, injunction
or other order (whether temporary, preliminary or permanent), shall have
been enacted, entered, promulgated or enforced by any court or governmental
authority which is in effect and has the effect of prohibiting the
consummation of the Merger; provided that each of the parties shall have
used its best efforts to prevent the entry of any injunction or other order
and to appeal as promptly as possible any injunction or other order that
may be entered; and
(b) the waiting period (and any extension thereof) applicable to the
consummation of the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, if any, shall have expired or been
terminated and a 20-day period shall have elapsed from the date of mailing
to holders of LP Units of an information statement with respect to the
Merger.
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<PAGE> 65
ARTICLE IV
MISCELLANEOUS
SECTION 4.01 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
SECTION 4.02 Entire Agreement; Assignment. This Agreement constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
Neither this Agreement nor any right, interest or obligation under this
Agreement shall be assigned, in whole or in part, by operation of law or
otherwise without the prior written consent of the other parties.
SECTION 4.03 Validity. In the event any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby.
SECTION 4.04 Governing Law. This Agreement shall be governed by and
construed in accordance with the substantive laws of the State of Delaware
regardless of the laws that might otherwise govern under principles of conflicts
of laws applicable thereto.
SECTION 4.05 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 4.06 Parties in Interest. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
SECTION 4.07 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement, and shall become effective when one
or more counterparts have been signed by each of the parties and delivered to
the other parties.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officers thereunto duly authorized, all
as of the day and year first above written.
DIAMOND SHAMROCK OFFSHORE
PARTNERS LIMITED PARTNERSHIP
By Meridian Offshore Company,
its managing general partner
By /s/ RANDOLPH P. MUNDT
----------------------------------
Name: Randolph P. Mundt
Title: Senior Vice President
MERIDIAN OFFSHORE COMPANY
By /s/ GERALD J. SCHISSLER
----------------------------------
Name: Gerald J. Schissler
Title: Executive Vice President
-4-
<PAGE> 1
EXHIBIT (G)(1)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
LESLIE SUSSER,
Plaintiff,
-- against --
BURLINGTON RESOURCES INC., DIAMOND
C.A. NO. 13483
SHAMROCK OFFSHORE PARTNERS LIMITED
PARTNERSHIP, MAXUS ENERGY CORPORATION,
CLASS ACTION COMPLAINT
MAXUS OFFSHORE EXPLORATION COMPANY,
C.L. BLACKBURN, STEVEN G. CROWELL,
AND JOHN C. SCHMID,
Defendants.
Plaintiff, by his attorneys, for his complaint against defendants, alleges
upon information and belief, except for paragraphs l and 2 hereof, which are
alleged upon knowledge, as follows:
1. Plaintiff brings this action pursuant to Rule 23 of the Rules of the
Court of Chancery on his behalf and as a class action on behalf of all persons,
other than the defendants and those in privity with them, who own publicly
traded securities of Diamond Shamrock Offshore Partners, Limited Partnership
("Diamond Shamrock" or the "Company").
2. Plaintiff owns, and has owned at all relevant times, a limited
partnership interest in Diamond Shamrock through his Individual Retirement
Account.
3. Defendant Diamond Shamrock is a limited partnership duly organized and
existing under the laws of the State of Delaware. The Company is a master
limited partnership formed in September 1985. Diamond Shamrock explores for and
produces natural gas and crude oil on federal offshore leases. All 82 of its
leases are in the Gulf of Mexico off the shores of Texas and Louisiana. The
Company's publicly traded securities are traded on the New York and Pacific
Stock Exchanges under the symbol DSP. The Company maintains its principal
executive offices at 717 North Harwood Street, Dallas, Texas 75201.
4. Defendant Burlington Resources, Inc. ("Burlington"), is incorporated in
Delaware and is a holding company engaged, through its principal subsidiary,
Meridian Holding, Inc., and its other subsidiaries, in the exploration,
production and development of oil and gas, and related marketing activities.
Burlington also owns and operates natural gas gathering systems, intrastate
natural gas pipelines and has an interest in a crude oil pipeline.
5. Defendant Maxus Energy Corporation ("Maxus") is a New York Stock
Exchange listed company engaged in the exploration, production and development
of oil and gas. Maxus is the special general partner of Diamond Shamrock.
6. Defendant Maxus Offshore Exploration Company ("Offshore"), a wholly
owned subsidiary of Maxus, is the managing general partner of Diamond Shamrock.
Both Maxus and Offshore engaged in the transactions complained of herein.
7. Defendant C.L. Blackburn ("Blackburn") is, and at all relevant times,
has been Chairman of the Board of Directors of Offshore.
8. Defendant Steven G. Crowell ("Crowell") is and, at all relevant times,
has been President and a Director of Offshore.
9. Defendant John C. Schmid ("Schmid") is and, at all relevant times, has
been Vice President and a Director of Offshore.
<PAGE> 2
10. The individual defendants are members of the board of Offshore, the
managing general partner of Diamond Shamrock.
11. The individual defendants, by reason of their directorships, stand in a
fiduciary position relative to Diamond Shamrock's public security holders, and
said defendants' fiduciary duties, at all times relevant herein, required them
to exercise their best judgment, and to act in a prudent manner, and in the best
interests of Diamond Shamrock's minority security holders. Said defendants owe
the public securities holders of Diamond Shamrock the highest duty of good
faith, fair dealing, due care, loyalty, and full, candid and adequate
disclosure.
12. Burlington, by virtue of its purchase of an 87.1% limited and general
partnership interest in Diamond Shamrock from Maxus and Offshore, is a
controlling securities holder of Diamond Shamrock and orchestrated the merger at
issue for its own benefit, at the expense of Diamond Shamrock's minority
securities holders.
13. Each defendant herein is sued individually as a conspirator and aider
and abettor, as well as in his capacity as a director of Offshore (in the case
of the individual defendants), or as a control person and the liability of each
arises from the fact that he has engaged in all or part of the unlawful acts,
plans, schemes, or transactions herein.
CLASS ACTION ALLEGATIONS
14. Plaintiff brings this action on his own behalf and as a class action,
pursuant to Rule 23 of the Rules of the Court of Chancery, on behalf of all
security holders of the common securities of Diamond Shamrock (except the
defendants herein and any person, firm, trust, corporation, or other entity
related to or affiliated with any of the defendants) and their successors in
interest, who are or will be threatened with injury arising from defendants'
actions as more fully described herein.
15. This action is properly maintainable as a class action.
16. The class is so numerous that joinder of all members is impracticable.
As of December 31, 1993, there were approximately 74,010,440 Diamond Shamrock
securities outstanding. As of March 1, 1994, 9,846,555 of these securities were
held by the public including numerous class members.
17. A class action is superior to other methods for the fair and efficient
adjudication of the claims herein asserted, and no unusual difficulties are
likely to be encountered in the management of this class action. The likelihood
of individual class members prosecuting separate claims is remote.
18. There are questions of law and fact which are common to the class and
which predominate over questions affecting any individual class member. The
common questions include, inter alia, the following:
(a) whether defendants have breached their fiduciary and other common
law duties owed by them to plaintiff and the members of the class;
(b) whether defendants are pursuing a scheme and course of conduct
designed to eliminate the public securities holders of Diamond Shamrock in
violation of the laws of the State of Delaware in order to benefit from a
proposed acquisition of Diamond Shamrock by Burlington at the expense and
to the detriment of the plaintiff and the other public securities holders
who are members of the class;
(c) whether defendants are acting on both sides of the possible
going-private transaction, thus presenting a conflict of interest,
self-dealing and overreaching;
(d) whether the said proposed acquisition, hereinafter described,
constitutes a breach of the duties of fair dealing and/or entire fairness
with respect to the members of the class; and,
(e) whether the class is entitled to injunctive relief or damages as a
result of the wrongful conduct of the defendants.
19. Plaintiff is committed to prosecuting this action and has retained
competent counsel experienced in litigation of this nature. The claims of the
plaintiff are typical of the claims of other members of the class and
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<PAGE> 3
plaintiff has the same interests as the other members of the class. A class
action is superior to any other type of adjudication of this controversy.
20. Defendants have acted in a manner which affects plaintiff and all
members of the class, thereby making appropriate injunctive relief and/or
corresponding declaratory relief with respect to the class as a whole.
SUBSTANTIVE ALLEGATIONS
21. Diamond Shamrock had a dismal year in 1993 as revenues declined and the
Company suffered a tremendous decrease in earnings. For the year ended December
31, 1993, Diamond Shamrock reported net income of $12.5 million or approximately
$0.17 per share, on revenues of $87.1 million, compared with a net profit in
1992 of $20.9 million, or $0.28 per share, on revenues of $95.9 million. Diamond
Shamrock's performance in the fourth quarter of 1993 was even more dismal. The
Company lost $3.6 million, or $0.05 per share, compared to net income in the
comparable quarter in the prior year of $7.3 million, or $0.10 per share.
Defendant Crowell stated in a "Letter to Partners," dated March 21, 1994, in
Diamond Shamrock's 1993 Annual Report that "[t]he reduction [in revenues and
earnings in 1993] was primarily due to lower oil prices and lower gas volumes."
22. On January 25, 1994, Offshore announced that no cash distribution was
to be made to Diamond Shamrock security holders for the first quarter of 1994,
due to substantially higher exploration and development expenditures and lower
crude oil prices and reduced natural gas volumes.
23. However, on February 24, 1994, Diamond Shamrock reported that "in a
nearly three-fold increase over its 1992 replacement rate," it had replaced 122%
of its production of oil and gas at a finding, development and acquisition
("FD&A") cost of $0.94 per thousand cubic feet equivalent, lower than the FD&A
cost of $1.21 for the previous year.
24. On April 25, 1994, in a reversal from the prior quarter and as a
reflection of the Company's improved prospects, Diamond Shamrock declared a
quarterly dividend of $0.13 per partnership interest. This distribution was
consistent with Diamond Shamrock's previously announced policy to distribute
cash based on cash generated by the Company.
25. Due to the Company's increased development and acquisition of oil and
gas properties, whose cost was borne in part by Diamond Shamrock's public
security holders, and recent higher prices for oil and gas, Diamond Shamrock is
on the verge of renewed and sustained profitability.
26. However, on April 26, 1994, just as Diamond Shamrock is poised to
regain its footing after a disastrous 1993 and was returning to profitability,
Burlington shocked the market with its purchase of an 87.1% general and limited
partnership interest in Diamond Shamrock from Maxus and Offshore. Burlington
also announced its plan to merge the remaining 12.9% of Diamond Shamrock's
publicly traded securities into Burlington. Burlington plans to pay $4.48 in
cash for each publicly traded security of Diamond Shamrock outstanding at the
time of the merger. The price proposed to be paid by Burlington to Diamond
Shamrock limited partners represents a decrease from the last price paid for
Diamond Shamrock security interests prior to the announcement of the proposed
transaction. Trading in Diamond Shamrock securities was halted by the New York
Stock Exchange for hours on April 26 as the price of the shares was reset
downward to reflect Burlington's announcement.
27. Maxus and Offshore were under pressure to sell their stake in Diamond
Shamrock due to the growing financial problems at Maxus. On January 11, 1994,
Standard & Poor's Corp. ("S&P") said that it placed the ratings of Maxus' BB
senior debt and its B-plus preferred stock on Creditwatch with negative
implications. S&P stated that additional steps needed to be taken by Maxus to
improve cash flow measures to strengthen the capital structure over the
medium-term in order to avert a ratings downgrade. On March 17, 1994, Moody's
Investors Services made a similar announcement regarding Maxus' prospects.
Indeed, on April 21, 1994, only five days before the transaction at issue was
announced, Duff & Phelps Credit Rating Co. did, in fact, lower its senior debt
and preferred stock ratings on Maxus. Maxus' rapidly deteriorating financial
3
<PAGE> 4
condition forced it to accept any offer made for Diamond Shamrock rather than
adhering to its fiduciary duties to Diamond Shamrock's minority security holders
to attempt to achieve the highest possible price for the Company.
28. The proposed purchase price of $4.48 to be paid to Diamond Shamrock
limited partners does not represent the true value of the assets and future
prospects underlying each limited partnership interest of Diamond Shamrock.
29. By virtue of its dominance and control over Diamond Shamrock,
Burlington, Maxus, and Offshore, together with the individual defendants, have
engaged in a plan involving acts which are grossly unfair to plaintiff and the
other members of the class. The purpose of the plan is to enable Burlington to
acquire 100% equity ownership of Diamond Shamrock and its assets for its own
benefit, and at the expense of the other Diamond Shamrock security holders who
would be deprived of their equity investment and the benefits to accrue
thereafter, for a grossly inadequate price.
30. Defendants' announcement of the proposed bid fails to disclose whether,
prior to making the offer, they obtained an unconditional opinion of an
independent investment banker regarding the fair value of the publicly traded
Diamond Shamrock securities. Nor do the terms of the merger give any credit to
the improving prospects for Diamond Shamrock due to the recent three-fold
increase in the replacement rate of the Company's production, the cost of which
was partially borne by the minority shareholders, and the improving market
prices for oil and gas. Further, the merger announcement does not mention that
Diamond Shamrock is on the verge of reporting sustained and significant profits.
31. Because of Burlington's newly acquired 87.1% equity position and
overwhelming control over Diamond Shamrock, all of Offshore's directors who will
be considering the offer, and the entire Offshore board of directors, no third
party, as a practical matter, can attempt any competing bid for Diamond
Shamrock, as the success of any such bid would require the consent and
cooperation of Burlington. In fact, because of the predominant control of
Diamond Shamrock by Burlington, it is a foregone conclusion that whatever
Burlington may offer, such merger will be consummated.
32. The proposed transaction serves no legitimate business purpose of
Diamond Shamrock, but rather is an attempt by defendants to benefit unfairly
Burlington from the transaction at the expense of Diamond Shamrock's public
security holders. The proposed plan will deny plaintiff and the other members of
the class their right to share proportionately in the future success and growth
in profitability of Diamond Shamrock and its valuable assets, while permitting
Burlington to reap huge benefits from the contemplated transaction.
33. The price of $4.48 per limited partnership interest to be paid to the
class members is unconscionable, unfair and grossly inadequate. The terms of the
proposed merger constitute unfair dealing with respect to the minority security
holders because, among other things:
(a) the market value, until the proposed transaction was made, and the
intrinsic value of the publicly traded securities of Diamond Shamrock was
and is materially in excess of $4.48 per limited partnership interest,
giving due consideration to the likely growth and profitability of Diamond
Shamrock in light of the reversal in fortunes of and future earnings
potential of its business.
(b) The $4.48 per limited partnership interest price is not the result
of arm's length negotiations and was not based upon any independent
Evaluation of the current value of Diamond Shamrock securities, assets or
business, but was fixed arbitrarily by defendants, as part of a plan by
Burlington to obtain complete ownership of Diamond Shamrock's assets and
business at the lowest possible price, to obtain for itself benefits
disproportionate with those to be received by the public security holders,
which facts were not and perhaps will not be disclosed since it is not in
defendants' interests to disclose such facts.
34. Because the defendants are in possession of corporate information
concerning Diamond Shamrock's assets, businesses and future financial prospects,
the level of knowledge and economic power between defendants and the public
security holders is unequal, making it grossly and inherently unfair for
Burlington to obtain ownership of Diamond Shamrock's assets from the public
security holders at the proposed price.
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<PAGE> 5
35. By reason of the foregoing acts, practices and course of conduct,
Burlington, Maxus and Offshore have breached and continue to breach their duties
as past and present controlling security holders of Diamond Shamrock and the
individual defendants have breached and continue to breach their duties as
directors of Offshore, to the remaining security holders, including plaintiff
and the other members of the class herein.
36. Plaintiff and the class will suffer irreparable damage unless
defendants are enjoined from continuing to breach their fiduciary duties and
from carrying out the aforesaid plan and scheme.
37. Plaintiff and the other members of the class have no adequate remedy at
law.
WHEREFORE, plaintiff demands judgment against the defendants jointly and
severally, as follows:
(1) declaring this action to be a class action and certifying
plaintiff as the class representative and his counsel as class counsel;
(2) enjoining, preliminarily and permanently, Burlington's offer for
acquisition of the Diamond Shamrock securities owned by plaintiff and the
other members of the class;
(3) to the extent, if any, that the contemplated transaction or
transactions complained of are consummated prior to the entry of this
Court's final judgment, rescinding such transaction or transactions, and
granting, inter alia, rescissionary damages;
(4) directing that defendants pay to plaintiff and the other members
of the class all damages caused to them and account for all profits and any
special benefits obtained as a result of their unlawful conduct;
(5) requiring defendants to shop Diamond Shamrock without using the
controlling ownership to block the highest offer in a fair auction;
(6) requiring disclosure of internal forecasts regarding Diamond
Shamrock's future earnings potential;
(7) awarding to plaintiff the costs and disbursements of this action,
including a reasonable allowance for the fees and expenses of plaintiff's
attorneys and experts; and
(8) granting plaintiff and the other members of the class such other
and further relief as may be just and proper.
Dated: April 27, 1994
MORRIS and MORRIS
By: /s/ ABRAHAM RAPPAPORT
Irving Morris
Karen L. Morris
Abraham Rappaport
Suite 1600
1105 North Market Street
Wilmington, Delaware 19801
(302) 426-0400
Attorneys for Plaintiff
Of Counsel:
LAW OFFICES OF JOSEPH H. WEISS
Joseph H. Weiss
319 Fifth Avenue
New York, New York 10016
(212) 532-4171
5
