<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 15, 1996
FILE NO.: 333-00889
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
KEY PRODUCTION COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1311 84-1089744
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION OF INDUSTRIAL EMPLOYER IDENTIFICATION
INCORPORATION OR CLASSIFICATION CODE NO.)
ORGANIZATION) NO.)
ONE NORWEST CENTER, 20TH FLOOR
1700 LINCOLN STREET
DENVER, COLORADO 80203-4520
(303) 837-0779
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
CATHY L. ANDERSON, CONTROLLER
KEY PRODUCTION COMPANY, INC.
1700 LINCOLN STREET, 20TH FLOOR
DENVER, COLORADO 80203-4520
(303) 837-0779
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT
FOR SERVICE, SHOULD BE SENT TO:
THOMAS A. RICHARDSON, ESQ. WILLIAM B. MASTERS, ESQ.
HOLME ROBERTS & OWEN LLC JONES, WALKER, WAECHTER, POITEVENT,
1700 LINCOLN, SUITE 4100 CARRERE & DENEGRE, L.L.P.
DENVER, CO 80203 201 ST. CHARLES AVE.
TEL. (303) 861-7000 NEW ORLEANS, LOUISIANA 70170-5100
FAX (303) 866-0200 TEL. (504) 582-8000
FAX (504) 582-8012
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
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<PAGE>
KEY PRODUCTION COMPANY, INC.
CROSS REFERENCE SHEET
BETWEEN ITEMS IN PART I OF THE REGISTRATION STATEMENT
(FORM S-4) AND PROSPECTUS PURSUANT TO ITEM 501(B)
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN PROSPECTUS
---------------- ----------------------
<C> <S> <C>
A.INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus....................... Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Inside Front Cover Page of
Prospectus; Available Information;
Incorporation of Certain Documents
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information...................... Summary
4. Terms of the Transaction.......... Outside Front Cover Page of
Prospectus; Summary; The Special
Meetings; The Merger; Certain Terms
of the Merger Agreement; Stockholder
Agreement; Description of Key
Production Capital Stock;
Comparative Rights of Key Production
and Brock Stockholders
5. Pro Forma Financial Information... Unaudited Pro Forma Condensed
Financial Information
6. Material Contacts with the Company
Being Acquired................... The Merger; Certain Terms of the
Merger Agreement; Stockholder
Agreement; Description of Key
Production Capital Stock
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters..................... *
8. Interests of Named Experts and
Counsel.......................... *
9. Disclosure of Commission Position
on Indemnification For Securities
Act Liabilities.................. *
B.INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants...................... *
11. Incorporation of Certain
Information by Reference......... *
12. Information with Respect to S-2 or
S-3 Registrants.................. *
13. Incorporation of Certain
Information by Reference......... Incorporation of Certain Documents by
Reference; Description of Key
Production Capital Stock; Outside
Front Cover Page of Prospectus;
Summary; The Special Meetings; The
Merger; Certain Terms of the Merger
Agreement
14. Information with Respect to
Registrants other than S-3 or S-2
Registrants...................... *
C.INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3
Companies........................ *
16. Information with Respect to S-2 or
S-3 Companies.................... Incorporation of Certain Documents by
Reference; Outside Front Cover Page
of Prospectus; Summary; The Special
Meetings; The Merger; Certain Terms
of the Merger Agreement
17. Information with Respect to
Companies other than S-3 or S-2
Companies........................ *
D.VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents
or Authorizations are to be
Solicited........................ Outside Front Cover Page of
Prospectus; Summary; The Special
Meetings; The Merger; Certain Terms
of the Merger Agreement; Principal
Stockholders of Key Production and
Brock; Stockholders' Proposals
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited in an Exchange Offer... *
</TABLE>
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* Not applicable or answer is negative.
<PAGE>
KEY PRODUCTION COMPANY, INC.
ONE NORWEST CENTER, 20TH FLOOR
1700 LINCOLN STREET
DENVER, COLORADO 80203-4520
FEBRUARY 16, 1996
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of Key
Production Company, Inc. at the University Club, 1673 Sherman Street, Denver,
Colorado, on Thursday, March 28, 1996, at 10:00 a.m., local time.
At the Special Meeting, stockholders will be asked to approve the issuance
of Key Production Common Stock in connection with the proposed merger of a
subsidiary of Key Production with and into Brock Exploration Corporation,
pursuant to the Agreement and Plan of Merger dated December 21, 1995, among
Key Production, Brock and Key Acquisition One, Inc., a wholly-owned subsidiary
of Key Production. The Merger Agreement provides that, upon consummation of
the merger, each issued and outstanding share of common stock of Brock would
be converted into the right to receive .6897 shares of Key Production Common
Stock. The Merger Agreement and the proposed merger are discussed in more
detail in the accompanying Joint Proxy Statement/Prospectus. Please review and
consider the enclosed materials carefully.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE ISSUANCE OF THE KEY PRODUCTION
COMMON STOCK IN THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE
STOCKHOLDERS OF KEY PRODUCTION AND RECOMMENDS THAT YOU VOTE IN FAVOR OF SUCH
ISSUANCE.
If you have any questions prior to the Special Meeting or need further
assistance, please call Corporate Investor Communications, Inc., who will be
assisting in connection with the Special Meeting, at 1-800-346-7885.
Whether or not you plan to be at the Special Meeting, please be sure to
sign, date and return the enclosed proxy or voting instruction card in the
enclosed envelope as promptly as possible so that your shares may be
represented at the Special Meeting and voted in accordance with your wishes.
Your vote is important regardless of the number of shares you own.
Sincerely,
/s/ F. H. Merelli
-----------------------------------------------
F. H. MERELLI
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
KEY PRODUCTION COMPANY, INC.
ONE NORWEST CENTER, 20TH FLOOR
1700 LINCOLN STREET
DENVER, COLORADO 80203-4520
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 28, 1996
To the Stockholders of Key Production Company, Inc.:
A Special Meeting of Stockholders of Key Production Company, Inc., a
Delaware corporation ("Key Production"), will be held on Thursday, March 28,
1996 at 10:00 a.m., local time, at the University Club, 1673 Sherman Street,
Denver, Colorado, for the following purposes:
1. To consider and vote upon a proposal for the issuance and reservation
for issuance of up to 2,800,000 shares of common stock, $.25 par value, of
Key Production ("Key Production Common Stock") in connection with the
Agreement and Plan of Merger dated December 21, 1995 among Key Production,
Brock Exploration Corporation ("Brock") and Key Acquisition One, Inc.
("Merger Sub"), pursuant to which, among other things, Merger Sub would
merge with and into Brock and each issued and outstanding share of Brock
Common Stock, $.10 par value per share, would be converted in the merger
into the right to receive .6897 shares of Key Production Common Stock, all
as more fully set forth in the accompanying Joint Proxy
Statement/Prospectus and in the Merger Agreement, a copy of which is
included as Appendix I thereto; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on February 9, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournment thereof. Only holders of record
of shares of Key Production Common Stock at the close of business on the
record date are entitled to notice of and to vote at the meeting. A complete
list of such stockholders will be available for examination at the offices of
Key Production in Denver, Colorado during normal business hours by any Key
Production Stockholder, for any purpose germane to the Special Meeting, for a
period of 10 days prior to the meeting.
STOCKHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING, TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED. If a stockholder who has returned a proxy
attends the meeting in person, such stockholder may revoke the proxy and vote
in person on all matters submitted at the meeting.
By Order of the Board of Directors
/s/ Monroe W. Robertson
_____________________________________
MONROE W. ROBERTSON
SECRETARY
Denver, Colorado
February 16, 1996
<PAGE>
BROCK EXPLORATION CORPORATION
225 BARONNE STREET, SUITE 700
NEW ORLEANS, LOUISIANA 70112-1707
FEBRUARY 16, 1996
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders to be
held at 10:00 a.m., local time, on Thursday, March 28, 1996 at the City Energy
Club of New Orleans, 1100 Poydras Street, New Orleans, Louisiana.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger dated December
21, 1995, providing for the merger of a wholly-owned subsidiary of Key
Production Company, Inc. with and into Brock Exploration Corporation. Under
the terms of the Merger Agreement, each outstanding share of common stock of
Brock would be converted into the right to receive .6897 shares of common
stock of Key Production Company, Inc. The Merger Agreement and the proposed
merger are discussed in more detail in the accompanying Joint Proxy
Statement/Prospectus.
The Board of Directors of Brock has retained the investment banking firm of
Stephens Inc. to advise it with respect to the fairness of the consideration
to be received by the Brock stockholders in the merger. Stephens Inc. has
advised the Board that, in its opinion, the consideration to be received by
the holders of Brock Common Stock in the merger is fair from a financial point
of view. A copy of the opinion of Stephens Inc. is included in the enclosed
Joint Proxy Statement/Prospectus as Appendix II thereto.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF BROCK AND ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The Merger Agreement and financial and other information concerning the
business of Key Production Company, Inc. and Brock are included in the
enclosed Joint Proxy Statement/Prospectus. Please review the Joint Proxy
Statement/Prospectus carefully.
Because of the significance of these matters to Brock, your participation in
the Special Meeting, in person or by proxy, is especially important. The
affirmative vote of the holders of two-thirds of the outstanding shares of
Brock Common Stock is required to approve and adopt the Merger Agreement, so
an abstention or failure to vote will have the same effect as a vote against
the Merger Agreement. Accordingly, we urge you to complete, sign and date the
enclosed proxy or voting instruction card and return it in the enclosed return
envelope, whether or not you plan to attend the meeting. Your vote is
important.
Sincerely,
/s/ Lawrence E. Brock
_____________________________________
LAWRENCE E. BROCK
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
BROCK EXPLORATION CORPORATION
225 BARONNE STREET, SUITE 700
NEW ORLEANS, LOUISIANA 70112-1707
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 28, 1996
To the Stockholders of Brock Exploration Corporation:
A Special Meeting of Stockholders of Brock Exploration Corporation, a
Delaware corporation ("Brock"), will be held on Thursday, March 28, 1996 at
10:00 a.m., local time, at the City Energy Club of New Orleans, 1100 Poydras
Street, New Orleans, Louisiana, to consider the following matters:
1. The approval and adoption of the Agreement and Plan of Merger, dated
December 21, 1995 (the "Merger Agreement"), pursuant to which a wholly-
owned subsidiary of Key Production Company, Inc. will merge with and into
Brock and each outstanding share of Brock Common Stock, $.10 par value per
share, will be converted into the right to receive .6897 shares of common
stock, $.25 par value per share, of Key Production Company, Inc., as more
fully described in the accompanying Joint Proxy Statement/Prospectus and in
the Merger Agreement, a copy of which is included as Appendix I thereto;
and
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on February 9, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at the meeting or any adjournment thereof. Only holders of record
of shares of Brock Common Stock at the close of business on the record date
are entitled to notice of and to vote at the meeting. Stockholders of Brock
are not entitled to any appraisal or dissenter's rights under the Delaware
General Corporation Law in respect of the transactions contemplated by the
Merger Agreement.
Because of the significance of these matters to Brock, your participation in
the Special Meeting, in person or by proxy, is especially important. The
affirmative vote of the holders of two-thirds of the outstanding shares of
Brock Common Stock is required for approval and adoption of the Merger
Agreement. Even if you plan to attend the meeting in person, we request that
you sign and return the enclosed proxy or voting instruction card and thus
ensure that your shares will be represented at the meeting if you are unable
to attend. If you do attend the meeting and wish to vote in person, you may
withdraw your proxy and vote in person.
By Order of the Board of Directors
/s/ Lorena Rowan Brock
_____________________________________
LORENA ROWAN BROCK
SECRETARY
New Orleans, Louisiana
February 16, 1996
<PAGE>
KEY PRODUCTION COMPANY, INC.
BROCK EXPLORATION CORPORATION
JOINT PROXY STATEMENT
----------------
KEY PRODUCTION COMPANY, INC.
PROSPECTUS
----------------
This Joint Proxy Statement/Prospectus relates to the proposed merger of Key
Acquisition One, Inc., a Delaware corporation ("Merger Sub"), which is a
wholly-owned subsidiary of Key Production Company, Inc., a Delaware
corporation ("Key" or "Key Production"), with and into Brock Exploration
Corporation, a Delaware corporation ("Brock"), pursuant to the Agreement and
Plan of Merger dated December 21, 1995 among Key Production, Merger Sub and
Brock (the "Merger Agreement"). The merger contemplated by the Merger
Agreement is referred to herein as the "Merger."
As a result of the Merger, (i) each share of common stock, $.10 par value
per share, of Brock ("Brock Common Stock") outstanding immediately prior to
the effective time of the Merger (other than Brock Common Stock held directly
or indirectly by Key Production or Brock) will be converted into the right to
receive .6897 shares of common stock, $.25 par value per share, of Key
Production ("Key Production Common Stock"), and (ii) Brock will become a
wholly-owned subsidiary of Key Production.
This Joint Proxy Statement/Prospectus is being furnished to holders of Key
Production Common Stock and Brock Common Stock in connection with the
solicitation of proxies by the respective Boards of Directors of Key
Production and Brock for use at special meetings of stockholders of Key
Production (the "Key Special Meeting") and of Brock (the "Brock Special
Meeting") to be held on March 28, 1996. This Joint Proxy Statement/Prospectus
and the accompanying forms of proxy are first being mailed to stockholders of
Key Production and Brock on or about February 16, 1996.
At the Brock Special Meeting, holders of Brock Common Stock will be asked to
approve and adopt the Merger Agreement. At the Key Special Meeting, holders of
Key Production Common Stock will be asked to approve the issuance and
reservation for issuance of up to 2,800,000 shares of Key Production Common
Stock pursuant to the Merger Agreement.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of Key
Production with respect to up to 2,800,000 shares of Key Production Common
Stock to be issued pursuant to the Merger Agreement in exchange for currently
outstanding shares of Brock Common Stock and additional shares of Brock Common
Stock which may become outstanding prior to the Merger pursuant to the
exercise of outstanding options to purchase Brock Common Stock ("Brock
Options").
On February 14, 1996, the closing prices of Key Production Common Stock and
Brock Common Stock, as reported on the Nasdaq National Market and the American
Stock Exchange, respectively, were $5.00 and $3 1/8, respectively.
See "Summary--Risk Factors" at page 8 for a discussion of certain risks to
be considered by stockholders of Key and Brock.
----------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY OTHER STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Joint Proxy Statement/Prospectus is February 16, 1996.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY STATEMENT/
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY KEY
PRODUCTION OR BROCK. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/
PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL UNDER
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF KEY PRODUCTION OR BROCK SINCE THE DATE HEREOF OR THAT THE
INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY SOLICITATION.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. KEY PRODUCTION
AND BROCK EACH UNDERTAKE TO PROVIDE COPIES OF SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE), WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER,
TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR
ORAL REQUEST TO, IN THE CASE OF DOCUMENTS RELATING TO KEY PRODUCTION, KEY
PRODUCTION COMPANY, INC., ATTENTION: MONROE W. ROBERTSON, SECRETARY, ONE
NORWEST CENTER, 20TH FLOOR, 1700 LINCOLN STREET, DENVER, COLORADO 80203-4520
(TELEPHONE (303) 837-0779), AND, IN THE CASE OF DOCUMENTS RELATING TO BROCK,
LORENA ROWAN BROCK, SECRETARY, BROCK EXPLORATION CORPORATION, 225 BARONNE
STREET, SUITE 700, NEW ORLEANS, LOUISIANA 70112-1707 (TELEPHONE (504) 586-
1815). IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE APPLICABLE
STOCKHOLDERS MEETING, REQUESTS SHOULD BE RECEIVED BY MARCH 20, 1996.
2
<PAGE>
AVAILABLE INFORMATION
Key Production and Brock are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and
other information filed by Key Production and Brock can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-
2511. Copies of such material can be obtained by mail from the Public
Reference Branch of the Commission at 450 West Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, reports, proxy statements and
other information concerning Key Production may be inspected at the offices of
the Nasdaq National Market, 1735 K Street, N.W.,Washington, D.C. 20006, and,
with respect to Brock, at the offices of the American Stock Exchange, 86
Trinity Place, New York, NY 10006.
Key Production has filed with the Commission a Registration Statement on
Form S-4 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Key Production Common Stock to be
issued pursuant to the Merger Agreement. The information contained herein with
respect to Key Production and its affiliates, including Merger Sub, has been
provided by Key Production, and the information contained herein with respect
to Brock and its affiliates has been provided by Brock. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which were omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement. Any statements
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of
such document so filed. Each such statement is qualified by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
1. Key Production's Annual Report on Form 10-K for its fiscal year ended
December 31, 1994 (the "Key 1994 10-K").
2. Key Production's Quarterly Reports on Form 10-Q for the periods ended
March 31, 1995 and June 30, 1995.
3. Key Production's Quarterly Report on Form 10-Q for the period ended
September 30, 1995 (the "Key Third Quarter 10-Q").
4. Key Production's Current Report on Form 8-K dated December 21, 1995.
5. Key Production's Form 8-A filed September 2, 1988.
6. Brock's Annual Report on Form 10-K for its fiscal year ended December
31, 1994 (the "Brock 1994 10-K").
7. Brock's Quarterly Reports on Form 10-Q for the periods ended March 31,
1995 and June 30, 1995.
8. Brock's Quarterly Report on Form 10-Q for the period ended September 30,
1995 (the "Brock Third Quarter 10-Q").
9. Brock's Current Report on Form 8-K dated December 21, 1995.
The Key 1994 10-K, the Key Third Quarter 10-Q, the Brock 1994 10-K and the
Brock Third Quarter 10-Q are attached to this Joint Proxy Statement/Prospectus
as Appendices III, IV, V and VI, respectively.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Joint Proxy Statement/Prospectus.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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Available Information..................................................... 3
Incorporation of Certain Documents By Reference........................... 3
Summary................................................................... 6
The Companies........................................................... 6
The Special Meetings.................................................... 6
The Merger and the Merger Agreement..................................... 7
Risk Factors............................................................ 8
Opinion of Brock Financial Advisor...................................... 8
Effective Time of the Merger............................................ 8
Certain Conditions to the Consummation of the Merger.................... 8
Governmental Approvals.................................................. 9
No Solicitation......................................................... 9
Termination of the Merger Agreement..................................... 9
Termination Fee......................................................... 10
Brock Options........................................................... 10
Employee Benefits and Severance......................................... 10
Indemnification......................................................... 11
Stockholder Agreement................................................... 11
Certain Federal Income Tax Consequences................................. 11
Anticipated Accounting Treatment........................................ 12
No Appraisal Rights..................................................... 12
Exchange of Brock Common Stock Certificates............................. 12
Interests of Certain Persons in the Merger.............................. 12
Comparative Rights of Brock and Key Production Stockholders............. 12
Market Prices........................................................... 12
Selected Consolidated Financial Data of Key Production Company, Inc..... 14
Selected Consolidated Financial Data of Brock Exploration Corporation... 15
Selected Pro Forma Financial Information................................ 16
Comparative Per Share Data.............................................. 17
The Companies............................................................. 18
Key Production and Merger Sub........................................... 18
Brock................................................................... 18
Post-Merger Profile and Strategy........................................ 19
The Special Meetings...................................................... 23
Time, Date, Place and Purpose of Special Meetings....................... 23
Record Date and Outstanding Shares...................................... 23
Voting and Revocation of Proxies........................................ 23
Vote Required........................................................... 24
Solicitation of Proxies................................................. 24
Other Matters........................................................... 25
The Merger................................................................ 25
General Description of the Merger....................................... 25
Background.............................................................. 25
Key Production's Reasons for the Merger; Recommendation of Board of
Directors of Key Production............................................ 27
Brock's Reasons for the Merger; Recommendation of Board of Directors of
Brock.................................................................. 28
Opinion of Brock Financial Advisor...................................... 29
Interests of Certain Persons in the Merger.............................. 32
Certain Federal Income Tax Consequences................................. 33
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Accounting Treatment..................................................... 34
Governmental and Regulatory Approvals.................................... 34
Restrictions on Resales by Affiliates.................................... 34
Rights of Dissenting Stockholders........................................ 34
Certain Terms of the Merger Agreement...................................... 35
Effective Time of the Merger............................................. 35
Manner and Basis of Converting Shares.................................... 35
Brock Options............................................................ 36
Conditions to the Merger................................................. 36
Representations and Warranties........................................... 37
Certain Covenants; Conduct of Business Prior to the Merger............... 37
No Solicitation.......................................................... 38
Certain Post-Merger Matters.............................................. 39
Termination or Amendment of the Merger Agreement......................... 39
Expenses and Termination Fee............................................. 40
Certain Benefit Plans and Severance...................................... 41
Indemnification.......................................................... 42
Stockholder Agreement...................................................... 42
Market Prices of Common Stock and Dividend Information..................... 43
Unaudited Pro Forma Condensed Financial Statements......................... 44
Principal Stockholders of Key Production and Brock......................... 50
Key Production........................................................... 50
Brock.................................................................... 51
Description of Key Production Capital Stock................................ 52
General.................................................................. 52
Common Stock............................................................. 52
Section 203 of the Delaware General Corporation Law...................... 52
Restrictions on Dividends.................................................. 52
Comparative Rights of Key Production and Brock Stockholders................ 53
Power to Call Special Meetings........................................... 53
Certain Matters Presented at Stockholders Meetings by Stockholders....... 53
Independent Public Accountants............................................. 53
Legal Matters.............................................................. 53
Experts.................................................................... 53
Stockholders' Proposals.................................................... 54
</TABLE>
Appendices:
<TABLE>
<C> <S>
I-- Merger Agreement
II-- Stephens Inc. Fairness Opinion
III-- Key 1994 10-K
IV-- Key Third Quarter 10-Q
V-- Brock 1994 10-K
VI-- Brock Third Quarter 10-Q
</TABLE>
5
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus. Reference is made to, and this summary is
qualified by, the more detailed information contained in or incorporated by
reference in this Joint Proxy Statement/Prospectus and the Appendices hereto.
Stockholders are urged to carefully read this Joint Proxy Statement/Prospectus
and the Appendices hereto in their entirety. As used in this Joint Proxy
Statement/Prospectus, unless otherwise required by the context, the term "Key
Production" means Key Production Company, Inc. and its consolidated
subsidiaries and the term "Brock" means Brock Exploration Corporation and its
consolidated subsidiaries. Capitalized terms used herein without definition
are, unless otherwise indicated, defined in the Merger Agreement and used
herein with such meanings.
THE COMPANIES
Key Production and Merger Sub. Key Production is an independent oil and gas
company engaged in oil and gas exploration, development and production in the
continental United States. The Company's exploration interests are spread over
13 states with primary focus areas in the Anadarko Basin of Oklahoma, the Rocky
Mountain region, the Gulf Coast, and the Sacramento Basin in California. Merger
Sub is a wholly-owned subsidiary of Key Production incorporated on December 19,
1995. The principal executive offices of Key Production, a Delaware
corporation, are located at One Norwest Center, 20th Floor, 1700 Lincoln
Street, Denver, Colorado 80203-4520, and its telephone number at such offices
is (303) 837-0779.
Brock. Brock is an independent oil and gas company whose principal business
is the acquisition and development of producing oil and gas properties. The
principal executive offices of Brock, a Delaware corporation, are located at
225 Baronne Street, Suite 700, New Orleans, Louisiana 70112-1707, and its
telephone number at such offices is (504) 586-1815.
THE SPECIAL MEETINGS
Date, Time and Place
Key Production. The Key Special Meeting will be held on Thursday, March 28,
1996 at 10:00 a.m., local time, at the University Club, 1673 Sherman Street,
Denver, Colorado.
Brock. The Brock Special Meeting will be held on Thursday, March 28, 1996 at
10:00 a.m., local time, at the City Energy Club of New Orleans, 1100 Poydras
Street, New Orleans, Louisiana.
Purposes of the Special Meetings
Key Production. The purpose of the Key Production Special Meeting is to
consider and vote upon (i) a proposal to approve, as required by the rules of
the Nasdaq National Market, the issuance and reservation for issuance of up to
2,800,000 shares of Key Production Common Stock pursuant to the Merger
Agreement, and (ii) such other matters as may properly be brought before the
Key Production Special Meeting.
Brock. The purpose of the Brock Special Meeting is to consider and vote upon
(i) the approval and adoption of the Merger Agreement, and (ii) such other
matters as may properly be brought before the Brock Special Meeting.
RECORD DATES; SHARES ENTITLED TO VOTE
Key Production. Only holders of record of shares of Key Production Common
Stock at the close of business on February 9, 1996 (the "Record Date") are
entitled to notice of and to vote at the Key Production
6
<PAGE>
Special Meeting. On such date, there were 8,849,468 shares of Key Production
Common Stock outstanding, each of which will be entitled to one vote on each
matter to be acted upon at the Key Production Special Meeting.
Brock. Only holders of record of shares of Brock Common Stock at the close of
business on the Record Date are entitled to notice of and to vote at the Brock
Special Meeting. On such date, there were 3,815,181 shares of Brock Common
Stock outstanding and entitled to vote. Each such share of Brock Common Stock
will be entitled to one vote on each matter to be acted upon at the Brock
Special Meeting.
QUORUM; VOTE REQUIRED
Key Production. The presence, in person or by proxy, at the Key Production
Special Meeting of the holders of a majority of the shares of Key Production
Common Stock outstanding and entitled to vote at the Key Production Special
Meeting is necessary to constitute a quorum at the meeting. The affirmative
vote of the holders of a majority of the shares of Key Production Common Stock
present, in person or by proxy, and entitled to vote at the Key Production
Special Meeting is required to approve the issuance and reservation for
issuance of up to 2,800,000 shares of Key Production Common Stock pursuant to
the Merger Agreement.
Brock. The presence, in person or by proxy, at the Brock Special Meeting of
the holders of a majority of the shares of Brock Common Stock outstanding and
entitled to vote at the Brock Special Meeting is necessary to constitute a
quorum at the meeting. The affirmative vote of the holders of two-thirds of the
shares of Brock Common Stock outstanding and entitled to vote thereon at the
Brock Special Meeting is required to approve and adopt the Merger Agreement.
SECURITY OWNERSHIP OF MANAGEMENT
Key Production. As of the Record Date for the Key Production Special Meeting,
the directors and executive officers of Key Production beneficially owned
approximately 12.88% of the outstanding shares of Key Production Common Stock
entitled to vote at such meeting. Each of such directors and executive officers
has advised Key Production that he or she plans to vote or direct the vote of
all such shares of Key Production Common Stock entitled to vote in favor of the
proposal to approve the issuance and reservation for issuance of Key Production
Common Stock pursuant to the Merger Agreement.
Brock. The Lawrence E. Brock and Lorena Rowan Brock--Trust No. 2-A (the
"Brock Trust"), an affiliate of Lawrence E. Brock and Lorena Rowan Brock and
the holder of 8.5% of the outstanding Brock Common Stock entitled to vote at
the Brock Special Meeting, has executed with Key Production a Stockholder
Agreement with respect to an aggregate of 325,811 shares of Brock Common Stock
owned by it as of the Record Date agreeing to vote such shares in favor of the
proposal to approve and adopt the Merger Agreement. See "Stockholder
Agreement." As of the Record Date for the Brock Special Meeting, the directors
and executive officers of Brock including Lawrence E. Brock and Lorena Rowan
Brock held approximately 39.39% of the outstanding shares of Brock Common Stock
entitled to vote at the Brock Special Meeting. Each of such directors and
executive officers has indicated his or her present intention to vote or direct
the vote of all such shares of Brock Common Stock entitled to vote in favor of
the proposal to approve the Merger Agreement.
THE MERGER AND THE MERGER AGREEMENT
Terms of the Merger. At the Effective Time (as hereinafter defined), Merger
Sub will merge with and into Brock, with Brock being the surviving corporation
and a wholly-owned subsidiary of Key Production (the "Surviving Corporation").
In the Merger, each outstanding share of Brock Common Stock (other than shares
held directly or indirectly by Key Production or Brock, including the 285,221
shares of Brock Common Stock held in treasury by Brock on the Record Date),
will be converted into the right to receive .6897 shares of Key
7
<PAGE>
Production Common Stock (the "Exchange Ratio"). The full text of the Merger
Agreement is attached to this Joint Proxy Statement/Prospectus as Appendix I.
Based on the number of shares of Key Production Common Stock and Brock Common
Stock outstanding as of the Record Date for the Key Production Special Meeting
and the Brock Special Meeting, approximately 2,800,000 shares of Key Production
Common Stock will be issuable pursuant to the Merger Agreement (assuming
exercise prior to the Effective Time of the Brock Options), representing
approximately 24% of the total Key Production Common Stock to be outstanding
after such issuance.
Recommendations of the Boards of Directors. THE BOARD OF DIRECTORS OF KEY
PRODUCTION HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, THE STOCKHOLDERS OF KEY PRODUCTION AND RECOMMENDS THAT THE STOCKHOLDERS OF
KEY PRODUCTION APPROVE THE ISSUANCE AND RESERVATION FOR ISSUANCE OF KEY
PRODUCTION COMMON STOCK PURSUANT TO THE TERMS OF THE MERGER AGREEMENT. See "The
Merger--Background" and "Key Production's Reasons for the Merger;
Recommendation of Board of Directors of Key Production."
THE BOARD OF DIRECTORS OF BROCK HAS DETERMINED THAT THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF BROCK AND RECOMMENDS THAT THE
STOCKHOLDERS OF BROCK APPROVE AND ADOPT THE MERGER AGREEMENT. See "The Merger--
Background" and "Brock's Reasons for the Merger; Recommendation of the Board of
Directors of Brock." In considering the recommendation of the Brock Board with
respect to the Merger, Brock stockholders should be aware that certain officers
and directors of Brock have certain interests respecting the Merger, apart from
their interests as stockholders of Brock. See "The Merger--Interests of Certain
Persons in the Merger."
RISK FACTORS
In determining whether to vote to approve the Merger, in the case of the
Brock stockholders, or to approve the issuance of Key Production Common Stock,
in the case of the Key stockholders, the stockholders should consider that the
Exchange Ratio was determined by negotiations between Brock and Key, and was
based on a number of factors. See "The Merger--Key Production's Reasons for the
Merger; Recommendations of Board of Directors of Key Production" and "--Brock's
Reasons for the Merger; Recommendations of Board of Directors of Brock." The
Exchange Ratio does not necessarily reflect the relative stock prices,
reserves, cash flow per share, earnings per share or other attributes of either
Key Production or Brock.
OPINION OF BROCK FINANCIAL ADVISOR
Stephens Inc. ("Stephens") delivered its written opinion dated December 21,
1995 to the Board of Directors of Brock that, as of such date, the
consideration to be received by the holders of Brock Common Stock pursuant to
the Merger Agreement is fair, from a financial point of view, to the holders of
Brock Common Stock. Stephens also delivered an opinion, dated the date of this
Joint Proxy Statement/Prospectus, that as of the date of such opinion, based
upon the assumptions made, the factors considered and the review undertaken,
and subject to the limitations and qualification as described in such opinion,
the consideration to be received by the holders of Brock Common Stock pursuant
to the Merger Agreement is fair from a financial point of view.
For information regarding the opinion of Stephens, including the assumptions
made, matters considered and limits of such opinions, see "The Merger--Opinion
of Brock Financial Advisor." Stockholders are urged to read in its entirety the
opinion of Stephens, attached as Appendix II to this Joint Proxy
Statement/Prospectus.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware (the "Effective Time"),
unless the certificate of merger specifies a later Effective Time. Assuming all
conditions to the Merger contained in the Merger Agreement are satisfied or
waived prior thereto, it is anticipated that the Effective Time of the Merger
will occur as soon as practicable following the Special Meetings.
CERTAIN CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of Key Production and Brock to consummate the
Merger are subject to the satisfaction of certain conditions, including the
following: (i) approval by the stockholders of Key Production of
8
<PAGE>
the issuance of Key Production Common Stock pursuant to the Merger Agreement,
and approval and adoption of the Merger Agreement by the stockholders of Brock;
(ii) the absence of any order making the Merger illegal or otherwise
prohibiting consummation of the Merger; (iii) the accuracy of the
representations and warranties of each party and compliance with all agreements
and covenants by each party; (iv) the absence of certain regulatory conditions;
(v) the receipt of certain tax opinions; (vi) the effectiveness of the
Registration Statement of which this Joint Proxy Statement/Prospectus is a
part; (vii) the approval for listing on the Nasdaq National Market of the Key
Production Common Stock to be issued in the Merger; and (viii) the absence of
certain material adverse changes.
Key Production and Brock anticipate that all of the conditions to the
consummation of the Merger (other than obtaining the required approvals of the
stockholders of Key Production and Brock) will be satisfied prior to or at the
time of the Key Production Special Meeting and the Brock Special Meeting.
Either Key Production or Brock may extend the time for performance of any of
the obligations of the other party or may waive compliance with those
obligations at its discretion. See "Certain Terms of the Merger Agreement--
Conditions to the Merger."
GOVERNMENTAL APPROVALS
Key Production and Brock are aware of no governmental or regulatory approvals
required for consummation of the Merger, other than compliance with applicable
securities laws.
NO SOLICITATION
The Merger Agreement provides that Brock will not initiate, solicit or
encourage any inquiries or the making of any proposal relating to any Competing
Transaction (as defined below), or enter into discussions or negotiations with
any person in furtherance of a Competing Transaction, or agree to endorse a
Competing Transaction; provided, however, that Brock may furnish information or
enter into discussions or negotiations with respect to an unsolicited bona fide
proposal in writing to acquire Brock pursuant to a merger, consolidation, share
exchange, business combination or similar transaction or to acquire a
substantial portion of the assets of Brock if, and only to the extent that, the
Board of Directors of Brock, after consultation with and based upon the advice
of independent legal counsel, determines in good faith that such action is
necessary for such Board to comply with its fiduciary duties to stockholders
under applicable law. Further, the Board of Directors of Brock may determine
not to solicit proxies in favor of the approval and adoption of the Merger
Agreement if such Board determines in good faith after consultation with and
based upon the advice of independent legal counsel that other action is
necessary due to applicable fiduciary duties of the directors of Brock. A
"Competing Transaction" is defined to mean any of the following (other than the
transactions contemplated by the Merger Agreement) involving Brock or any of
its subsidiaries: (i) any merger, consolidation, share exchange, business
combination or similar transaction; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of 20% or more of the assets of Brock and
its subsidiaries, taken as a whole; (iii) any tender offer or exchange offer
for 20% or more of the outstanding shares of capital stock of Brock or the
filing of a registration statement under the Securities Act in connection
therewith; (iv) any person having acquired beneficial ownership of, or any
group (as such term is defined under Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder) having been formed which
beneficially owns or has the right to acquire beneficial ownership of, 20% or
more of the outstanding shares of capital stock of Brock; or (v) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing. See "Certain Terms of the Merger
Agreement--No Solicitation."
TERMINATION OF THE MERGER AGREEMENT
By Either Party. The Merger Agreement may be terminated prior to the
Effective Time (i) by mutual consent of Key Production and Brock, or (ii) by
either party if (a) the Merger has not been consummated on or before June 30,
1996 (or September 30, 1996, if the Merger shall not have been consummated as a
result of
9
<PAGE>
either party having failed by June 30, 1996 to receive all required regulatory
approvals or consents with respect to the Merger), (b) any court or
governmental order shall have prohibited consummation of the Merger or (c) the
required approvals of the stockholders of Key Production or Brock are not
received at the applicable meeting of stockholders.
By Key Production. Key Production may terminate the Merger Agreement (i) upon
a breach of any representation, warranty, covenant or agreement on the part of
Brock set forth in the Merger Agreement, or if any such representation or
warranty shall have become untrue, in either case such that Key Production's
conditions to closing of the Merger would be incapable of being satisfied by
June 30, 1996 (or as otherwise extended as described above), or (ii) if the
Board of Directors of Brock withdraws, modifies or changes its recommendation
of the Merger in a manner adverse to Key Production or recommends to the
stockholders of Brock any Competing Transaction, or resolves to do so, or (iii)
if a tender or exchange offer for 20% or more of the outstanding shares of
capital stock of Brock is commenced, and the Board of Directors of Brock does
not recommend that stockholders not tender their shares into such offer, or
(iv) if any person (other than Key Production or its affiliates) acquires
beneficial ownership of, or any group shall have been formed which beneficially
owns, 20% or more of the outstanding capital stock of Brock.
By Brock. Brock may terminate the Merger Agreement (i) upon a breach of any
representation, warranty, covenant or agreement on the part of Key Production
set forth in the Merger Agreement, or if any such representation or warranty
shall have become untrue, in either case such that Brock's conditions to
closing of the Merger would be incapable of being satisfied by June 30, 1996
(or as otherwise extended as described above), or (ii) if the Board of
Directors of Brock fails to make or withdraws its recommendation of the Merger
Agreement if there exists at such time a Competing Transaction, or recommends
to Brock's stockholders approval or acceptance of a Competing Transaction, in
each case only if, after consultation with and based upon the advice of
independent legal counsel, Brock's Board of Directors determines in good faith
that such action is necessary for such Board to comply with its fiduciary
duties to stockholders under applicable law.
See "Certain Terms of the Merger Agreement--Termination or Amendment of the
Merger Agreement."
TERMINATION FEE
If the Merger Agreement is terminated pursuant to certain of the reasons
described above, and if as a result of such termination a Trigger Event (as
described under the caption "Certain Terms of the Merger Agreement--
Termination or Amendment of the Merger Agreement") has occurred, Brock will pay
to Key Production an amount equal to $1,000,000, which amount is inclusive of
all of Key Production's expenses in connection with the transactions
contemplated by the Merger Agreement.
BROCK OPTIONS
All options to purchase Brock Common Stock will become fully vested prior to
the Effective Time and will expire upon the Effective Time unless exercised
prior to the Effective Time. See "Certain Terms of the Merger Agreement--Brock
Options."
EMPLOYEE BENEFITS AND SEVERANCE
The Merger Agreement provides that Key will honor all of Brock's severance
arrangements; provided, however, that prior to the Effective Time Key will
notify Brock of the employees of Brock that Key desires to retain following the
Effective Time and if such persons are retained as employees on a full-time
basis by Key or any subsidiary in any capacity and at their then-current
salaries for a period longer than one year after the Effective Time (and, in
the case of Kenneth J. Stucke, Michael R. Barham and Robin A. Seibert, they are
offered an employment agreement with Key having a term of at least two years at
their then current salaries) and without
10
<PAGE>
any requirements that they relocate their personal residence from the New
Orleans, Louisiana metropolitan area, no severance payments will be due to such
persons, except for certain bonuses due to Messrs. Stucke, Barham and Seibert.
Brock's stock option plan will be amended to provide that all options to
purchase Brock Common Stock will become fully vested prior to the Effective
Time and will then expire unless exercised. The Merger Agreement requires that
Brock amend its pension plan to provide that all accruals under such plan will
cease 30 days after the Effective Time of the Merger and that Key will initiate
procedures to terminate such plan under the provisions of ERISA. The Merger
also provides that participants in Brock's Supplemental Executive Retirement
Plan will be 100% vested in and will receive the present value of the benefits
under such plan in a single lump sum payment prior to the Effective Time, and
that such plan will be terminated prior to the Effective Time. All individuals
employed by Brock at the Effective Time and who are employed by Brock on the
day after the Effective Time will be offered group health plan coverage under
Key's group health plan effective the day after the Effective Time. Brock
employees who are covered under the Brock group health plan immediately before
the Effective Time and who are terminated at the Effective Time will be offered
COBRA continuation coverage under the Key group health plan. See "Certain Terms
of the Merger Agreement--Certain Benefit Plans and Severance."
INDEMNIFICATION
The Merger Agreement also provides that, for a period of five years after the
Effective time, Key Production (i) will not amend certain indemnification and
liability limitation provisions of Brock's charter and bylaws in a manner that
would adversely affect the rights of individuals who were officers or directors
of Brock, and (ii) will guarantee the performance by Brock of its obligations
under the indemnification provisions of Brock's bylaws, subject to certain
limitations. See "Certain Terms of the Merger Agreement--Indemnification."
STOCKHOLDER AGREEMENT
In consideration for Key Production's and Merger Sub's execution of the
Merger Agreement, the Brock Trust, the holder of 8.5% of the Brock Common Stock
outstanding as of the Record Date, executed a Stockholder Agreement agreeing to
vote any shares of Brock Common Stock owned by such holder in favor of the
Merger and adoption of the Merger Agreement, and against any business
combination proposal or other matter that may interfere with or be inconsistent
with the Merger or Merger Agreement (including any Competing Transaction), at
any meeting of stockholders of Brock (or consent in lieu thereof) and any
adjournment or adjournments thereof. The Stockholder Agreement currently covers
an aggregate of 325,811 shares of Brock Common Stock. The Stockholder Agreement
also provides for a right of first refusal for Key Production upon sales of
stock by the Brock Trust and obligates Key to register the Brock Trust's Key
Production Common Stock to be received in the Merger under the Securities Act.
An irrevocable trust administered by BankOne, Fort Worth, Texas, which owns
approximately 25% of the Brock Common Stock, has been granted registration
rights under the Securities Act with respect to the Key Production Common Stock
to be received by it in the Merger. Mr. and Mrs. Brock are the trust
beneficiaries. See "Stockholder Agreement."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Brock has received a tax opinion from its counsel that the Merger will
qualify as a reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), that Key Production, Merger Sub and Brock
each will be a party to the reorganization and that holders of Brock Common
Stock will not recognize any gain or loss on the exchange of Brock Common Stock
for Key Production Common Stock, except to the extent of cash received in lieu
of a fractional share of Key Production Common Stock. For a discussion of these
and other federal income tax considerations in connection with the Merger, see
"The Merger--Certain Federal Income Tax Consequences."
11
<PAGE>
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "purchase" for financial
accounting purposes. See "The Merger--Accounting Treatment."
NO APPRAISAL RIGHTS
Under Delaware law, neither Key Production's nor Brock's stockholders will be
entitled to any appraisal or dissenter's rights in connection with the Merger.
See "The Merger--Rights of Dissenting Stockholders."
EXCHANGE OF BROCK COMMON STOCK CERTIFICATES
Promptly after consummation of the Merger, American Securities Transfer,
Incorporated (the "Transfer Agent") will mail a letter of transmittal with
instructions to the record holders of certificates which immediately prior to
the Effective Time evidenced shares of Brock Common Stock for use in exchanging
certificates formerly representing shares of Brock Common Stock for
certificates representing shares of Key Production Common Stock and cash in
lieu of any fractional shares. Certificates should not be surrendered by the
holders of Brock Common Stock until they have received the letter of
transmittal from the Transfer Agent. See "Certain Terms of the Merger
Agreement--Manner and Basis of Converting Shares."
Upon delivery of an executed transmittal letter and surrender of a Brock
Certificate to the Transfer Agent for cancellation, the holders of such Brock
Certificates shall be entitled to receive a certificate representing the number
of whole shares of Key Production Common Stock which such holder has the right
to receive under the terms of the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Brock's Board of Directors and management have certain
interests respecting the Merger separate from their interests as holders of
Brock Common Stock, including those referred to above under "--Brock Options;
- --Employee Benefits and Severance; and --Indemnification." Under Brock's
Directors Severance Plan, each of Messrs. Stucke, Seibert and Barham, who are
officers of Brock, will either be offered two year employment agreements with
Key at his current salary or will receive an amount equal to twice his then-
current annual compensation if the fair market value of all Brock Common Stock
at the Effective Time is $25 million or more, three times his then-current
monthly compensation if the fair market value is $3 million or less, or an
amount accordingly prorated if the fair market value is greater than $3 million
but less than $25 million. See "The Merger--Interests of Certain Persons in the
Merger."
COMPARATIVE RIGHTS OF BROCK AND KEY PRODUCTION STOCKHOLDERS
Rights of stockholders of Brock are currently governed by Delaware law, the
Certificate of Incorporation of Brock (the "Brock Charter") and Brock's Bylaws.
Upon consummation of the Merger, Brock stockholders will become stockholders of
Key Production and their rights as stockholders of Key Production will be
governed by Delaware law, the Certificate of Incorporation of Key Production
(the "Key Production Charter") and Key Production's Bylaws. There are various
differences between the rights of Brock stockholders and the rights of Key
Production stockholders. See "Comparative Rights of Key Production and Brock
Stockholders" and "Description of Key Production Capital Stock."
MARKET PRICES
The Key Production Common Stock is traded on the Nasdaq National Market under
the symbol "KPCI" and the Brock Common Stock is traded on the American Stock
Exchange under the symbol "BKE." The following table sets forth, for the
periods indicated, the range of high and low per share sale prices for Key
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<PAGE>
Production Common Stock and Brock Common Stock as reported on the Nasdaq
National Market and the American Stock Exchange, respectively. No dividends
were paid in 1994 or in 1995 on either the Key Production Common Stock or the
Brock Common Stock.
<TABLE>
<CAPTION>
KEY PRODUCTION BROCK
--------------- -----------------
HIGH LOW HIGH LOW
------- ------- -------- --------
<S> <C> <C> <C> <C>
1994
First Quarter.......................... $4 $ 2 3/4 $3 3/4 $2 5/16
Second Quarter......................... 4 3/4 3 3 1/2 2 3/4
Third Quarter.......................... 4 3/4 3 5/8 3 11/16 2 11/16
Fourth Quarter......................... 5 3/8 3 1/2 4 1/8 2 3/8
1995
First Quarter.......................... $5 $ 4 1/2 $4 5/8 $3 9/16
Second Quarter......................... 6 3/8 4 5/8 4 3/8 3 1/4
Third Quarter.......................... 5 3/4 5 3 15/16 2 3/4
Fourth Quarter......................... 5 3/4 4 5/8 3 3/4 2 3/4
1996
First Quarter (through February 14,
1996)................................. $ 5 7/8 $ 4 3/4 $3 7/8 $3 1/8
</TABLE>
On December 21, 1995, the last trading day prior to the announcement by Key
Production and Brock that they had executed the Merger Agreement, the closing
per share sale prices of Key Production Common Stock and Brock Common Stock, as
reported on the Nasdaq National Market and the American Stock Exchange,
respectively, were $5 and $3 5/8, respectively. The Merger Agreement does not
provide for any adjustment in the Exchange Ratio in the event that either the
Key Production Common Stock or Brock Common Stock should increase or decrease
in value. See the cover page of this Joint Proxy Statement/Prospectus for a
recent closing price of Key Production Common Stock and Brock Common Stock.
Following the Merger, Key Production Common Stock will continue to be traded
on the Nasdaq National Market. Following the Merger, Brock Common Stock will
cease to be traded on the American Stock Exchange, and there will be no further
market for such stock.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF KEY PRODUCTION COMPANY, INC.
The following table sets forth selected consolidated historical financial
data of Key Production and has been derived from the audited consolidated
financial statements of Key Production for each of the five fiscal years ended
December 31, 1994, and the unaudited interim consolidated financial statements
of Key Production for the nine month periods ended September 30, 1995 and
September 30, 1994. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for the fair presentation
have been included in the unaudited interim data. This historical data should
be read in conjunction with the financial statements and notes thereto which
are incorporated by reference herein. See "Available Information" and
"Incorporation of Certain Documents by Reference." The historical results are
not necessarily indicative of results which may be expected for future periods.
<TABLE>
<CAPTION>
AS OF AND
FOR THE NINE
MONTHS ENDED AS OF AND FOR THE TWELVE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------- -------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Oil and gas production
revenues.............. $14,168 $11,709 $16,307 $11,658 $17,598 $22,171 $30,193
Other revenues......... 40 29 330 77 43 1,273 1,018
------- ------- ------- ------- ------- ------- -------
14,208 11,738 16,637 11,735 17,641 23,444 31,211
------- ------- ------- ------- ------- ------- -------
Operating Expenses:
Depreciation, depletion
and amortization...... 5,393 3,763 5,328 3,902 7,476 9,002 13,035
Operating costs........ 4,792 3,548 5,103 3,207 5,732 6,672 7,731
Administrative, selling
and other............. 1,076 1,034 1,432 1,535 3,707 3,809 4,032
Financing costs........
Interest expense....... 164 86 137 125 461 881 2,071
Interest income........ (10) (103) (110) (282) (40) (24) (82)
------- ------- ------- ------- ------- ------- -------
11,415 8,328 11,890 8,487 17,336 20,340 26,787
------- ------- ------- ------- ------- ------- -------
Income before taxes,
extraordinary item and
accounting change..... 2,793 3,410 4,747 3,248 305 3,104 4,424
Provision for income
taxes................. (600) (1,296) (1,804) (1,234) (38) (667) (951)
Extraordinary item..... -- -- -- (122) -- -- --
Change in accounting
for income taxes...... -- -- -- 1,603 -- -- --
------- ------- ------- ------- ------- ------- -------
Net Income............. $ 2,193 $ 2,114 $ 2,943 $ 3,495 $ 267 $ 2,437 $ 3,473
======= ======= ======= ======= ======= ======= =======
Earnings Per Share:
Before extraordinary
item and accounting
change................ $ 0.23 $ 0.21 $ 0.30 $ 0.19 $ 0.03 $ 0.22 $ 0.30
Extraordinary item..... -- -- (0.01) -- -- --
Change in accounting
for income taxes...... -- -- -- 0.16 -- -- --
------- ------- ------- ------- ------- ------- -------
Net Income Per Share... $ 0.23 $ 0.21 $ 0.30 $ 0.34 $ 0.03 $ 0.22 $ 0.30
======= ======= ======= ======= ======= ======= =======
Average Shares Out-
standing.............. 9,623 9,996 9,808 10,252 10,427 11,201 11,631
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA:
Oil and Gas Properties,
net................... $51,279 $47,186 $48,229 $27,125 $32,963 $42,748 $56,371
Total Assets........... 55,830 51,547 52,611 39,805 41,040 46,995 62,558
Long-Term Debt......... 11,400 11,500 10,000 -- 2,708 4,661 14,193
Stockholders' Equity... 36,483 33,850 34,257 35,918 32,400 35,393 40,467
</TABLE>
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF BROCK EXPLORATION CORPORATION
The following table sets forth consolidated historical financial data of
Brock and has been derived from the audited consolidated financial statements
of Brock for the year ended December 31, 1994, the nine-month period ended
December 31, 1993 and each of the three fiscal years ended March 31, 1993, and
has been derived from the unaudited interim consolidated financial statements
of Brock for the nine month periods ended September 30, 1995 and September 30,
1994. In the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for the fair presentation have been
included in the unaudited interim data. This historical data should be read in
conjunction with the financial statements and notes thereto which are
incorporated by reference herein. See "Available Information" and
"Incorporation of Certain Documents by Reference". The historical results are
not necessarily indicative of results which may be expected for future periods.
<TABLE>
<CAPTION>
AS OF AND
AS OF AND FOR THE
AS OF AND FOR THE NINE FOR THE NINE MONTHS
MONTHS ENDED YEAR ENDED ENDED AS OF AND FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------ ------------ ------------ -------------------------------
1995 1994 1994 1993 1993 1992 1991
----------- ----------- ------------ ------------ --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................ $ 7,299 $ 7,629 $11,129 $ 8,696 $ 10,433 $ 9,661 $ 11,916
Production Expenses.... 2,788 3,462 4,462 3,550 4,165 4,249 3,892
Abandonment Expenses &
Dry Hole Costs........ 225 114 123 132 428 300 985
Depreciation, Depletion
and Amortization...... 1,785 1,646 3,247 2,454 1,840 2,092 2,009
General and
Administrative
Expenses.............. 1,632 1,725 2,274 1,938 2,313 2,210 2,624
----------- ----------- ------- ------- --------- --------- ---------
Operating Income........ 869 682 1,023 622 1,687 810 2,406
Provisions for income
taxes................ (67) (13) -- (96) (344) (43) (430)
Change in accounting
for income taxes..... -- -- -- 186 -- -- --
Interest Expense....... (631) (618) (859) (445) (470) (524) (624)
----------- ----------- ------- ------- --------- --------- ---------
Net Earnings........... $ 171 $ 51 $ 164 $ 267 $ 873 $ 243 $ 1,352
=========== =========== ======= ======= ========= ========= =========
Average Common Shares
Outstanding........... 3,904 3,919 3,943 3,943 3,893 4,007 3,996
=========== =========== ======= ======= ========= ========= =========
Earnings Per Common
Share................. $ 0.04 $ 0.01 $ 0.04 $ 0.07 $ 0.22 $ 0.06 $ 0.34
=========== =========== ======= ======= ========= ========= =========
BALANCE SHEET DATA:
Property and Equipment,
net................... $ 15,287 $ 17,729 $14,661 $16,226 $ 14,994 $ 12,924 $ 12,147
Total Assets........... 20,789 24,012 21,038 22,219 20,449 17,737 16,232
Long-Term Debt......... 9,425 12,426 9,701 10,576 8,166 7,275 5,895
Stockholders' Equity... 8,645 8,375 8,449 8,405 8,181 7,406 7,552
</TABLE>
15
<PAGE>
SELECTED PRO FORMA FINANCIAL INFORMATION
The following table sets forth selected unaudited pro forma financial
information of Key Production giving effect to the Merger under the purchase
method of accounting for business combinations, assuming an Exchange Ratio of
.6897 shares of Key Production Common Stock for each share of Brock Common
Stock, and reflecting certain assumptions described in the notes to the
unaudited pro forma consolidated condensed financial statements. This pro forma
information is derived from and should be read in conjunction with the
unaudited pro forma consolidated condensed financial statements, including
notes thereto, appearing elsewhere in this Joint Proxy Statement/Prospectus.
See "Accounting Treatment" and "Unaudited Pro Forma Condensed Financial
Information".
The Selected Pro Forma Consolidated Income Data set forth below assumes the
Merger was consummated January 1, 1994, and the Selected Pro Forma Consolidated
Balance Sheet Data set forth below assumes the Merger was consummated on
September 30, 1995. The unaudited pro forma income statement data are not
necessarily indicative of the operating results that would have occurred had
the Merger occurred on January 1, 1994, nor are they necessarily indicative of
future operating results of the combined companies.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1995 DECEMBER 31, 1994
------------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenue................. $21,522 $26,836
------- -------
Depreciation, depletion
and amortization....... 7,630 8,282
Operating costs......... 7,580 9,565
Administrative, selling
and other.............. 1,211 1,612
Financing costs, net.... 643 580
------- -------
17,064 20,039
------- -------
Income before income
taxes.................. 4,458 6,797
Provision for income
taxes.................. 1,209 2,521
------- -------
Net Income............ $ 3,249 $ 4,276
======= =======
Net Income Per Share.... $ 0.26 $ 0.34
======= =======
</TABLE>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1995
------------------
<S> <C>
Current Assets............................................... $ 8,211
Oil and Gas Properties, net.................................. 73,848
Other Assets, net............................................ 1,302
-------
Total Assets............................................... $83,361
=======
Current Liabilities.......................................... $ 4,050
Long-Term Debt............................................... 20,825
Deferred Credits and Other Non-Current Liabilities........... 8,153
Stockholders' Equity......................................... 50,333
-------
Total Liabilities and Stockholders' Equity................. $83,361
=======
</TABLE>
16
<PAGE>
COMPARATIVE PER SHARE DATA OF KEY PRODUCTION AND BROCK
Set forth below are the net income and book value per common share data of
Key Production and Brock on an historical basis, a pro forma basis for Key
Production, and an equivalent pro forma basis for Brock. The Key Production pro
forma data was derived by combining historical consolidated financial
information of Key Production and Brock, giving effect to the Merger under the
purchase method of accounting for business combinations. The equivalent pro
forma data for Brock was calculated by multiplying the Key Production pro forma
per common share data by the Exchange Ratio. Neither company paid dividends
during any of the periods presented below.
The information set forth below should be read in conjunction with the
respective audited and unaudited consolidated financial statements and related
notes of Key Production and Brock incorporated by reference and attached to
this Joint Proxy Statement/Prospectus and the unaudited pro forma condensed
financial information and notes thereto included in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
HISTORICAL UNAUDITED PRO FORMA
-------------------- -----------------------
BROCK
KEY EQUIVALENT
KEY PRODUCTION BROCK CONSOLIDATED (.6897X)
-------------- ----- ------------ ----------
<S> <C> <C> <C> <C>
Book value per share as of:
September 30, 1995.............. $3.79 $2.21 $4.07 $2.81
Income from continuing operations:
Nine months ended September 30,
1995........................... $0.23 $0.04 $0.26 $0.18
Year ended December 31, 1994.... $0.30 $0.04 $0.34 $0.23
</TABLE>
17
<PAGE>
THE COMPANIES
KEY PRODUCTION AND MERGER SUB
Key Production is an independent oil and gas company engaged in oil and gas
exploration, development and production in the continental United States. The
Company's exploration interests are spread over 13 states with primary focus
areas in the Anadarko Basin of Oklahoma, the Rocky Mountain region, the Gulf
Coast, and the Sacramento Basin in California.
History of Key Production. Key Production was formed in 1988 to succeed to a
portion of the assets and liabilities of Apache Petroleum Company L.P.
("APC"). From 1988 through the third quarter of 1992, Key Production used
operating cash flow and property sales proceeds to reduce debt, repurchase
shares of its common stock and pay dividends. In light of its depleting
reserves and increasingly disproportionate general and administrative costs,
Key Production chose to change strategic direction in 1992.
Since inception, all of Key Production's operating and managerial functions
had been performed by Apache Corporation ("Apache") under the terms of a
management agreement between Key Production and Apache. On September 9, 1992,
Key Production's Board of Directors announced its intention to establish a
management team independent of Apache and to engage Key Production in active
operations. They elected a new Board of Directors unrelated to Apache. The new
objective of Key Production was to pursue growth through drilling and
strategic acquisitions.
Key Production has grown from zero employees prior to September 1992 to 28
full time employees at year end 1995. Key Production's business strategy is to
follow a decentralized regional approach to competing for drilling and
acquisition opportunities. In addition to Key Production's headquarters and
Rocky Mountain regional office in Denver, Colorado, Key Production has
regional offices in Tulsa, Oklahoma and Houston, Texas.
Recent Developments. During 1995 Key Production participated in the drilling
of 49 gross wells and an additional 5 wells were drilling at year end. Of the
49 wells drilled in 1995, 41 wells were either completed as producers or were
in the process of being completed at year end and 8 wells were plugged as dry
holes.
Since December 31, 1994, Key estimates that its proved reserves have
increased by between 5% and 10%.
On October 23, 1995 Key Production announced that it had bought back 331,000
shares of its own stock from Apache at a price of $5.00 per share which
reduced the number of shares outstanding at that time to 8.84 million shares.
Merger Sub. Key Acquisition One, Inc. is a wholly-owned subsidiary of Key
Production incorporated on December 19, 1995 and has conducted no business
prior to entering into the Merger Agreement.
BROCK
Brock is an independent oil and gas company whose principal business is the
acquisition and development of producing oil and gas properties. As of
December 31, 1994, Brock had oil and gas interests in 12 states, with primary
activities in Louisiana, Texas, Oklahoma, New Mexico and Kansas. Oil and gas
activities are directed from Brock's corporate headquarters in New Orleans,
Louisiana.
History of Brock. Brock began in 1948 as Big Horn Powder River Corporation,
a publicly held corporation, headquartered in Denver. This corporation engaged
in exploring for and developing oil and gas properties in the Rocky Mountain
and Mid-Continent regions of the United States and Canada. The name was
subsequently changed to Plaza Petroleum, Inc. In 1973, Plaza and its three
wholly-owned subsidiaries, Gillette Royalty and Mineral Corp., Arapahoe
Production Company and Zol-Dan Oil Company, became Brock Exploration
Corporation as a result of a merger with a privately owned company, Precise
Exploration Corporation, founded by Lawrence E. Brock, Brock's current
Chairman of the Board. As of December 31, 1995, Brock had 14 employees.
18
<PAGE>
Since 1985, Brock's primary business strategy has consisted of the
acquisition and development of producing oil and gas properties. Specifically,
its objective has been to purchase producing properties with potential for
significant increases in production through waterflooding, workovers of
existing wells, development drilling or similar operations to improve
efficiency. Brock seeks to purchase a significant working interest in each
property acquired so as to influence or control the timing of development
drilling or other operational decisions. Whenever possible, Brock assumes
operations of purchased properties. Brock finances these activities through
the utilization of a portion of its current cash flow and its available line
of credit. Brock also periodically reviews its property base identifying
properties to sell or abandon that do not meet strict performance criteria.
Recent Developments. Effective January 1, 1995, Brock Oil and Gas
Corporation ("BOGC"), a wholly- owned subsidiary of Brock, dissolved five
limited partnerships in which BOGC was the general partner. Pursuant to the
terms of the liquidation of these partnerships, the remaining oil and gas
properties owned by these partnerships were purchased by BOGC for
approximately $900,000. In connection with these transactions, BOGC assumed,
as of the effective date, the liabilities associated with the oil and gas
properties acquired from the partnerships.
Since December 31, 1994, Brock estimates that its proved reserves have
increased by approximately 15%.
In March 1994, Brock purchased an interest in 21 oil wells located in the
Shafter Lake Field in Andrews County, Texas for $2.2 million. In December
1994, Brock sold approximately 60% of its interest in these wells for $2.2
million. The proceeds from this sale were used to reduce outstanding debt.
Effective August 1, 1995 Brock purchased an interest in 23 gas wells in the
Hooker Field in Texas County, Oklahoma for $925,000. The property currently
produces 1,000 Mcf per day net to Brock.
Effective September 1, 1995, BOGC entered into a 12 month agreement with an
industry partner to evaluate and acquire producing properties, leasehold,
mineral or fee acres to be potentially developed, and generate economically
feasible oil and/or gas prospects. BOGC's participation in any of these above
mentioned activities is 25%. BOGC has issued a letter of credit in favor of
the industry partner in the amount of $3 million to secure its obligations
under this agreement. As of January 5, 1996, expenditures of approximately
$293,000 have occurred or have been committed as a result of this agreement.
In the fourth quarter of 1995, the Pension Plan purchased annuities to
settle obligations owed to participants who were then receiving payments under
the Pension Plan. Obligations owed to these participants represented
approximately 77% of the total benefit obligations. Brock will accelerate the
amortization of the prepaid pension asset during the fourth quarter of 1995
resulting in a decrease of the prepaid pension asset of approximately
$235,000.
POST-MERGER PROFILE AND STRATEGY
Oil and Gas Interests. As a result of the Merger, Key will have interests in
the Rocky Mountains, California, the Mid-continent, and Gulf Coast. Based on
the Key 1994 10-K and Brock 1994 10-K, post-Merger Key will have interests in
682 gross (95.2 net) gas wells and 1148 gross (134.5 net) oil wells. The pro
forma December 31, 1994 undeveloped acreage post-Merger will be approximately
546,000 net acres.
Pro forma December 31, 1994 post-Merger reserves of Key will be 46.7 BCF of
natural gas and 6.1 million barrels of oil. Key estimates that as of December
31, 1995, the pro forma post-Merger reserves have increased by between 8% and
12% on an equivalent Mcf basis.
Strategy. After the Merger, Key intends to continue its strategy of growth
of reserves and production through a decentralized regional approach to
competing for drilling and acquisition opportunities. In addition to Key's
offices in Denver, Tulsa, and Houston, Key will open an exploration and
acquisition office in New Orleans with some of the former Brock employees.
Key anticipates that the combined entity will be able to realize substantial
reductions in general and administrative expenses from the pre-Merger combined
expenses of Brock and Key. All accounting and administrative functions will be
consolidated in Denver. It is expected that the majority of the cost
reductions will be through elimination of duplicative personnel, accounting
and other systems, and certain other administrative and fixed costs of the two
pre-Merger companies. The costs of the former Brock personnel who will become
Key's New Orleans regional exploration and acquisition employees will be
capitalized in accordance with full cost accounting rules.
19
<PAGE>
Key has a $50 million revolving line of credit with NationsBank subject to
borrowing base limits which are tied to the value of Key's oil and gas
reserves. The combined value of Key's and Brock's oil and gas reserves
subsequent to the Merger will be more than adequate to allow Key to increase
its currently elected $22 million borrowing base to the level necessary to
repay Brock's existing debt. Under this agreement, Key's interest rate is a
function of its debt to capitalization ratio. Immediately after the Merger,
Key's debt to capitalization ratio will be approximately the same as before
the Merger. This is because the new equity issued in the Merger is
approximately in the same proportion to the Brock debt assumed in the Merger
as Key's pre-Merger equity was to Key's pre-Merger debt. Since Key's current
interest rate of LIBOR plus .75% is substantially lower than Brock's interest
rate, Key will pay off Brock's debt after the Merger by borrowing under Key's
revolving line of credit with NationsBank.
The combined debt level immediately after the Merger is expected to be
approximately $26 million, leaving Key with substantial liquidity and the
ability to continue an active drilling program and make future acquisitions.
Management. Key's board of directors and officers will be unchanged after
the Merger. Certain information about Key's management is set forth below.
Information About Key Production's Directors.
Certain biographical information, including principal occupation and
business experience during the last five years, about each of Key Production's
directors is set forth below.
F. H. MERELLI, 59, has been chairman of the board of directors, president
and chief executive officer of Key Production since September 9, 1992. From
July 1991 to September 1992, Mr. Merelli was engaged as a private consultant
in the oil and gas industry. Mr. Merelli was president and chief operating
officer of Apache Corporation, and president, chief operating officer and a
director of Key from June 1988 to July 1991, at which time he resigned from
those positions in both companies. He was president of Terra Resources, Inc.
from 1979 to 1988.
CORTLANDT S. DIETLER, 74, is an advisory director of Panhandle Eastern
Corporation. He was chairman of the board and chief executive officer of
Associated Natural Gas Corporation from January 1987 and December 1985,
respectively, and chairman of the board and chief executive officer of that
company's principal operating subsidiary, Associated Natural Gas, Inc., from
December 1986 and January 1989, respectively. Effective March 1995, Mr.
Dietler resigned from each position with Associated Natural Gas Corporation
and its subsidiaries.
TIMOTHY J. MOYLAN, 39, has been the president and chief executive officer of
BelRad Group, Inc., successor to Mainline Enertech, since 1986. He served as
chief executive officer and president of Natural Resources Group, Inc. from
1983 to 1990. He is a director of Energy West Corporation.
Information About Standing Committees of Key Production's Board of Directors
and Meetings.
Key Production's board of directors has an audit committee. The audit
committee members are Cortlandt S. Dietler and Timothy J. Moylan. The audit
committee reviews Key Production's independent auditors' audit and review
programs and procedures and the scope and results of their examinations. It
also examines professional services provided by the auditors and evaluates
audit costs and related fees. Additionally, the audit committee reviews the
financial statements and the adequacy of Key Production's system of internal
accounting controls. The audit committee makes recommendations to the board of
directors relating to the independent auditors and to their engagement or
discharge.
Key Production's board of directors has established a compensation committee
for the purpose of determining compensation for executive officers of Key
Production. During fiscal year 1994, the compensation committee consisted of
Cortlandt S. Dietler and Timothy J. Moylan.
One meeting of Key Production's board of directors and one meeting of the
audit and compensation committees were held during 1994. Other board action
throughout the year was accomplished by written consent. Each incumbent
director attended all board meetings and all meetings of committees on which
he was a member.
20
<PAGE>
Information About Executive Officers of Key Production.
Certain biographical information concerning the executive officers of Key
Production is set forth below. Biographical information concerning F. H.
Merelli may be found under "--Information About Key Production's Directors."
MONROE W. ROBERTSON, 46, has been with Key Production since September 10,
1992. Since February 1994, he has served as senior vice president and
corporate secretary and prior to that time as vice president and corporate
secretary. From August 1988 to July 1992, he was employed by Apache
Corporation in various capacities, the most recent of which was director of
operational planning. From 1986 to 1988, Mr. Robertson was director of
corporate planning for Terra Resources, Inc. From 1973 to 1986, Mr. Robertson
was employed by Gulf Oil Corporation.
CATHY L. ANDERSON, 40, has been controller of Key Production since January
15, 1993. From July 1985 to January 1993, Ms. Anderson was employed by Arthur
Andersen & Co., a public accounting firm, in various capacities, the most
recent of which was audit manager.
STEPHEN P. BELL, 41, has been vice president--land of Key Production since
February 2, 1994. From March 1991 to February 1994, he was president of
Concord Reserve, Inc., a privately-held independent oil and gas company. He
was employed by Pacific Enterprises Oil Company (formerly Terra Resources,
Inc.) as mid-continent regional manager from February 1990 to February 1991
and as land manager from August 1985 to January 1990.
Key Production Executive Compensation.
Summary Compensation Table
The following table sets forth information concerning compensation earned in
1994, 1993 and 1992 by the Chief Executive Officer and the only executive
officer of Key Production whose salary exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------------- ---------------
SECURITIES
UNDERLYING ALL OTHER
NAME OF INDIVIDUAL AND POSITION FISCAL YEAR SALARY/(1)/ BONUS OPTIONS AWARDED COMPENSATION
- ------------------------------- ----------- -------------- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
F. H. Merelli, Chairman, 1994 $150,000 -- -- $ 9,645 /(3)/
President and Chief 1993 $150,000 -- -- $ 8,732 /(3)/
Executive Officer 1992 $ 50,000 /(2)/ -- 500,000 $ 2,000 /(3)/
Monroe W. Robertson, 1994 $115,000 -- -- $ 4,662 /(3)/
Senior Vice President
and 1993 $115,000 -- 150,000 $ 4,600 /(3)/
Corporate Secretary 1992 $ 38,333 /(2)/ -- -- $ 1,533 /(3)/
</TABLE>
- ----------
/(1)/Includes amounts earned but deferred at the election of the officer.
/(2)/Salary paid from September 1, 1992, to December 31, 1992.
/(3)/Consists of Key Production's matching contribution pursuant to Key
Production's 401(k) plan in which all employees are eligible to
participate, and for Mr. Merelli includes the one-year term cost of life
insurance provided for the Chief Executive Officer, which in fiscal 1994
was $3,601.
Aggregated Option Exercises In Fiscal Year 1994 and 1994 Fiscal Year-End
Option Values
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-
MONEY
NUMBER OF UNEXERCISED OPTIONS AT
NUMBER OF OPTIONS AT FISCAL YEAR FISCAL YEAR
SHARES END END/(3)/
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
F. H. Merelli -- -- 333,334 166,666 /(1)/ $541,668 $270,832
Monroe W. Robertson -- -- 50,000 100,000 /(2)/ $106,250 $212,500
</TABLE>
- ----------
/(1)/Options were granted September 1, 1992, and vest at a rate of one-third
per year over three years. These options were not granted under Key
Production's 1992 Stock Option Plan.
/(2)/Options were granted on January 4, 1993, and vest at a rate of one-third
per year over three years. These options were granted under Key
Production's 1992 Stock Option Plan.
/(3)/Amount represents the closing price of Key Production's common stock at
December 30, 1994, on The NASDAQ Stock Market, less the exercise price
multiplied by the number of exercisable/unexercisable stock options at
December 31, 1994, that had an exercise price less than the market value
at that date.
21
<PAGE>
Director Compensation.
Key Production's current non-employee directors receive no compensation for
their affiliation with Key Production other than the stock options granted
under the Key Production 1992 Stock Option Plan for Non-Employee Directors.
Both Messrs. Dietler and Moylan were granted stock options for 45,000 shares
on December 9, 1992, at an exercise price of $2.875 per share. One-third of
these options vested on December 9, 1993, one-third vested on December 9,
1994, and the remaining one-third vested on December 9, 1995. The directors
are also reimbursed for out-of-pocket expenses relating to their attendance at
board of director meetings.
Employment Agreements and Change-in-Control Arrangements.
Key Production entered into an employment agreement with Mr. Merelli
pursuant to which he has agreed to serve in his present capacity for an
indefinite term. The employment agreement provides that Mr. Merelli shall
receive a base annual salary of $150,000. The base salary may be increased
(but not decreased) by the compensation committee of the board of directors.
In addition to the base salary, the employment agreement provides for the
grant to Mr. Merelli of a stock option covering 500,000 shares of Key
Production's Common Stock and also provides that Mr. Merelli shall be eligible
for incentive bonuses under any incentive program for executives of Key
Production which is adopted by the board of directors. No such incentive bonus
program has been adopted as of the date of this Joint Proxy
Statement/Prospectus.
The employment agreement further provides that in the event of termination
of his employment by Key Production without cause or by reason of death or
disability, Mr. Merelli or his estate shall receive his then current monthly
salary for a period of twenty-four months. Key Production is also obligated to
maintain insurance on the life of Mr. Merelli in the amount of $500,000. The
stock option agreement with Mr. Merelli provides that upon a change in control
of Key Production, all of Mr. Merelli's outstanding options will be
immediately vested. Mr. Merelli is a participant in the Key Production
Company, Inc. Income Continuance Plan which provides for the continuation of
salary and benefits for certain employees in the event of a change in control
of Key Production. Any benefits paid to Mr. Merelli pursuant to this plan
would be in lieu of and not in addition to any payments pursuant to his
employment agreement.
Key Production entered into an employment agreement with Monroe W. Robertson
in which he has agreed to serve in his present capacity for an indefinite
term. The agreement provides that Mr. Robertson shall receive a base annual
salary of $115,000. The base salary may be increased (but not decreased) by
the compensation committee of the board of directors. Mr. Robertson is also
eligible to receive incentive bonuses under any incentive program for
executives of Key Production which may be adopted by the board of directors.
The agreement also provides that if Mr. Robertson's employment is terminated
without cause or by reason of his death or disability, Mr. Robertson or his
estate shall receive his then current monthly salary for a period of twenty-
four months. The stock option agreement with Mr. Robertson provides that upon
a change in control of Key Production, all of Mr. Robertson's outstanding
options will be immediately vested. Mr. Robertson is a participant in the Key
Production Company, Inc. Income Continuance Plan which provides for the
continuation of salary and benefits for certain employees in the event of a
change in control of Key Production. Any benefits paid to Mr. Robertson
pursuant to this plan would be in lieu of and not in addition to any payments
pursuant to his employment agreement.
Compensation Committee Interlocks and Insider Participation.
Neither Mr. Moylan nor Mr. Dietler, the members of the compensation
committee, was at any time during fiscal year 1994 or any preceding fiscal
year an officer or employee of Key Production or any of its subsidiaries.
During fiscal year 1994, no executive officer of Key served as a director or
member of a compensation (or similarly empowered) committee for any entity
whose executive officer or officers served on Key Production's compensation
committee.
22
<PAGE>
Transactions With Affiliates
During 1994, Key Production entered into three transactions with Apache
Corporation which, at that time, was the beneficial owner of more than five
percent of Key Production's Common Stock. In July, 1994, Key Production
exchanged approximately 200,000 net undeveloped acres in the Green River Basin
of Wyoming for 800,000 shares of Key Production's Common Stock held by Apache.
Later in July, 1994, Key Production purchased 200,000 shares of Key Production
Common Stock from Apache at a price of $4.50 per share and in December, 1994,
Key Production purchased an additional 91,000 shares from Apache at $4.75 per
share. In October 1995, Key purchased 331,000 additional shares from Apache at
$5.00 per share.
THE SPECIAL MEETINGS
TIME, DATE, PLACE AND PURPOSE OF SPECIAL MEETINGS
The Key Production Special Meeting will be held on Thursday, March 28, 1996,
at 10:00 a.m., local time, at the University Club, 1673 Sherman Street,
Denver, Colorado, for the purpose of approving the issuance and reservation
for issuance of up to 2,800,000 shares of Key Production Common Stock (the
"Key Production Issuance of Common Stock") pursuant to the Merger Agreement,
as required by the rules of the Nasdaq National Market. The Brock Special
Meeting will be held at 10:00 a.m., local time, on March 28, 1996, at the City
Energy Club of New Orleans, 1100 Poydras Street, New Orleans, Louisiana for
the purpose of approving and adopting the Merger Agreement, as required under
Delaware law.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Key Production Common Stock outstanding at the
close of business on the Record Date (February 9, 1996) are entitled to notice
of, and to vote at, the Key Production Special Meeting. Only holders of record
of Brock Common Stock at the close of business on the Record Date are entitled
to notice of, and to vote at, the Brock Special Meeting.
On the Record Date, there were approximately 5,386 holders of record of Key
Production Common Stock, with 8,849,468 shares of Key Production Common Stock
issued and outstanding. Each share of Key Production Common Stock entitles the
holder thereof to one vote on each matter submitted for stockholder approval.
See "Principal Stockholders of Key Production and Brock--Key Production" for
information regarding persons known to the management of Key Production to be
the beneficial owners of more than 5% of the outstanding Key Production Common
Stock.
There were approximately 2,686 holders of record of Brock Common Stock on
the Record Date, with 3,815,181 shares of Brock Common Stock outstanding and
entitled to vote. Each such share of Brock Common Stock will be entitled to
one vote on each matter to be acted on at the Brock Special Meeting. See
"Principal Stockholders of Key Production and Brock--Brock" for information
regarding persons known to the management of Brock to be the beneficial owners
of more than 5% of the outstanding Brock Common Stock.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies that are not revoked will be voted at the Key
Production Special Meeting and the Brock Special Meeting, as applicable, in
accordance with the instructions contained therein. If a holder of Key
Production Common Stock executes and returns a proxy and does not specify
otherwise, the shares represented by such proxy will be voted "for" approval
of the Key Production issuance of Common Stock in accordance with the
recommendation of the Board of Directors of Key Production. If a holder of
Brock Common Stock executes and returns a proxy and does not specify
otherwise, the shares represented by such proxy will be voted "for" approval
and adoption of the Merger Agreement in accordance with the recommendation of
the Board of Directors of Brock. A stockholder of Key Production or a
stockholder of Brock who has executed and returned a proxy may revoke it at
any time before it is voted at the appropriate Special Meeting by (i)
executing and returning a proxy bearing a later date, (ii) filing written
notice of such revocation with the Secretary of Key
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Production or Brock, as appropriate, stating that the proxy is revoked or
(iii) attending the appropriate Special Meeting and voting in person.
VOTE REQUIRED
Key Production. Key Production's Bylaws provide that the presence at the Key
Production Special Meeting, in person or by proxy, of the holders of a
majority of the outstanding shares of Key Production Common Stock entitled to
vote thereat will constitute a quorum for the transaction of business. The
issuance of Key Production Common Stock does not, under state law, require
stockholder approval. However, the rules of the Nasdaq National Market
require, as a prerequisite to the listing on the Nasdaq National Market of the
shares of Key Production Common Stock that are issued pursuant to the Merger
Agreement, that such issuance be approved by Key Production's stockholders.
Approval of such issuance will require the vote of a majority of the shares
present, in person or by proxy, and entitled to vote. Key stockholders who do
not return proxies or attend the Key Production Special Meeting will have no
effect on the vote. Key Production Common Stock held by Key stockholders who
return proxies and abstain from voting on the proposal will be counted in
determining the number of shares present and entitled to vote and will have
the same effect as a vote against the proposal. Broker non-votes will have no
effect upon the outcome of the vote.
Brock. The presence at the Brock Special Meeting, in person or by proxy, of
the holders of a majority of the outstanding shares of Brock Common Stock
entitled to vote thereat will constitute a quorum for the transaction of
business, and approval and adoption of the Merger Agreement requires the
affirmative vote of two-thirds of the issued and outstanding Brock Common
Stock entitled to vote thereon. On the Record Date, there were 3,815,181
shares of Brock Common Stock outstanding and entitled to vote at the Brock
Special Meeting. In determining whether the Merger Agreement has received the
requisite number of affirmative votes, abstentions and broker non-votes will
have the same effect as a vote against the Merger Agreement. On the Record
Date, the directors and executive officers of Brock held approximately 39.39%
of the outstanding shares of Brock Common Stock entitled to vote on each
matter to be acted upon at the Brock Special Meeting. Each of Brock's officers
and directors has indicated his or her present intention to vote or direct the
vote of all such shares of Brock Common Stock entitled to vote in favor of the
proposal to approve the Merger Agreement. The Brock Trust, which held 325,811
shares of Brock Common Stock as of the Record Date (or approximately 8.5% of
the outstanding shares entitled to vote on each matter to be acted upon at the
Brock Special Meeting at such date), has agreed to vote such shares in favor
of approval and adoption of the Merger Agreement, and against any business
combination proposal or other matter that may interfere or be inconsistent
with the Merger or the Merger Agreement (including, without limitation, a
Competing Transaction). Such Stockholder Agreement is not subject to the
continued support of the Board of Directors of Brock in recommending approval
and adoption of the Merger Agreement (although such Stockholder Agreement
would terminate upon a termination of the Merger Agreement). See "Stockholder
Agreement."
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers, employees and
agents of each of Key Production and Brock may solicit proxies from their
respective stockholders by personal interview, telephone, telegram or
otherwise. Key Production and Brock will each bear the costs of the
solicitation of proxies from their respective stockholders, except that Key
Production and Brock will each pay one-half of the cost of printing this Joint
Proxy Statement/Prospectus and all regulatory filing fees other than SEC
filing fees. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries who hold of record voting securities of
Key Production or Brock for the forwarding of solicitation materials to the
beneficial owners thereof. Key Production and Brock will reimburse such
brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket
expenses incurred by them in connection therewith. Brock has engaged the
services of Corporate Investor Communications, Inc. to distribute proxy
solicitation materials to brokers, banks and other nominees and to assist in
the solicitation of proxies from Brock stockholders for a fee of $4,000 plus
reasonable out-of-pocket expenses. Key Production has also engaged the
services of Corporate Investor Communications, Inc. to distribute proxy
solicitation materials to brokers, banks and other nominees and to assist in
the solicitation of proxies from Key Production stockholders for a fee of
$4,000 plus reasonable out-of-pocket expenses.
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OTHER MATTERS
At the date of this Joint Proxy Statement/Prospectus, the Boards of
Directors of Key Production and Brock do not know of any business to be
presented at their respective Special Meetings other than as set forth in the
notices accompanying this Joint Proxy Statement/Prospectus. If any other
matters should properly come before the respective Special Meetings, it is
intended that the shares represented by proxies will be voted with respect to
such matters in accordance with the judgment of the persons voting such
proxies.
THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the Effective Time, Merger Sub will
merge with and into Brock with Brock becoming the Surviving Corporation, and
each outstanding share of Brock Common Stock (other than shares of Brock
Common Stock held in the treasury of Brock or owned by Key Production or by
any direct or indirect wholly-owned subsidiary of Key Production or of Brock,
all of which will be canceled), will be converted into .6897 shares of Key
Production Common Stock. Any resulting fractional shares will be settled in
cash.
Based on the number of shares of Key Production Common Stock and Brock
Common Stock outstanding as of the Record Date, approximately 2,800,000 shares
of Key Production Common Stock will be issuable pursuant to the Merger
Agreement (assuming exercise prior to the Effective Time of the Brock
Options), representing approximately 24% of the total Key Production Common
Stock to be outstanding after such issuance.
BACKGROUND
During the summer of 1993, Brock's Board of Directors determined that the
consolidation among independent oil and gas companies then taking place as
well as Brock's financial and operating circumstances justified exploring the
possibility of a business combination involving Brock in an effort to maximize
the value of Brock to the stockholders. As a result, the Board of Directors
authorized management to investigate the possibility of pursuing such a
transaction with certain oil and gas companies as well as certain public
utilities known to be active or interested in the acquisition of oil and gas
properties. In connection with these efforts, Brock's management retained an
investment advisor to assist it in compiling information and contacting
potentially interested third parties. Brock subsequently entered into
confidentiality agreements with certain of these companies and provided these
companies with detailed information on Brock's oil and gas properties and
other operations. These activities were terminated during the fall of 1993
when it was determined by the Board of Directors that sufficient interest from
these third parties in pursuing a business combination with Brock did not
exist. The Board of Directors determined to continue to evaluate and monitor
Brock's financial and operating conditions as well as conditions in the oil
and gas industry in the event that circumstances should again warrant
consideration of a business combination involving Brock.
Brock's Board of Directors, in connection with its semi-annual review of
Brock's overall performance and objectives, determined in November 1994 that
the conditions then existing in the oil and gas industry were such that it was
in the best interests of Brock's stockholders to explore the possible sale of
Brock in order to maximize the value of Brock to the stockholders. In response
to this decision, on November 18, 1994, Brock issued a press release
indicating that the Board of Directors had authorized management to solicit
indications of interest for a cash merger with Brock and would provide
detailed information on Brock's oil and gas properties and operations to
interested parties.
Following this announcement, management of Brock began contacting those
companies that it believed might be interested in exploring the possible
acquisition of Brock and responding to inquiries from additional companies.
During this period, Brock entered into confidentiality agreements with
approximately 40 companies
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and distributed a summary descriptive memorandum to each of these companies.
Subsequently, during February and March of 1995, management provided 17 of the
interested parties with more detailed information regarding Brock's oil and
gas properties, financial condition and operations. Brock also provided 12 of
these interested parties with presentations from Brock's management on Brock's
various properties and operations. Each of the parties expressing an interest
in exploring the acquisition of Brock was provided with the opportunity of
visiting Brock's facilities and reviewing Brock's books and records and was
also provided with a form of agreement and plan of merger providing for the
cash merger of Brock. Each of the interested parties was also informed that
any proposals for the acquisition of Brock should be submitted to Brock no
later than April 10, 1995. Brock also required that acquisition proposals from
interested parties be in the form of cash offers for all outstanding shares of
Brock Common Stock. On March 14, 1995, Brock retained Stephens to render an
opinion as to the fairness of the merger consideration from a financial point
of view to the public stockholders of Brock.
On April 10, 1995, Brock received five proposals for the acquisition of
Brock through a cash merger, one proposal for the acquisition of Brock through
a stock merger and one proposal contemplating a tender offer for a portion of
Brock's outstanding shares. Several of the proposals received were presented
in terms of being general indications of interest, subject to conditions such
as obtaining financing or indicating price ranges that were either deemed
inadequate or of such a preliminary or conditional nature that they were not
in a form capable of final evaluation by Brock's Board of Directors.
On April 18, 1995, Brock's Board of Directors met to review the results of
the solicitation process, to discuss the alternatives available to Brock and
to receive the results of Stephens' evaluation of Brock and the highest valued
proposal that had been received by Brock to that point. Following a review by
the Board of Directors of these various items, the Board of Directors
authorized senior management of Brock to explore further with those parties
submitting the highest valued proposals the definitive terms and conditions
upon which they would be willing to acquire Brock in an all cash merger and
their financial ability to consummate the acquisition of Brock.
During the period from April 18 through May 1, 1995 management of Brock
contacted two of the parties that had submitted proposals in an effort to
determine the definitive terms and conditions upon which either of these
parties would be willing to acquire Brock. Management then entered into
discussions with both of the bidders, but concluded in July 1995 that one
bidder did not have the ability to obtain financing and the other terminated
discussions when it entered into a binding agreement to acquire another oil
and gas company. In addition, during this period management also contacted two
other companies that had expressed an interest in acquiring Brock but that had
not submitted proposals to determine if any interest in pursuing the
acquisition of Brock on the part of either of these companies existed. Both of
these companies subsequently confirmed that they were not in a position to
pursue an acquisition of Brock.
On July 26, 1995, Brock's Board of Directors announced that it had decided
to terminate seeking indications of interest for a cash merger of Brock. The
Board determined that, due to an industry-wide decline in the price of natural
gas and, to a lesser extent, oil and the resulting impact on prices received
in cash sales of oil and gas properties, it was in the Brock stockholders'
interest to terminate exploring the possibility of selling Brock through a
cash merger. Brock also publicly announced that it intended to continue to
explore alternatives involving the sale or combination of Brock as well as
other transactions intended to maximize its value for its stockholders. After
exploring alternatives available for a cash merger, the Board of Directors
concluded that the most likely acquiror of Brock would be another independent
oil and gas company. The Board noted that traditionally independent oil and
gas companies have found stock-for-stock mergers more attractive, especially
in times of reduced cash flow as a result of reduced prices then being
received for gas and, to a lesser extent, oil.
Between July 15 and November 20, 1995 Brock either contacted or received
unsolicited contacts from 28 potential acquirors. These inquiries led to
several new indications of interest, including one from Key, and two re-
evaluations from parties which had previously submitted bids to Brock.
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Brock contacted Key on July 27, 1995 to explore the possibility of a merger
of Brock and Key. Due to the depressed futures market prices for natural gas,
Key informed Brock that a cash offer for Brock's assets would have to be too
low to be attractive to Brock. Key suggested a stock merger which could reduce
the combined general and administrative expense and provide economies of scale
for a combined company that would have good growth potential and provide Brock
shareholders with improved liquidity and the ability to continue to share in
the price upside which would occur if natural gas prices increase.
In mid August, Key prepared a comparison of Brock and Key ratios of income,
cash flow, book value, stock market price and liquidation value per share from
publicly available documents. As a result of this analysis, Key proposed a
merger with Brock shareholders receiving one Key share for each 1.6 Brock
shares.
Over the next several weeks, there were a number of discussions between the
chairmen of Brock and Key and among other senior officers of the two
companies. During this period, Brock's management also continued discussions
with other companies that had indicated an interest in acquiring Brock.
Representatives of Brock visited Key's offices in October.
In a meeting at Brock's offices on November 2, 1995, Brock made a counter
offer for a merger at a ratio of one Key share for each 1.3 Brock shares. At
that meeting Key rejected the Brock offer and provided an updated table of
ratios showing that the October 27, 1995 stock price was $3.125 for Brock and
$5.375 for Key, resulting in a 1.72 to one market price ratio. Key also
observed that third quarter earnings had been announced since Key's last offer
and Key's third quarter earnings were eight cents per share while Brock's were
zero.
During November and December, senior officers of Key visited Brock's offices
for a total of seven days to review their properties and accounts and
representatives of Brock and Stephens visited Key's offices for seven days to
review Key's properties, accounts, and drilling upside potential. Also during
this period Mr. Brock stayed in contact with members of the Brock Board of
Directors to brief them on the status and progress of negotiations and to
obtain the director's views on various matters, and Mr. Merelli stayed in
contact with members of the Key Board of Directors to brief them on the status
of negotiations. Through arms-length negotiations Brock and Key agreed upon an
exchange ratio of one share of Key Production Common Stock for each 1.45
shares of Brock Common Stock. All negotiations between Key and Brock were
conducted by the senior officers of each of the companies.
At a special meeting of Brock's Board of Directors held on December 21,
1995, the Board of Directors of Brock received detailed descriptions and
analyses of the Merger by its management and financial and legal advisors. At
the December 21st Board meeting, after consideration of the various factors
and for the reasons described below, the Board of Directors of Brock approved
by unanimous vote of all directors present at the meeting the Merger Agreement
and related transactions.
At a special meeting of Key's Board of Directors held on December 21, 1995,
Key's Board reviewed a detailed presentation and analysis of the Merger by
Key's management and legal advisors. At the December 21, 1995 Board meeting,
after consideration of the various factors and the reasons described below,
the Board of Directors of Key approved by a unanimous vote the Merger
Agreement and related transactions.
KEY PRODUCTION'S REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
OF KEY PRODUCTION
Key Production's Board of Directors believes the terms of the Merger are
fair to and in the best interests of Key Production and its stockholders and
has unanimously approved the Merger Agreement and recommends that Key
Production's stockholders vote FOR the issuance of Key Production Common Stock
in connection with the Merger Agreement.
In reaching its conclusion, Key Production's Board of Directors considered
among other factors:
(i) Information concerning the financial performance and condition,
business operations, and future prospects of both Key Production and
Brock;
(ii) The recent and prior market prices of Key Production Common Stock and
Brock Common Stock;
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(iii) Projections of results of the combined companies which indicate that
after reductions in overhead from consolidation and realization of
economies of scale the Merger would be non-dilutive and would
increase:
(a) Net income per share,
(b) Cash flow per share,
(c) Reserves per share,
(d) Production per share,
(e) Equity per share, and
(f) Market capitalization and liquidity.
During the negotiations, the relative market price of Key Production and
Brock Common Stock fluctuated between ratios of 1.8 to one to 1.38 to one.
Key's Board of Directors considered both stocks to be undervalued in the
market and that a trade based on a 1.45 ratio would lead to a stronger
combined company with improved prospects that would hopefully lead to higher
market valuations for the combined company. Key's Board of Directors did not
think that the fact that Brock Common Stock might trade at a higher or lower
ratio than 1.45 to one from day to day would affect the desireability of the
Merger. Brock Common Stock is relatively illiquid and large blocks of Brock
Common Stock could not be bought or sold at current market prices without
adversely affecting the market.
A projection of the results for the combined companies presented to Key
Production's Board of Directors by Key's management at the board meeting held
on December 21, 1995 showed increases in revenues, net income, cash flow,
production and equity per share for the combined entity, as well as an
increase in debt per share, based on the 1.45 to one Exchange Ratio. After
consideration of all of those factors, and without assigning weight to any
specific factor, the Board of Directors determined that the Merger was fair to
the Key stockholders.
BROCK'S REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS OF BROCK
Brock's Board believes that the terms of the Merger are fair to and in the
best interests of Brock and its stockholders and has unanimously approved the
Merger Agreement and recommends that Brock's stockholders vote FOR approval
and adoption of the Merger Agreement and the Merger.
In reaching its conclusion, Brock's Board considered, among other factors:
(i) Information concerning the financial performance and condition,
business operations and prospects of Brock;
(ii) Current industry, economic and market conditions, which have
encouraged business combinations and other strategic alliances in the
oil and gas industry;
(iii) The process of soliciting indications of interests for the
acquisition of Brock;
(iv) Recent and prior market prices of Brock Common Stock;
(v) The structure of the transaction and terms of the Merger Agreement and
the exchange ratio which were the result of arm's length negotiations
between Key Production and Brock;
(vi) The financial analyses and opinion of Stephens described below;
(vii) The fact that the Merger would provide holders of Brock Common Stock
with the opportunity to maintain a continuing equity interest in the
combined companies that is more liquid than Brock Common Stock.
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Brock's Board of Directors did not assign weight to any specific factors and
generally considered all of the factors when evaluating the Merger Agreement.
In addition, the Board of Directors did not base its evaluation of the Merger
Agreement on the relative stock values at a single point in time. The Board of
Directors discussed the relative current and historical trading prices of
Brock Common Stock and Key Production Common Stock, the relative inactive
trading market for Brock Common Stock and the opinion rendered by Stephens
that the merger consideration was fair from a financial point of view to the
disinterested shareholders of Brock.
OPINION OF BROCK FINANCIAL ADVISOR
Brock retained Stephens Inc. ("Stephens") to review the financial terms of
the Merger and express an opinion as to the fairness from a financial point of
view of such terms to the disinterested shareholders of Brock. For the
purposes of the opinion, the term "disinterested shareholders" means holders
of Brock's one class of publicly traded common stock other than (1) directors
and officers of Brock and (2) Lawrence E. Brock, Mr. Brock's immediate family
or any entity for which a Brock family member is a beneficiary, either
directly or indirectly. Stephens excluded Brock's directors and officers and
the Brock family from their opinion because the Brock family and Brock's
directors and officers will receive no additional consideration for their
Brock Common Stock in connection with the Merger other than that received by
all of the holders of Brock Common Stock. Except as set forth under the
heading "The Merger--Interests of Certain Persons in the Merger," Brock is not
aware of any interest in the Merger than any such individuals have that is
separate from their interests as holders of Brock Common Stock. The summary
set forth below of Stephens' fairness opinion does not purport to be a
complete description of its analyses or presentation to the Board of Directors
of Brock. Each of its analyses must be considered as a whole and selecting
portions of the analyses and of the factors considered, without considering
all factors and analyses, will result in an incomplete view of the processes
underlying its opinion. In its analyses, Stephens made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of either Brock or Key
Production (collectively the "Companies"). Any estimates contained therein are
not necessarily indicative of actual values, which may be significantly more
or less favorable than as set forth therein. Estimates of value do not purport
to be appraisals or necessarily reflect the values which may be realized if
assets are sold separately. Because such estimates are inherently subject to
uncertainty, neither Brock, Key Production, Stephens nor any other person can
assume responsibility for their accuracy.
On December 21, 1995, Stephens delivered in writing its opinion that, as of
such date, the consideration to be received by Brock in connection with the
Merger is fair, from a financial point of view, to the disinterested
shareholders of Brock. The full text of Stephens' written opinion, which
contains a description of the assumptions made, the matters considered by
Stephens and the limits of its review, is attached hereto as Appendix II, and
is incorporated by reference herein. Shareholders of Brock are urged to read
the opinion carefully in its entirety. The following is a summary of selected
analyses presented by Stephens to the Brock Board of Directors on December 21,
1995 (the "Stephens Report") in connection with its December 21, 1995 opinion.
In connection with its opinion, Stephens, among other things, (i) analyzed
certain publicly available financial statements and reports regarding Brock
and Key Production; (ii) analyzed certain internal financial statements and
other financial and operating data (including financial projections)
concerning Brock and Key Production prepared by management of Brock and Key
Production; (iii) reviewed certain reserve information provided by Brock and
Key Production relating to the producing properties of Brock and Key
Production, including reserve reports prepared or audited by independent
petroleum engineers for Brock and Key Production; (iv) analyzed, on a pro
forma basis, the effect of the Merger on Key Production's balance sheet,
capitalization ratios, earnings, cash flow and book value both in the
aggregate and, where applicable, on a per share basis; (v) reviewed the
reported prices and trading activity for the common stock of Brock and Key
Production; (vi) compared the financial performance of Brock and Key
Production and the price and trading activity of the common stock of Brock and
Key Production with that of certain other comparable publicly-traded companies
and their securities; (vii) reviewed the financial terms, to the extent
publicly available, of certain comparable transactions; (viii) reviewed the
Merger Agreement and related documents; (ix) discussed with management of
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Brock the operations of and future business prospects for Brock; (x) discussed
with management of Key Production the operations of and future business
prospects for Key Production and the anticipated financial consequences of the
Merger to Key Production; and (xi) performed such other analyses and
examinations as it deemed necessary or appropriate.
Stephens did not independently verify the Brock and Key Production
information considered in its review, and for the purpose of its opinion
assumed and relied upon the accuracy and completeness of all such information.
With respect to the reserve reports and financial projections, Stephens
assumed that they had been reasonably prepared on bases reflecting the best
current available estimates and judgments relating to Brock and Key
Production's current oil and gas properties and their future financial
performance. Stephens did not make an independent evaluation or appraisal of
each of the Companies' properties, nor, except for the reserve reports and
estimates referred to above, had it been furnished with such an evaluation or
appraisal.
In connection with its opinion, Stephens arrived at reference values for the
common stock of Brock and for the common stock of the pro forma post-merger
combined companies ("Pro Forma Post-Merger Key") that the Brock shareholders
will receive as consideration in the Merger using three methodologies: a
discounted cash flow analysis, a comparable transaction analysis and a common
stock comparison. These methodologies are discussed below. Based upon these
values and subject to the assumptions and limitations set forth in its
opinion, Stephens came to a composite range of reference values for the common
stock of Brock of $10.71 million to $13.76 million and for the common stock of
the Pro Forma Post-Merger Key to be received by the Brock shareholders as
consideration in the Merger of $12.64 million to $15.27 million as of December
21, 1995.
In connection with the comparable transaction analysis and the common stock
comparison discussed below, the benchmark value multiples resulting from those
two valuation methodologies were applied to pro forma operating and valuation
statistics for Brock, Key Production and the Pro Forma Post-Merger Key. The
pro forma adjustments made to Brock, Key Production and the Pro Forma Post-
Merger Key were made to each company's financial statements to reflect the
anticipated financial condition of Brock, Key Production and the Pro Forma
Post-Merger Key at the anticipated consummation of the Merger.
Discounted Cash Flow Analysis. Under this method, Stephens calculated an
estimate of future discounted pre-tax cash flow of reserves for Brock, Key
Production and the Pro Forma Post-Merger Key as of September 30, 1995
utilizing reserve information prepared or provided by Brock and Key Production
under three pricing scenarios. In Scenario I, oil prices for West Texas
Intermediate spot equivalent crude oil were held flat at $17.30 per barrel.
Gas prices for Henry hub spot equivalent natural gas were held flat at $1.82
per thousand cubic feet ("Mcf"). In Scenario II, oil prices were assumed to be
$17.30 per barrel during the remaining months of 1995 and throughout 1996,
$17.82 per barrel in 1997, $18.35 per barrel in 1998, $18.90 per barrel in
1999, and to escalate 3.0% per year thereafter to a maximum of $36.00 per
barrel; gas prices were assumed to be $1.82 per Mcf during the remaining
months of 1995 and throughout 1996, $1.91 per Mcf in 1997, $2.01 per Mcf in
1998, $2.11 per Mcf in 1999, and to escalate at 3.0% per year thereafter to a
maximum of $4.25 per Mcf. In Scenario III, oil prices were assumed to be
$17.30 per barrel during the remaining months of 1995 and throughout 1996,
$18.08 per barrel in 1997, $18.89 per barrel in 1998, $19.74 per barrel in
1999, and to escalate 4.5% per year thereafter to a maximum of $36.00 per
barrel; gas prices were assumed to be $1.82 per Mcf during the remaining
months of 1995 and throughout 1996, $1.96 per Mcf in 1997, $2.10 per Mcf in
1998, $2.26 per Mcf in 1999, and to escalate at 4.5% per year thereafter to a
maximum of $4.25 per Mcf. These factors included adjustments to such pricing
scenarios to reflect transportation and quality differentials, potential
changes in tax bases and pre-tax discount rates ranging from 10.0% to 30.0%.
Such pre-tax discount rates are those generally relied upon in the industry to
value oil and gas reserves. To the resulting present values, Stephens added
reference values for the undeveloped acreage and other assets of Brock, Key
Production and the Pro Forma Post-Merger Key to arrive at a range of reference
values for the common stock of Brock, Key Production and the Pro Forma Post-
Merger Key of $11.95 million to $14.50 million, of $39.82 million to $47.89
million, and $55.02 million to $66.68 million, respectively.
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Comparable Transaction Analysis. In this analysis, Stephens reviewed nine
comparable transactions which it deemed relevant to the Merger. The total
consideration for such transactions (the "Comparable Transactions") ranged in
value from $15.25 million to $189.76 million, and averaged $69.84 million in
value. The Comparable Transactions are composed of the acquisition of Parker &
Parsley Petroleum Co.'s Appalachian assets by Lomak Petroleum, Inc., the
acquisition of American Exploration and affiliated companies' West Texas
Sawyer Field assets by Louis Dreyfus Natural Gas Corp., the acquisition of
Consolidated Oil & Gas by Hugoton Energy Corp., the acquisition of Diamond
Energy by Coda Energy, Inc., the acquisition of American Natural Energy Corp.
by Alexander Energy Corp., the acquisition of Alta Energy Corp. by Devon
Energy Corp., the acquisition of KP Exploration, Inc. by United Meridian
Corporation, the acquisition of American National Petroleum Company by Patrick
Petroleum Company, and the acquisition of certain ARCO Oil and Gas Co. Texas
and New Mexico assets by Anadarko Petroleum Corporation. Reference values for
reserves for Brock, Key Production and the Pro Forma Post-Merger Key were
determined by multiplying a benchmark value multiple for various operating and
financial statistics, including earnings before income taxes, depreciation and
amortization plus exploration expense ("EBITDE"), cash flow, future discounted
pre-tax cash flow of reserves and Mcf equivalent reserves (converting one
barrel of oil to 6 Mcf) from the comparable transactions, by the EBITDE, cash
flow, future discounted pre-tax cash flow of reserves and Mcf equivalent
reserves for Brock, Key Production and the Pro Forma Post-Merger Key. Using
its subjective professional judgment, Stephens determined a single value range
for the reserves of each of Brock, Key Production and the Pro Forma Post-
Merger Key. To each of these reference ranges Stephens added reference values
for undeveloped acreage and other assets for Brock, Key Production and the Pro
Forma Post-Merger Key to arrive at a range of reference values for the common
stock of Brock, Key Production and the Pro Forma Post-Merger Key of $9.47
million to $13.02 million, of $36.98 million to $46.98 million, and $53.68
million to $65.68 million, respectively.
Based on the mid-point of the reference values established above for Brock
and the Pro Forma Post-Merger Key, Stephens calculated transaction multiples
for the merger and compared these multiples to the range of multiples for the
Comparable Transactions. A comparison of these multiples is as follows: with
respect to EBITDE, the multiples for the Comparable Transactions ranged from
3.35x to 8.88x with a mean of 6.02x, as compared to a transaction multiple for
the Merger of 6.50x; with respect to cash flow, the multiples for the
Comparable Transactions ranged from 3.68x to 8.16x with a mean of 6.01x, as
compared to a transaction multiple for the Merger of 4.80x; with respect to
future discounted pre-tax cash flow of reserves, the multiples for the
Comparable Transactions ranged from 42.2% to 151.8% with a mean of 94.0%, as
compared to a transaction multiple for the Merger of 91.2%; with respect to
Mcf equivalent reserves, the multiples for the Comparable Transactions ranged
from $0.57 to $1.43 with a mean of $0.76, as compared to a transaction
multiple for the Merger of $0.69.
Common Stock Comparison. Using publicly available information, Stephens
calculated multiples of various operating and financial statistics, including
EBITDE, cash flow, future discounted pre-tax cash flow of reserves and Mcf
equivalent reserves, for certain publicly-traded oil and gas companies it
deemed relevant. The total market capitalization for such companies (the
"Comparable Companies") ranged in value from $87.7 million to $361.4 million,
and averaged $205.1 million in value. The Comparable Companies are composed of
Coho Energy, Inc., HS Resources, Inc., Nuevo Energy Company, PetroCorp. Inc.,
Unit Corporation and The Wiser Oil Company. Using its subjective professional
judgment, Stephens applied benchmark multiples to the EBITDE, cash flow,
future discounted pre-tax cash flow of reserves and Mcf equivalent reserves of
Brock, Key Production and the Pro Forma Post-Merger Key to arrive at a single
reference value range for the reserves of each of Brock, Key Production and
the Pro Forma Post-Merger Key. To each of these reference ranges Stephens
added reference values for undeveloped acreage and other assets for Brock, Key
Production and the Pro Forma Post-Merger Key to arrive at a range of reference
values for the common stock of Brock, Key Production and the Pro Forma Post-
Merger Key of $11.67 million to $15.70 million, of $43.22 million to $53.22
million, and $62.86 million to $74.86 million, respectively.
Based on the mid-point of the reference values established above for Brock
and the Pro Forma Post-Merger Key, Stephens calculated transaction multiples
for the merger and compared these multiples to the range of
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multiples for the Comparable Companies. A comparison of these multiples is as
follows: with respect to EBITDA, the multiples for the Comparable Companies
ranged from 5.10x to 8.80x with a mean of 7.40x, as compared to a transaction
multiple for the Merger of 6.50x; with respect to cash flow, the multiples for
the Comparable Companies ranged from 4.50x to 7.80x with a mean of 6.00x, as
compared to a transaction multiple for the Merger of 4.80x; with respect to
future discounted pre-tax cash flow of reserves, the multiples for the
Comparable Companies ranged from 79.4% to 137.2% with a mean of 108.7%, as
compared to a transaction multiple for the Merger of 91.2%; with respect to
Mcf equivalent reserves, the multiples for the Comparable Companies ranged
from $0.58 to $0.92 with a mean of $0.70, as compared to a transaction
multiple for the Merger of $0.69.
The summary of the Stephens Report set forth above does not purport to be a
complete description of the main elements of Stephens' presentation to the
Brock Board of Directors on December 21, 1995. It does not purport to be a
complete description of the analyses performed, or the matters considered, by
Stephens in rendering its opinion. Stephens believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of such analyses, without considering all analyses, or of the above
summary, without considering all factors and analyses, would create an
incomplete view of the processes underlying the analyses set forth in the
Stephens Report and its fairness opinion. The fact that any specific analysis
has been referred to in the summary above is not meant to indicate that such
analysis was given greater weight than any other analysis.
In rendering its fairness opinion, Stephens applied its judgment to a
variety of complex analyses and assumptions. Stephens may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions. The assumptions made
and the judgments applied by Stephens in rendering its opinion are not readily
susceptible to description beyond that set forth in the written text of the
fairness opinion itself.
In developing its view of the consideration to be received in the Merger,
Stephens assumed that, because of common practices used in the oil and gas
industry to evaluate assets, the methodologies described above provided a
reasonable and consistent basis for determining the reference values for the
common stock of Brock, Key Production and the Pro Forma Post-Merger Key.
The engagement letter between Brock and Stephens provides that Stephens is
to receive a fee of $100,000 upon delivery of its fairness opinion. Brock also
has agreed to reimburse Stephens for its reasonable out-of-pocket expenses,
including fees and expenses of counsel, and to indemnify Stephens and its
affiliates against certain claims, losses and expenses in connection with its
services as financial advisor, including those arising under the federal
securities laws.
Stephens was selected by the Brock Board of Directors as Brock's financial
advisor at a meeting of the Brock Executive Committee held on March 14, 1995.
This decision was made after several other investment banking firms, in
addition to Stephens, made proposals to Brock.
Stephens, a regional investment banking firm headquartered in Little Rock,
Arkansas, engages in, among other things, the valuation of businesses and
their securities in connection with mergers and acquisitions, leveraged buy-
outs, negotiated underwritings, private placements of debt and equity and for
corporate and estate purposes. Stephens has been in business since 1933 and
presently employs approximately 600 persons.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Brock's Board of Directors with respect
to the Merger, Brock's stockholders should be aware that certain members of
Brock's Board and management have certain interests respecting the Merger
separate from their interests as holders of Brock Common Stock, including
those referred to below.
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The currently unvested portion of the Brock Options will be vested and
exercisable in full as a result of the Merger. See "Certain Terms of the
Merger Agreement--Brock Options." The following directors of Brock hold the
following Brock Options:
<TABLE>
<CAPTION>
TOTAL UNVESTED PRICE
------ -------- -----
<S> <C> <C> <C>
Kenneth J. Stucke.............. 70,000 29,750 $1.65
Michael R. Barham.............. 50,000 21,750 $1.64
Robin A. Seibert............... 45,000 16,250 $1.65
</TABLE>
Pursuant to Brock's Change of Control Bonus Plan, Messrs. Stucke, Barham and
Seibert, who are officers of Brock, are expected to receive approximately
$40,000, $20,000 and $20,000, respectively, upon consummation of the Merger.
Under Brock's Directors Severance Plan, each of Messrs. Stucke, Seibert and
Barham, who are officers of Brock, will either be offered two year employment
agreements with Key at his current salary or will receive an amount equal to
twice his then-current annual compensation if the fair market value of all
Brock Common Stock at the Effective Time is $25 million or more, three times
his then-current monthly compensation if the fair market value is $3 million
or less, or an amount accordingly prorated if the fair market value is greater
than $3 million but less than $25 million.
Pursuant to his Consulting Agreement, Lawrence E. Brock, an officer and
director of Brock, will receive $32,308 upon consummation of the Merger as
severance for termination of his Consulting Agreement.
The Merger Agreement provides that Key Production will maintain certain
indemnification and limitation of liability provisions in Brock's Charter and
Bylaws for a period of five years after the Effective Time and will provide a
limited guarantee of those indemnification obligations during such period. See
"Certain Terms of the Merger Agreement--Indemnification."
See "Certain Terms of the Merger Agreement--Certain Benefit Plans and
Severance" as to post-Merger arrangements respecting Brock employee benefit
plans.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Merger to the holders of Brock Common Stock and is based upon current
provisions of the Code, existing regulations thereunder and current
administrative rulings and court decisions, all of which are subject to change
which changes could be applied retroactively. No attempt has been made to
comment on all federal income tax consequences of the Merger that may be
relevant to particular holders, including holders that are subject to special
tax rules such as dealers in securities, foreign persons, mutual funds,
insurance companies, tax-exempt entities and holders who do not hold their
shares as capital assets. No attempt has been made to discuss the state law
consequences of the Merger. Holders of Brock Common Stock are advised and
expected to consult their own tax advisers regarding the federal income tax
consequences of the Merger in light of their personal circumstances and the
tax consequences to them under state, local and foreign tax laws.
No ruling from the Internal Revenue Service ("IRS") has been or will be
requested in connection with the Merger. Brock has received from its counsel,
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., an opinion that
the Merger will be treated for federal income tax purposes as a reorganization
under Section 368(a) of the Code, that Key Production, Merger Sub and Brock
will each be a party to the reorganization and that holders of Brock Common
Stock will not recognize any gain or loss on the exchange of Brock Common
Stock for Key Production Common Stock in the Merger, except to the extent of
cash received in lieu of a fractional share of Key Production Common Stock. It
is a condition to the obligation of Brock to consummate the Merger that such
opinion shall not have been withdrawn or modified in any material respect. The
opinion is subject to certain assumptions and is based on certain
representations from the parties.
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The following federal income tax consequences will occur as a result of the
Merger qualifying as a reorganization under Section 368 of the Code:
(a) no gain or loss will be recognized by Key Production, Merger Sub or
Brock in connection with the Merger;
(b) no gain or loss will be recognized by a holder of Brock Common Stock
upon the exchange of all of such holder's shares of Brock Common Stock
for shares of Key Production Common Stock in the Merger;
(c) the aggregate tax basis of the shares of Key Production Common Stock
received by a Brock stockholder in the Merger (including any fractional
share deemed received) will be the same as the aggregate basis of the
shares of Brock Common Stock surrendered in exchange therefor;
(d) the holding period of the shares of Key Production Common Stock
received by a Brock stockholder in the Merger will include the holding
period of the shares of Brock Common Stock surrendered in exchange
therefor, provided that such shares of Brock Common Stock are held as
capital assets at the Effective Time; and
(e) a stockholder of Brock who receives cash in lieu of a fractional share
will recognize gain or loss equal to the difference, if any, between
such stockholder's basis in the fractional share (as described in
paragraph (c) above) and the amount of cash received. Such gain or loss
will be a capital gain or loss if the Brock Common Stock is held by
such stockholder as a capital asset at the Effective Time.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for using the "purchase" method of
accounting. Key Production will record the assets and liabilities of Brock at
their fair values, based upon the average price of Key Production Common Stock
at the time the transaction was agreed upon. Key Production's financial
statements will include the accounts of Brock from the date of acquisition.
See the Unaudited Pro Forma Condensed Financial Information and notes thereto
included elsewhere in this Joint Proxy Statement/Prospectus.
Key Production has been preliminarily advised by its independent public
accountants, Arthur Andersen LLP, that the Merger should be treated as a
purchase in accordance with generally accepted accounting principles.
GOVERNMENTAL AND REGULATORY APPROVALS
Key Production and Brock are aware of no governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
applicable securities laws.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Key Production Common Stock to be received by Brock
stockholders in connection with the Merger have been registered under the
Securities Act and, except as set forth in this paragraph, may be traded
without restriction. The shares of Key Production Common Stock to be issued in
connection with the Merger and received by persons who are deemed to be
"affiliates" (as that term is defined in Rule 144 under the Securities Act) of
Brock prior to the Merger may be resold by them only in transactions permitted
by the resale provisions of Rule 145 under the Securities Act (or, in the case
of such persons who become affiliates of Key Production, Rule 144 under the
Securities Act) or as otherwise permitted under the Securities Act.
Accordingly, the Merger Agreement provides that it is a condition to Key
Production's obligations thereunder that Brock cause its affiliates to execute
a written agreement to the effect that such persons will not sell, transfer or
otherwise dispose of Key Production Common Stock at any time in violation of
the Securities Act or the rules and regulations promulgated thereunder,
including Rule 145.
Key Production has agreed to register shares of Key Production Common Stock
received by certain affliates of Brock in the Merger under the Securities Act.
See "Stockholder Agreement."
RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, neither Key Production's nor Brock's stockholders will
be entitled to any appraisal or dissenter's rights in connection with the
Merger.
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CERTAIN TERMS OF THE MERGER AGREEMENT
The following description does not purport to be complete and is qualified
by reference to the Merger Agreement, a copy of which is attached as Appendix
I to this Joint Proxy Statement/Prospectus and is incorporated herein by
reference.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that, as promptly as practicable after the
satisfaction or waiver of the conditions to closing the Merger, the parties
shall cause the Merger to be consummated by filing a Certificate of Merger
with the Secretary of State of the State of Delaware, in such form as required
by, and executed in accordance with the relevant provisions of, Delaware law
(the date and time of such filing, or such later date or time agreed upon by
Key Production and Brock and set forth therein, being the "Effective Time").
It is anticipated that, if the issuance of Key Production Common Stock is
approved at the Key Production Special Meeting and the Merger Agreement is
approved and adopted at the Brock Special Meeting and all other conditions to
the Merger have been satisfied or waived, the Effective Time will occur on the
date of the Special Meetings or as soon thereafter as practicable.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time, each outstanding share of Brock Common Stock, other
than certificates which immediately prior to the Effective Time evidenced
shares of Brock Common Stock held in the treasury of Brock or owned by Key
Production or any direct or indirect wholly-owned subsidiary of either Key
Production or Brock, which shares will be canceled at the Effective Time, will
be converted into the right to receive .6897 shares of Key Production Common
Stock. Notwithstanding the foregoing, if between the date of the Merger
Agreement and the Effective Time the outstanding shares of Key Production
Common Stock or Brock Common Stock shall have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, the Exchange Ratio shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares.
As soon as practicable following the Effective Time, the Transfer Agent will
mail to each record holder of Brock Common Stock a letter of transmittal and
other information advising such holder of the consummation of the Merger and
for use in exchanging Brock Common Stock certificates for Key Production
Common Stock certificates and cash in lieu of a fractional share. Letters of
transmittal will also be available following the Effective Time at the offices
of Key Production in Denver, Colorado. Upon delivery of an executed
transmittal letter and surrender of a Brock certificate to the Transfer Agent
for cancellation, the holders of such Brock Certificates will be entitled to
receive a certificate representing the number of whole shares of Key
Production Common Stock which such holder has the right to receive under the
terms of the Merger Agreement. After the Effective Time, there will be no
further registration of transfers on the stock transfer books of Brock of
shares of Brock Common Stock that were outstanding immediately prior to the
Effective Time. Share certificates should not be surrendered for exchange by
stockholders of Brock prior to the Effective Time and the receipt of a letter
of transmittal.
No fractional shares of Key Production Common Stock will be issued in the
Merger. Each stockholder of Brock entitled to a fractional share will receive
an amount in cash equal to the value of such fractional share based upon the
closing price of Key Production Common Stock on the Nasdaq National Market on
the date of the Effective Time. No interest will be paid on such amount, and
all shares of Brock Common Stock held by a record holder shall be aggregated
for purposes of computing the amount of such payment.
Until so surrendered and exchanged, each certificate previously evidencing
Brock Common Stock shall represent solely the right to receive Key Production
Common Stock and cash in lieu of fractional shares. Unless and until any such
certificates shall be so surrendered and exchanged, no dividends or other
distributions payable
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<PAGE>
to the holders of record of Key Production Common Stock as of any time on or
after the Effective Time shall be paid to the holders of such certificates
previously evidencing Brock Common Stock; provided, however, that, upon any
such surrender and exchange of such certificates, there shall be paid to the
record holders of the certificates issued and exchanged therefor (i) the
amount, without interest thereon, of dividends and other distributions, if
any, with a record date on or after the Effective Time theretofore paid with
respect to such whole shares of Key Production Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions, if
any, with a record date on or after the Effective Time but prior to surrender
and a payment date occurring after surrender, payable with respect to such
whole shares of Key Production Common Stock.
BROCK OPTIONS
All options to purchase Brock Common Stock will become fully vested prior to
the Effective Time and will expire upon the Effective Time unless exercised
prior to the Effective Time.
CONDITIONS TO THE MERGER
The respective obligations of Key Production and Brock to consummate the
Merger are subject to the satisfaction of the following conditions, any or all
of which may be waived in writing by the parties hereto, in whole or in part,
to the extent permitted by applicable law: (a) the Registration Statement
shall have been declared effective by the Commission under the Securities Act,
no stop order suspending the effectiveness of the Registration Statement shall
have been issued by the Commission and no proceedings for that purpose shall
have been initiated by the Commission, and Key Production shall have received
all "Blue Sky" permits and other authorizations necessary to consummate the
transactions contemplated by the Merger Agreement; (b) the Merger Agreement
and the Merger shall have been approved and adopted by the requisite vote of
the stockholders of Brock, and the issuance of the Key Production Common Stock
in the Merger shall have been approved by the requisite vote of the
stockholders of Key Production; and (c) no Governmental Entity or federal or
state court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which
is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
The obligation of Key Production to effect the Merger is also subject to the
satisfaction at or prior to the Closing Date of the following conditions, any
or all of which may be waived in writing by Key Production, in whole or in
part, to the extent permitted by applicable law: (a) each of the
representations and warranties of Brock contained in the Merger Agreement
shall be true and correct as of the Closing Date as though made on and as of
the Closing Date (except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date); (b) Brock shall
have performed or complied with all agreements and covenants required by the
Merger Agreement to be performed or complied with by it on or prior to the
Closing Date; (c) since the date of the Merger Agreement, there shall have
been no change, occurrence or circumstance in the current or future business,
financial condition or results of operations of Brock or any of its
subsidiaries having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the financial condition, results of
operations or current or future business of Brock and its subsidiaries, taken
as a whole, except as to changes in general economic conditions that affect
each of Key and Brock substantially equally; (d) there shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, by any Governmental Entity in connection with
the grant of a regulatory approval necessary, in the reasonable business
judgment of Key Production, to the continuing operation of the current or
future business of Brock, which imposes any condition or restriction upon Key
Production or the business or operations of Brock which, in the reasonable
business judgment of Key Production, would be materially burdensome in the
context of the transactions contemplated by the Merger Agreement; (e) Jones,
Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. shall have delivered to
Key Production its written opinion substantially to the effect that (x) the
Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code, (y) Key Production, Merger Sub and Brock will each be a party to
that reorganization within the meaning of Section 368(b) of the Code, and
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<PAGE>
(z) Key Production, Merger Sub and Brock will not recognize any gain or loss
for U.S. federal income tax purposes as a result of the Merger, and such
opinion shall not have been withdrawn or modified in any material respect.
The obligation of Brock to effect the Merger is also subject to the
satisfaction at or prior to the Closing Date of the following conditions, any
or all of which may be waived in writing by Brock, in whole or in part, to the
extent permitted by applicable law: (a) each of the representations and
warranties of Key Production and Merger Sub contained in the Merger Agreement
shall be true and correct as of the Closing Date as though made on and as of
the Closing Date (except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date); (b) Key
Production and Merger Sub shall have performed or complied with all agreements
and covenants required by the Merger Agreement to be performed or complied
with by them on or prior to the Closing Date; (c) since the date of the Merger
Agreement, there shall have been no change, occurrence or circumstance in the
current or future business, financial condition or results of operations of
Key Production or any of its subsidiaries having or reasonably likely to have,
individually or in the aggregate, a material adverse effect on the financial
condition, results of operations or current or future business of Key
Production and its subsidiaries, taken as a whole; (d) there shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger, by any Governmental Entity in
connection with the grant of a regulatory approval necessary, in the
reasonable business judgment of Brock, to the continuing operation of the
current or future business of Key Production, which imposes any condition or
restriction upon Key Production or the business or operations of Key
Production which, in the reasonable business judgment of Brock, would be
materially burdensome in the context of the transactions contemplated by the
Merger Agreement; and (e) the shares of Key Production Common Stock to be
issued in the Merger shall have been approved for listing (subject to official
notice of issuance) on the Nasdaq National Market.
There can be no assurance that all of the conditions to the Merger will be
satisfied.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Brock, Merger Sub and Key Production relating to, among other things, (i) each
of their organization and similar corporate matters, (ii) each of their
capitalization, (iii) authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters, and the absence of
conflicts, violations and defaults under their respective charters and bylaws
and certain other agreements and documents, (iv) compliance with law, (v) the
documents and reports filed by them with the Commission and the accuracy of
the information contained therein, (vi) the absence of certain changes and
events, (vii) litigation, (viii) employee benefit matters, (ix) taxes and
matters relating to a tax-free reorganization, (x) certain business practices,
(xi) environmental matters, (xii) vote required, (xiii) brokers, (xiv)
insurance, (xv) properties, (xvi) certain contracts and restrictions, (xvii)
certain regulatory matters, (xviii) futures trading and (xix) the accuracy of
certain information provided. The representations and warranties expire at the
Effective Time.
CERTAIN COVENANTS; CONDUCT OF BUSINESS PRIOR TO THE MERGER
Each of Brock and Key Production has agreed that, prior to the Effective
Time, unless otherwise expressly contemplated by the Merger Agreement or
consented to in writing by the other, it will and will cause its subsidiaries
to (a) operate its business in all material respects in the usual and ordinary
course consistent with past practices; (b) use all reasonable efforts to
preserve substantially intact its business organization, maintain its material
rights and franchises, retain the services of its respective officers and key
employees and maintain its relationships with its material customers and
suppliers; (c) maintain and keep its material properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted, and
maintain supplies and inventories in quantities consistent with its customary
business practice; and (d) use all reasonable efforts to keep in full force
and effect insurance and bonds comparable in amount and scope of coverage to
that currently maintained.
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<PAGE>
Brock has agreed that, prior to the Effective Time, except as expressly
contemplated by the Merger Agreement or otherwise consented to in writing by
Key Production, it will not do, and will not permit any of its subsidiaries to
do, any of the following: (a)(i) increase the compensation payable to or to
become payable to any director or executive officer, subject to certain
exceptions; (ii) grant any severance or termination pay to, or enter into or
amend any employment or severance agreement with, any director, officer or
employee, subject to certain exceptions; (iii) establish, adopt or enter into
any employee benefit plan or arrangement; or (iv) amend, or take any other
actions with respect to, any of Brock's benefit plans, subject to certain
exceptions; (b) declare or pay any dividend on, or make any other distribution
in respect of, outstanding shares of capital stock; (c)(i) except for certain
matters, redeem, purchase or otherwise acquire any shares of its or any of its
subsidiaries' capital stock or any securities or obligations convertible into
or exchangeable for any shares of its or its subsidiaries' capital stock, or
any options, warrants or conversion or other rights to acquire any shares of
its or its subsidiaries' capital stock or any such securities or obligations;
(ii) effect any reorganization or recapitalization; or (iii) split, combine or
reclassify any of its or its subsidiaries' capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or
in substitution for, shares of its or its subsidiaries' capital stock; (d)(i)
except for certain matters, issue, deliver, award, grant or sell, or authorize
or propose the issuance, delivery, award, grant or sale of, any shares of any
class of its or its subsidiaries' capital stock, any securities convertible
into or exercisable or exchangeable for any such shares, or any rights,
warrants or options to acquire any such shares; (ii) amend or otherwise modify
the terms of any such rights, warrants or options the effect of which shall be
to make such terms more favorable to the holders thereof; (iii) take any
action to optionally accelerate the exercisability of Brock Options; (e)
acquire or agree to acquire any business or other entity, or otherwise acquire
or agree to acquire any assets of any other person (with certain exceptions)
in each case which are material, individually or in the aggregate, to Brock
and its subsidiaries, taken as a whole; (f) sell or otherwise dispose of any
of its material assets or any material assets of any of its subsidiaries, with
certain exceptions; (g) release any third party from its obligations, or grant
any consent, under any existing standstill provision relating to a Competing
Transaction or otherwise under any confidentiality or other agreement, or fail
to fully enforce any such agreement; (h) adopt or propose to adopt certain
amendments to its charter or bylaws; (i) change any of its methods of
accounting or take certain actions with respect to taxes; (j) incur any
obligation for borrowed money or purchase money indebtedness, with certain
exceptions; (k) enter into certain material contracts; or (l) agree in writing
or otherwise to do any of the foregoing.
Key Production has agreed that, prior to the Effective Time, except as
expressly contemplated by the Merger Agreement or otherwise consented to in
writing by Brock, it will not do, and will not permit any of its subsidiaries
to do, any of the following: (i) knowingly take any action which would result
in a failure to maintain the trading of the Key Production Common Stock on the
Nasdaq National Market; (ii) declare or pay any dividend on, or make any other
distribution in respect of, outstanding shares of capital stock; (iii) adopt
or propose to adopt any amendments to its charter or bylaws, which would have
an adverse impact on the consummation of the Merger; or (v) agree in writing
or otherwise to do any of the foregoing.
NO SOLICITATION
Additionally, Brock has agreed not to initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal relating to,
or that may reasonably be expected to lead to, any Competing Transaction, or
enter into discussions or negotiate with any person or entity in furtherance
of such inquiries or to obtain a Competing Transaction, or agree to or endorse
any Competing Transaction, or authorize or permit any of the officers,
directors or employees of Brock or any of its subsidiaries or any investment
banker, financial advisor, attorney, accountant or other representative
retained by Brock or any of Brock's subsidiaries to take any such action, and
Brock shall promptly notify Key Production of all relevant terms of any such
inquiries and proposals received by Brock or any of its subsidiaries or by any
such officer, director, investment banker, financial advisor, attorney,
accountant or other
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<PAGE>
representative relating to any of such matters and if such inquiry or proposal
is in writing, Brock shall promptly deliver or cause to be delivered to Key
Production a copy of such inquiry or proposal; provided, however, that the
Board of Directors of Brock may (i) furnish information to, or enter into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide proposal in writing by such person or entity to acquire
Brock pursuant to a merger, consolidation, share exchange, business
combination or other similar transaction or to acquire a substantial portion
of the assets of Brock or any of its Significant Subsidiaries, if, and only to
the extent that (A) the Board of Directors of Brock, after consultation with
and based upon the advice of independent legal counsel (who may be Brock's
regularly engaged independent legal counsel), determines in good faith that
such action is necessary for such Board of Directors to comply with its
fiduciary duties to stockholders under applicable law and (B) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity Brock (x) provides written notice to Key
Production to the effect that it is furnishing information to, or entering
into discussions or negotiations with, such person or entity and (y) enters
into with such person or entity a confidentiality agreement in reasonably
customary form on terms not more favorable to such person or entity than the
terms contained in a Confidentiality Agreement between Key Production and
Brock; (ii) comply with Rule 14e-2 promulgated under the Exchange Act with
regard to a Competing Transaction; or (iii) fail to make or withdraw or modify
its recommendation of the Merger and the Merger Agreement if there exists a
Competing Transaction and the Board of Directors of Brock, after consultation
with and based upon the advice of independent legal counsel (who may be
Brock's regularly engaged independent legal counsel), determines in good faith
that such action is necessary for such Board of Directors to comply with its
fiduciary duties to stockholders under applicable law.
CERTAIN POST-MERGER MATTERS
Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and Brock as the Surviving Corporation will succeed to all of the
assets, rights and obligations of Merger Sub.
Pursuant to the Merger Agreement, the Brock Charter and the Brock Bylaws, as
in effect immediately prior to the Effective Time, will be the certificate of
incorporation and bylaws of the Surviving Corporation until amended as
provided therein and pursuant to the Delaware General Corporation Law
("DGCL").
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger Agreement and the Merger
by the stockholders of Brock: (a) by mutual consent of Key Production and
Brock; (b) by Key Production, upon a breach of any representation, warranty,
covenant or agreement on the part of Brock set forth in the Merger Agreement,
or if any representation or warranty of Brock shall have become untrue, in
either case such that Key Production's conditions to closing would be
incapable of being satisfied by June 30, 1996 (or as otherwise extended as
permitted by the Merger Agreement); (c) by Brock, upon a breach of any
representation, warranty, covenant or agreement on the part of Key Production
or Merger Sub set forth in the Merger Agreement, or if any representation or
warranty of Key Production or Merger Sub shall have become untrue, in either
case such that Brock's conditions to closing would be incapable of being
satisfied by June 30, 1996 (or as otherwise extended as permitted by the
Merger Agreement); (d) by either Key Production or Brock, if there shall be
any Order which is final and nonappealable preventing the consummation of the
Merger, subject to a limited exception; (e) by either Key Production or Brock,
if the Merger shall not have been consummated before June 30, 1996; provided,
however, that the Merger Agreement may be extended by written notice of either
Key Production or Brock to a date not later than September 30, 1996, if the
Merger shall not have been consummated as a direct result of Brock, Key
Production or Merger Sub having failed by June 30, 1996 to receive all
required regulatory approvals or consents with respect to the Merger; (f) by
either Key Production or Brock, if the Merger Agreement and the Merger shall
fail to receive the requisite vote for approval and adoption by the
stockholders of Brock at the Brock Special Meeting or if the issuance of the
Key
39
<PAGE>
Production Common Stock in connection with the Merger shall fail to receive
the requisite vote for approval by the stockholders of Key Production at the
Key Production Special Meeting; (g) by Key Production, if (1) the Board of
Directors of Brock withdraws, modifies or changes its recommendation of the
Merger Agreement or the Merger in a manner adverse to Key Production or shall
have resolved to do any of the foregoing; (2) the Board of Directors of Brock
shall have recommended to the stockholders of Brock any Competing Transaction
or shall have resolved to do so; (3) a tender offer or exchange offer for 20%
or more of the outstanding shares of capital stock of Brock is commenced, and
the Board of Directors of Brock does not recommend that stockholders not
tender their shares into such tender or exchange offer, or; (4) any person
(other than Key Production or an affiliate thereof) shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder), shall have been formed
which beneficially owns, or has the right to acquire beneficial ownership of,
20% or more of the then outstanding shares of capital stock of Brock; or (h)
by Brock, if the Board of Directors of Brock (x) fails to make or withdraws
its recommendation to Brock's stockholders of the Merger Agreement if there
exists at such time a Competing Transaction, or (y) recommends to Brock's
stockholders approval or acceptance of a Competing Transaction, in each case
only if the Board of Directors of Brock, after consultation with and based
upon the advice of independent legal counsel (who may be Brock's regularly
engaged independent legal counsel), determines in good faith that such action
is necessary for such Board of Directors to comply with its fiduciary duties
to stockholders under applicable law.
Subject to limited exceptions, including the survival of Brock's agreement
to pay a termination fee to Key Production under certain circumstances as
discussed below, in the event of the termination of the Merger Agreement, the
Merger Agreement shall become void, there shall be no liability on the part of
Key Production, Merger Sub or Brock to the other and all rights and
obligations of the parties thereto shall cease, except that no party will be
relieved of any liability for (i) any breach of such party's covenants or
agreements contained in the Merger Agreement, or (ii) any willful breach of
such party's representations or warranties contained in the Merger Agreement.
The Merger Agreement may be amended by the parties by action taken by or on
behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of Brock, (i) no amendment, which under applicable law may not be
made without the approval of the stockholders of Brock, may be made without
such approval, and (ii) no amendment, which under the applicable rules of the
National Association of Securities Dealers, may not be made without the
approval of the stockholders of Key Production, may be made without such
approval. At any time prior to the Effective Time, any party to the Merger
Agreement may (a) extend the time for the performance of any of the
obligations or other acts of the other party thereto, (b) waive any
inaccuracies in the representations and warranties of the other party
contained therein or in any document delivered pursuant thereto and (c) waive
compliance by the other party with any of the agreements or conditions
contained therein.
EXPENSES AND TERMINATION FEE
All expenses incurred by Key Production and Brock will be borne by the party
incurring such expenses; provided, however, that the allocable share of Key
Production and Brock for all expenses paid to financial printers for printing,
filing and mailing the Registration Statement, the Brock Proxy Statement and
the Key Production Proxy Statement and all regulatory filing fees (other than
the filing fee for registering Key Production Common Stock pursuant to the
Registration Statement, which shall be paid by Key Production) incurred in
connection with the Registration Statement, the Brock Proxy Statement and the
Key Production Proxy Statement shall be one-half each.
The Merger Agreement also provides that Brock will pay to Key Production a
fee equal to $1,000,000, which amount will be inclusive of all of Key
Production's expenses, if the Merger Agreement is terminated in accordance
with its terms (any of the following, a "Trigger Event"): (a) by Key
Production after a wilful breach by Brock, if Brock shall have had contacts or
entered into negotiations after the date of the Merger Agreement regarding a
Competing Transaction, and within 12 months of the termination of the Merger
Agreement Brock
40
<PAGE>
consummates a Business Combination (as defined below) or enters into a
definitive agreement providing for a Business Combination with any person with
whom such contacts had been made; (b) by either Key Production or Brock if the
Merger Agreement fails to receive the requisite vote for approval and adoption
by the stockholders of Brock at the Brock Special Meeting, and at the time of
such meeting there shall exist a Competing Transaction; (c) by Key Production
if the Board of Directors of Brock withdraws, modifies or changes its
recommendation of the Merger Agreement or the Merger in a manner adverse to
Key Production (or resolves to do so) and, at such time, there exists a
Competing Transaction; (d) by Key Production, if the Board of Directors of
Brock shall recommend any Competing Transaction to Brock's stockholders (or
resolves to do so); (e) by Key Production, if a tender or exchange offer for
20% or more of the capital stock of Brock is commenced, and Brock's Board of
Directors does not recommend that its stockholders not tender their shares
into such tender offer or exchange offer; or (f) by Brock, if the Board of
Directors of Brock (i) fails to recommend (or withdraws its recommendation of)
approval and adoption by its stockholders of the Merger and the Merger
Agreement and there exists a Competing Transaction, or (ii) recommends a
Competing Transaction, in each case upon a determination in good faith, after
consultation with and based on the advice of independent legal counsel, that
such action is necessary for such Board to comply with its fiduciary duties
under applicable law.
The Merger Agreement defines "Business Combination" as (i) a merger,
consolidation, share exchange, business combination or similar transaction
involving Brock, (ii) a sale, lease, exchange, transfer or other disposition
of 20% or more of the assets of Brock and its subsidiaries, taken as a whole,
in a single transaction or a series of transactions, or (iii) the acquisition,
by a person (other than Key Production or any affiliate thereof) or group (as
such term is defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of beneficial ownership (as defined in Rule 13d-3
under the Exchange Act) of 20% or more of the Brock Common Stock whether by
tender or exchange offer or otherwise.
CERTAIN BENEFIT PLANS AND SEVERANCE
The Merger Agreement provides that Key will honor all of Brock's severance
arrangements; provided, however, that prior to the Effective Time, Key
Production will notify Brock of the employees of Brock that Key desires to
retain following the Effective Time and if such persons are retained as
employees on a full-time basis by Key or any subsidiary in any capacity and at
their then-current salaries for a period longer than one year after the
Effective Time (and, in the case of Kenneth J. Stucke, Michael R. Barham and
Robin A. Seibert, they are offered an employment agreement with Key having a
term of at least two years at their then current salaries) and without any
requirements that they relocate their personal residence from the New Orleans,
Louisiana metropolitan area, no severance payments, including any amounts
payable under the Directors Severance Plan, will be due to such persons, and
Brock will amend such plans before the Effective Time to the extent necessary
to so provide. Key and Merger Sub agree that the consummation of the Merger
shall constitute a change of control for the purposes of all applicable
agreements of Brock. Key has agreed to honor Brock's Change of Control Plan
pursuant to which Kenneth J. Stucke, Michael R. Barham and Robin A. Seibert
are expected to receive approximately $40,000, $20,000 and $20,000,
respectively, upon consummation of the Merger. See "The Merger--Interests of
Certain Persons in the Merger."
Brock will amend its Pension Plan to provide that all benefit accruals will
cease 30 days after the Effective Time and Key will initiate procedures to
terminate such plan under the provisions of ERISA. All of the participants
covered by Brock's Supplemental Executive Retirement Plan will become 100%
vested in the benefits provided thereunder as a result of the Merger and such
plan will be terminated and Brock will distribute the present value of the
benefits to which a participant is entitled thereunder in a single lump sum
payment prior to the Effective Time.
Any employees of Brock who become employees of Key following the Effective
Time will participate in employee benefit plans maintained by Key pursuant to
the terms and conditions of such employee benefit plans. Such employees will
receive credit for prior service with Brock as follows: the lesser of actual
years of service or an amount equal to the period of time between January 1,
1993 and the Effective Time for purposes of
41
<PAGE>
participation and vesting in all of Key's benefit plans. All individuals who
were employed by Brock at the Effective Time and who are employed by Brock on
the day after the Effective Time will be offered group health plan coverage
under Key's group health plan effective the day after the Effective Time. Such
coverage will not exclude any pre-existing conditions. Any such Brock
employees who were covered under the Brock group health plan immediately
before the Effective Time and are terminated by Key after the Effective Time
will be offered COBRA continuation coverage under the Key group health plan.
Brock employees who are terminated at the Effective Time will be offered COBRA
continuation coverage under the Key group health plan. Former employees of
Brock or dependents thereof, who were receiving COBRA continuation coverage
under the Brock group health plan as of the Effective Time will be eligible to
elect, pursuant to COBRA, to continue coverage under Key's group health plan
for the remainder of the COBRA continuation period at such former employee's
or dependent's sole expense. Further, if such persons, and dependents thereof,
elect COBRA continuation coverage under Key's group health plan, such persons
will not be subject to any pre-existing condition limitation under Key's group
health plan.
The Brock 1979 Stock Option Plan will be amended to provide that all options
to purchase Brock Common Stock outstanding on the date of the Merger Agreement
will become fully vested prior to the Effective Time and will expire upon the
Effective Time unless exercised prior to the Effective Time.
INDEMNIFICATION
The Merger Agreement provides that, for a period of five years after the
Effective Time, Key Production (i) shall not amend or otherwise modify certain
limitation of liability and indemnification provisions of Brock's Charter and
By-laws in a manner that would adversely affect the rights thereunder of any
individuals who at any time prior to the Effective Time were directors or
officers of Brock in respect of acts or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated
by the Merger Agreement), unless such amendment or modification is required by
law, and (ii) shall guarantee the performance by Brock of its obligations
under such provisions to the extent of the excess, if any, of (A) the net
worth of Brock as of the Effective Time over (B) the net worth of Brock as of
the date of any claim under such provisions by a person referred to in the
foregoing clause (i).
STOCKHOLDER AGREEMENT
In consideration for Key Production's and Merger Sub's execution of the
Merger Agreement, the Brock Trust, the holder of 8.5% of the Brock Common
Stock, executed a Stockholder Agreement (the "Stockholder Agreement") agreeing
to vote any shares of Brock Common Stock owned by such holder (whether owned
on the date of such Stockholder Agreement or thereafter acquired) in favor of
the Merger and adoption of the Merger Agreement, and against any business
combination proposal or other matter that may interfere with or be
inconsistent with the Merger or the Merger Agreement (including any Competing
Transaction), at any meeting of stockholders of Brock (or consent in lieu
thereof) and any adjournment or adjournments thereof. The Stockholder
Agreement is not revocable, and provides that the shares of Brock Common Stock
subject to the Stockholder Agreement may not be transferred unless the
transfer is without consideration and the transferee agrees that the shares
transferred will remain subject to the Stockholder Agreement. The Stockholder
Agreement further provides that for a period of two years after the Effective
Time the Brock Trust will offer to Key Production a right of first refusal
before selling any of its shares received in the Merger. The Brock Trust is
granted registration rights under the Securities Act with respect to the Key
Production Common Stock received by it in the Merger for a period of two
years. An irrevocable trust administered by BankOne, Fort Worth, Texas, which
owns approximately 25% of the Brock Common Stock, has been granted
registration rights under the Securities Act with respect to the Key
Production Common Stock to be received by it in the Merger. Mr. and Mrs. Brock
are the trust beneficiaries.
The Stockholder Agreement has been filed as an Exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part, and is
incorporated herein by reference.
42
<PAGE>
MARKET PRICES OF COMMON STOCK AND DIVIDEND INFORMATION
The Key Production Common Stock is traded on the Nasdaq National Market
under the symbol "KPCI" and the Brock Common Stock is traded on the American
Stock Exchange under the symbol "BKE." The following table sets forth the
range of high and low per share sale prices for Key Production Common Stock
and Brock Common Stock for the periods indicated, as reported on the Nasdaq
National Market and American Stock Exchange, respectively. No dividends were
paid in 1995 or in 1994 on either the Key Production Common Stock or the Brock
Common Stock.
<TABLE>
<CAPTION>
KEY PRODUCTION BROCK
--------------- -----------------
HIGH LOW HIGH LOW
------- ------- -------- --------
<S> <C> <C> <C> <C>
1994
First Quarter.......................... $4 $ 2 3/4 $3 3/4 $2 5/16
Second Quarter......................... 4 3/4 3 3 1/2 2 3/4
Third Quarter.......................... 4 3/4 3 5/8 3 11/16 2 11/16
Fourth Quarter......................... 5 3/8 3 1/2 4 1/8 2 3/8
1995
First Quarter.......................... $5 $ 4 1/2 $4 5/8 $3 9/16
Second Quarter......................... 6 3/8 4 5/8 4 3/8 3 1/4
Third Quarter.......................... 5 3/4 5 3 15/16 2 3/4
Fourth Quarter......................... 5 3/4 4 5/8 3 3/4 2 3/4
1996
First Quarter (through February 14,
1996)................................. $ 5 7/8 $ 4 3/4 $3 7/8 $3 1/8
</TABLE>
On December 21, 1995, the last trading day prior to the announcement by Key
Production and Brock that they had executed the Merger Agreement, the closing
per share sale prices of Key Production Common Stock and Brock Common Stock,
as reported on the Nasdaq National Market and American Stock Exchange,
respectively, were $5.00 and $3 5/8, respectively. See the cover page of this
Joint Proxy Statement/Prospectus for a recent closing price of Key Production
Common Stock and Brock Common Stock.
Following the Merger, Key Production Common Stock will continue to be traded
on the Nasdaq National Market. Following the Merger, Brock Common Stock will
cease to be traded on the American Stock Exchange, and there will be no
further market for such stock.
No dividends were paid in 1995 or in 1994 on either the Key Production
Common Stock or the Brock Common Stock and neither company has any present
intention of paying dividends in the immediate future. The terms of Brock's
current revolving credit facility includes restrictions on the payment of
dividends. Under its Credit Agreement with NationsBank, Key Production may not
make dividend payments exceeding $100,000 during any fiscal year, nor may
dividends exceed $.30 per share.
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<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements reflect adjustments to the historical consolidated balance sheets
and income statements of Key Production and Brock giving effect to the Merger
under the purchase method of accounting for business combinations, assuming an
Exchange Ratio of .6897 shares of Key Production Common Stock for each share
of Brock Common Stock, and reflecting certain assumptions described in the
notes to the unaudited pro forma consolidated condensed financial statements.
The unaudited pro forma consolidated condensed balance sheet at September 30,
1995, assumes the Merger was consummated as of September 30, 1995 and the
unaudited pro forma consolidated condensed statements of income assume the
Merger was consummated as of January 1, 1994.
The following pro forma consolidated condensed financial statements have
been prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of Key Production and
Brock that are incorporated by reference into and attached to this Joint Proxy
Statement/Prospectus. The pro forma consolidated condensed statements of
income are not necessarily indicative of operating results that would have
occurred had the Merger been consummated as of January 1, 1994, nor are they
indicative of future operating results of the combined companies.
KEY PRODUCTION COMPANY, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------- ------------------------
KEY BROCK ADJUSTMENTS CONSOLIDATED
------- ------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas production revenues.... $14,168 $6,650 $ -- $20,818
Other revenues..................... 40 649 15 704
------- ------ -------- -------
14,208 7,299 15 21,522
------- ------ -------- -------
Operating Expenses:
Depreciation, depletion and amorti-
zation............................ 5,393 1,785 452 7,630
Operating costs.................... 4,792 2,788 -- 7,580
Abandonment expenses/dry hole
costs............................. -- 225 (225) --
Administrative, selling and other.. 1,076 1,632 (1,497) 1,211
Financing costs:
Interest costs................... 586 631 (142) 1,075
Capitalized interest............. (422) -- -- (422)
Interest income.................. (10) -- -- (10)
------- ------ -------- -------
11,415 7,061 (1,412) 17,064
------- ------ -------- -------
Income Before Income Taxes........... 2,793 238 1,427 4,458
Provision for Income Taxes........... 600 67 542 1,209
------- ------ -------- -------
Net Income........................... $ 2,193 $ 171 $ 885 $ 3,249
======= ====== ======== =======
Net Income Per Common and Common
Equivalent Share.................... $ 0.23 $ 0.04 -- $ 0.26
======= ====== ======== =======
Weighted Average Common and Common
Equivalent Shares Outstanding....... 9,623 3,904 2,759 12,382
======= ====== ======== =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
44
<PAGE>
KEY PRODUCTION COMPANY, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------- ------------------------
KEY BROCK ADJUSTMENTS CONSOLIDATED
------- ------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas production revenues... $16,307 $ 9,042 $ -- $25,349
Other revenues.................... 330 2,087 (930) 1,487
------- ------- ------- -------
16,637 11,129 (930) 26,836
------- ------- ------- -------
Operating Expenses:
Depreciation, depletion and
amortization..................... 5,328 3,247 (293) 8,282
Operating Costs................... 5,103 4,462 -- 9,565
Abandonment expenses/dry hole
costs............................ -- 123 (123) --
Administrative, selling and
other............................ 1,432 2,274 (2,094) 1,612
Financing costs:
Interest costs.................. 446 859 (306) 999
Capitalized interest............ (309) -- -- (309)
Interest income................. (110) -- -- (110)
------- ------- ------- -------
11,890 10,965 (2,816) 20,039
------- ------- ------- -------
Income Before Income Taxes.......... 4,747 164 1,886 6,797
Provision for Income Taxes.......... 1,804 -- 717 2,521
------- ------- ------- -------
Net Income.......................... $ 2,943 $ 164 $ 1,169 $ 4,276
======= ======= ======= =======
Net Income Per Common and Common
Equivalent Share................... $ 0.30 $ 0.04 -- $ 0.34
======= ======= ======= =======
Weighted Average Common and Common
Equivalent Shares Outstanding...... 9,808 3,943 2,759 12,567
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
45
<PAGE>
KEY PRODUCTION COMPANY, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------- ------------------------
KEY BROCK ADJUSTMENTS CONSOLIDATED
------- ------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........ $ 444 $ 2,385 $ -- $ 2,829
Receivables...................... 3,072 1,751 -- 4,823
Prepaid expenses and deposits.... 412 147 -- 559
------- ------- ------- -------
3,928 4,283 -- 8,211
------- ------- ------- -------
Oil and Gas Properties, net........ 51,279 15,316 7,253 73,848
Other Assets, net.................. 623 1,190 (511) 1,302
------- ------- ------- -------
$55,830 $20,789 $ 6,742 $83,361
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable................. $ 1,364 $ 1,185 $ -- $ 2,549
Accrued lease operating expense
and other....................... 1,520 31 (50) 1,501
------- ------- ------- -------
2,884 1,216 (50) 4,050
------- ------- ------- -------
Long-Term Debt..................... 11,400 9,425 -- 20,825
------- ------- ------- -------
Deferred Credits and Other
Noncurrent Liabilities:
Income taxes..................... 3,144 -- 1,997 5,141
Other............................ 1,919 1,503 (410) 3,012
------- ------- ------- -------
5,063 1,503 1,587 8,153
------- ------- ------- -------
Stockholders' Equity:
Common stock..................... 2,914 410 (340) 2,984
Paid-in capital.................. 34,397 755 3,569 38,721
Retained Earnings................ 8,628 8,156 (8,156) 8,628
Treasury stock, at cost.......... (9,456) (676) 10,132 --
------- ------- ------- -------
36,483 8,645 5,205 50,333
------- ------- ------- -------
$55,830 $20,789 $ 6,742 $83,361
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements
46
<PAGE>
KEY PRODUCTION COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The unaudited pro forma statements of income were prepared using Key
Production and Brock audited income statements for the year ended December 31,
1994 and Key Production and Brock unaudited income statements for the nine
month periods ended September 30, 1995, and using the adjustments and
assumptions described below. The unaudited pro forma balance sheet was
prepared using Key Production and Brock unaudited balance sheets dated
September 30, 1995 and the adjustments and assumptions described below.
NOTE 2--PRO FORMA ADJUSTMENTS
Key Production uses the full cost method of accounting (full cost) for oil
and gas producing activities whereas Brock uses the successful efforts method
of accounting (successful efforts). A major difference between the two methods
is that exploration costs are capitalized under full cost, but expensed under
successful efforts. The pro forma adjustments convert Brock's historical data
to the full cost method of accounting.
Other revenues--Other revenues have been reduced by the gain/loss on
disposal of oil and gas properties and equipment. The gain or loss would not
be recognized as other revenue under full cost accounting rules.
Depreciation, depletion and amortization--Depreciation, depletion and
amortization expense has been adjusted to reflect the differences between full
cost and successful efforts accounting.
Abandonment/dry hole costs--An adjustment has been made to remove these
costs from the income statement. Abandonment and dry hole costs would be
capitalized per full cost accounting rules.
Administrative, selling and other--General and administrative expense has
been reduced for anticipated economies of scale. As discussed in more detail
in "The Companies--Post-Merger Profile and Strategy," subsequent to the
Merger, Key expects to maintain an office in New Orleans. Staff in that office
will be involved in exploration and acquisition activities and therefore, in
accordance with the full cost accounting rules, the personnel and other
expenses related to operating that office will be capitalized. Accounting,
land and other functions relating to the existing Brock properties will be
performed by personnel in Key's corporate office in Denver. The pro forma
adjustment eliminates the actual administrative expense reported by Brock for
the nine months ended September 30, 1995 and the twelve months ended December
31, 1994 since all administrative support will be provided by the Denver
office of Key. An additional $15,000 per month is included in the pro forma
calculation to cover salaries, benefits and other expenses for four additional
accounting and land employees in the Denver office.
Interest expense--Subsequent to consummation of the Merger, Key intends to
utilize its existing revolving credit facility with NationsBank to repay
Brock's outstanding debt. This facility allows Key to borrow up to $50 million
subject to borrowing base limits which are tied to the value of Key's oil and
gas reserves. The combined value of Key's and Brock's oil and gas reserves
subsequent to the Merger will be more than adequate to allow Key to increase
its currently elected $22 million borrowing base to the level necessary to
repay Brock's existing debt. The interest rate terms in Key's facility are
tied to Key's debt-to-capitalization ratio. Consummation of the Merger is not
expected to negatively impact that ratio. Brock's debt was borrowed at the
prime rate which was higher than the interest rate that applied to Key
Production's debt for the same periods. Interest expense has been reduced to
reflect the difference in Key Production's and Brock's borrowing arrangements.
Provision for income taxes--A provision for income taxes has been calculated
on the above pro forma adjustments using a combined federal and state rate of
38 percent.
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<PAGE>
Oil and gas properties--The adjustment to oil and gas properties reflects
the amount to be recorded based on purchase accounting rules including the
required provision for additional deferred taxes.
Other Assets, net--The Brock defined benefit pension plan will be
terminated. The prepaid pension asset has been eliminated and an accrual for
the anticipated costs relating to terminating the plan has been made.
Accrued lease operating expense and other--The net reduction in accrued
expenses is due to the accrual discussed above and to the elimination of the
current and long-term portions of the gas balancing liability reflected in
Brock's balance sheet. Key Production uses the cash method of accounting for
gas imbalances and therefore the balance sheet does not reflect these amounts.
Deferred taxes--A deferred tax liability was calculated on the estimated
increase in carrying value of the Brock oil and gas properties. The tax
liability was calculated at 38 percent.
Other noncurrent liabilities--Other liabilities had a net decrease due to
the following: 1) The long-term gas balancing liability of $718,000 will be
eliminated. (See accrued expenses.) 2) The Brock retirement liability will
become vested and increase by $308,000 due to a change in control provision.
Stockholders' Equity--Key Production will issue approximately 2,800,000
shares of common stock to accomplish the merger, or one Key Production share
for each 1.45 Brock share held. Key Production will use treasury shares first
(approximately 2,477,691 shares) and then issue new shares (approximately
281,309 shares) for the difference. Additional paid-in capital will be
increased based on the average Key Production Common Stock price at the time
of the merger announcement.
NOTE 3--EXPENSES OF THE MERGER
Direct expenses incurred by Key Production in connection with the Merger are
considered part of the cost of the company being acquired and will be
capitalized. These costs include fees paid to outside consultants for legal,
accounting and financial printing services and severance payments and change
of control bonuses that will be paid to Brock employees under the terms of
Brock's existing plans. The terms of the Brock severance and change of control
plans are discussed in more detail in "Certain Terms of the Merger Agreement--
Certain Benefit Plans and Severance."
NOTE 4--PRO FORMA OIL AND GAS RESERVE INFORMATION (UNAUDITED)
The tables set forth below reflect unaudited pro forma disclosures of
certain oil and gas reserve information as of December 31, 1994. The
information was prepared from, and should be read in conjunction with, the
related information contained in the Key's 1994 10-K and Brock's 1994 10-K
that are incorporated by reference into and attached to this Joint Proxy
Statement/Prospectus.
Production Information, Average Sales Prices and Production Costs for the Year
Ended December 31, 1994
<TABLE>
<CAPTION>
Pro Forma
------------
Oil Gas
------ -----
<S> <C> <C>
Production (oil in thousands of barrels and gas in million cubic
feet).......................................................... 855 6,891
Average Sales Price (per barrel of oil and per Mcf of gas)...... $14.79 $1.88
Average Production Cost Per Equivalent Mcf...................... $.80
</TABLE>
48
<PAGE>
Productive Wells at December 31, 1994
<TABLE>
<CAPTION>
Pro Forma
----------------------
Oil Gas
----------- ----------
Gross Net Gross Net
----- ----- ----- ----
<S> <C> <C> <C> <C>
Midcontinent............................................. 164 34.7 412 66.9
Gulf Coast............................................... 284 35.4 165 24.1
Rocky Mountains.......................................... 699 64.3 105 4.2
California............................................... 1 .1 -- --
----- ----- --- ----
1,148 134.5 682 95.2
===== ===== === ====
</TABLE>
Net acres (pro forma) at December 31, 1994
<TABLE>
<S> <C>
Developed............................................................... 120,100
Undeveloped............................................................. 546,400
</TABLE>
Estimated Quantities of Proved Oil and Gas Reserves at December 31, 1994
<TABLE>
<CAPTION>
Pro Forma
----------------------
Gas (MMcf) Oil (MBbls)
---------- -----------
<S> <C> <C>
Total Proved Reserves--Developed and Undeveloped
Beginning of year....................................... 39,912 3,644
Revisions of Previous Estimates........................ (942) 71
Improved Recovery...................................... -- 245
Extensions and Discoveries............................. 5,574 690
Purchases of Reserves.................................. 9,169 2,494
Production............................................. (6,891) (855)
Sales of Properties.................................... (104) (148)
------ -----
End of year............................................. 46,718 6,141
====== =====
Proved Developed Reserves
Beginning of year....................................... 26,564 3,428
End of year............................................. 34,344 5,476
</TABLE>
Discounted Future Net Cash Flows and Changes Relating to Proved Reserves at
December 31, 1994
<TABLE>
<CAPTION>
Pro Forma
(IN THOUSANDS) ---------
<S> <C>
Cash Inflows........................................................ $182,946
Production and Development Costs.................................... (73,921)
Income Tax Expense.................................................. (22,877)
--------
Net Cash Flows...................................................... 86,148
10% Annual Discount Rate............................................ (28,136)
--------
Discounted Future Net Cash Flows.................................... $ 58,012
========
Following are the principal sources of changes in the discounted fu-
ture net cash flows:
Sales, net of production costs...................................... $(16,191)
Net change in prices and production costs........................... (5,838)
Extensions, discoveries and improved recovery, net of related
costs.............................................................. 7,989
Change in future development costs.................................. (477)
Revision of quantities.............................................. 305
Accretion of discount............................................... 5,129
Change in income taxes.............................................. (514)
Purchases of reserves in place...................................... 18,913
Sales of properties................................................. (550)
Change in production rates and other................................ (1,265)
--------
$ 7,501
========
</TABLE>
49
<PAGE>
PRINCIPAL STOCKHOLDERS OF KEY PRODUCTION AND BROCK
KEY PRODUCTION
The following table indicates the beneficial ownership as of the Record Date
of the Key Production Common Stock by each director, by each person known by
Key Production to own more than 5% of the outstanding shares of Key Production
Common Stock, Key Production's Chief Executive Officer and Key Production's
other executive officers whose total annual salary and bonus exceeds $100,000
and by all directors and executive officers of Key Production as a group.
Except as otherwise indicated below, the ownership reflects sole voting and
investment power by the beneficial owner.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF CLASS OF CLASS
BEFORE AFTER
SHARES OF CONSUMMATION CONSUMMATION
COMMON OF THE OF THE
BENEFICIAL OWNER STOCK MERGER MERGER
---------------- --------- ------------ ------------
<S> <C> <C> <C>
F.H. Merelli..................... 746,650(1)(4) 7.99% 6.17%
Cortlandt S. Dietler............. 85,500(2) .96% .73%
Timothy J. Moylan................ 90,600(2) 1.02% .78%
Monroe W. Robertson.............. 181,650(3)(4) 2.02% 1.55%
All Directors and Executive
Officers as a Group
(6 Persons)..................... 1,258,750(5) 12.88% 10.05%
</TABLE>
- --------
(1) Includes 151,000 shares held in Mr. Merelli's IRA account and options for
500,000 shares, one-third of which vested September 1, 1993, one-third of
which vested September 1, 1994, and one-third of which vested on September
1, 1995.
(2) Includes options for 45,000 shares of common stock, one-third of which
vested December 9, 1993, one-third of which vested December 9, 1994, and
one-third of which vested on December 9, 1995.
(3) Includes options for 150,000 shares of common stock, one-third of which
vested January 4, 1994, one-third of which vested January 4, 1995, and
one-third of which vested on January 4, 1996.
(4) Includes 25,650 shares held by Messrs. Merelli and Robertson as Trustees
of the Company's 401(k) retirement plan.
(5) Includes options for 920,000 shares of common stock, vesting at various
dates beginning September 1, 1993.
50
<PAGE>
BROCK
The following table indicates the beneficial ownership as of the Record Date
of the Brock Common Stock, and of Key Production Common Stock after the
Merger, by each director of Brock, by each person known by Brock to own more
than 5% of the outstanding shares of Brock Common Stock, Brock's Chief
Executive Officer and the Brock's other executive officers whose total annual
salary and bonus exceeds $100,000 and by all directors and executive officers
of Brock as a group. Except as otherwise indicated below, the ownership
reflects sole voting and investment power by the beneficial owner.
<TABLE>
<CAPTION>
PERCENTAGE OF
KEY PRODUCTION
SHARES OF PERCENTAGE COMMON STOCK AFTER
BENEFICIAL OWNER COMMON STOCK OF CLASS CONSUMMATION OF MERGER
---------------- ------------ ---------- ----------------------
<S> <C> <C> <C>
Lawrence E. Brock........... 325,811(a) 8.54% 1.94%
Lorena Rowan Brock.......... 325,811(a) 8.54% 1.94%
Brock Trust................. 325,811(a) 8.54% 1.94%
BancOne Forth Worth, Texas,
Trustee.................... 893,658(b) 23.42% 5.31%
Lawrence E. Brock, III--
Trust...................... 40,000(c) 1.05% .24%
Kenneth J. Stucke........... 82,700(d) 2.10% .49%
Michael R. Barham........... 35,950(d) .91% .21%
Robin A. Seibert............ 34,750(d) .88% .20%
E. Peter Corcoran........... 130,365 3.42% .77%
John W. Cooke, R. .......... 1,000 .03% *
John W. Owensby............. 5,000 .13% .02%
All Directors and Executive
Officers as a Group
(8 Persons)................ 1,549,234(d) 39.39% 9.44%
</TABLE>
- --------
* Less than one hundredth of one percent.
(a) These shares are held in a trust in which Mr. and Mrs. Brock are the
beneficiaries. As Trustee, Mr. Brock has voting and dispositive powers
with respect to the shares. Mr. Brock's address is 225 Baronne, Suite 700,
New Orleans, Louisiana 70112.
(b) These shares are held in an irrevocable trust administered by BancOne,
P.O. Box 2050, Fort Worth, Texas 73713. Mr. and Mrs. Brock are the trust
beneficiaries. BancOne has voting and dispositive powers with respect to
the shares.
(c) These shares are held in a trust for the benefit of Lawrence E. Brock,
III. Lawrence E. Brock, as Trustee, has voting and dispositive powers with
respect to the shares. Mr. and Mrs. Brock disclaim beneficial ownership of
these shares.
(d) Includes shares issuable pursuant to stock options exercisable currently
or within 60 days as follows: Mr. Stucke, 51,250 shares; Mr. Barham,
33,250 shares; Mr. Seibert, 33,750 shares and all executive officers and
directors as a group, 118,250 shares.
51
<PAGE>
DESCRIPTION OF KEY PRODUCTION CAPITAL STOCK
GENERAL
At the Record Date, the authorized capital stock of Key Production consisted
of 50,000,000 shares of common stock, of which 8,849,468 shares were
outstanding.
The description set forth below of the Key Production Common Stock
constitutes a brief summary of certain provisions of the Key Production
Charter and By-Laws, all of which are filed as exhibits to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part and are
incorporated herein by reference. Such summary does not purport to be complete
and is qualified by reference to such documents.
COMMON STOCK
Each share of Key Production Common Stock has one vote on all matters on
which stockholders are entitled or permitted to vote, including the election
or removal of directors. Holders of the Key Production Common Stock have no
redemption or conversion rights, participate ratably in any distribution of
assets to stockholders in liquidation, and have no preemptive or other
subscription rights. Cumulative voting is not permitted in the election of
directors. Holders of the Key Production Common Stock are entitled to receive
such dividends as may be declared by the Board of Directors of Key Production
out of funds legally available therefor. All outstanding shares of Key
Production Common Stock are, and the shares to be issued pursuant to the
Merger Agreement will be, fully paid and nonassessable. American Securities
Transfer, Incorporated is the Transfer Agent and Registrar for the Key
Production Common Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Key is subject to Section 203 of the DGCL, which generally prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
(i) prior to such date the Board of Directors of the corporation approved
either the business combination or the transaction in which the person became
an interested stockholder, (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock of the
corporation excluding shares owned by officers or directors of the corporation
and by certain employee stock plans, or (iii) on or after such date the
business combination is approved by the Board of Directors of the corporation
and by the affirmative vote of at least 66 3/4% of the outstanding voting
stock of the corporation that is not owned by the interested stockholder. A
"business combination" generally includes mergers, asset sales and similar
transactions between the corporation and the interested stockholder, and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's voting stock or who is an
affiliate or associate of the corporation and, together with his affiliates
and associates, has owned 15% or more of the corporation's voting stock within
three years.
RESTRICTIONS ON DIVIDENDS
Under its Credit Agreement with NationsBank, Key Production may not make
dividend payments exceeding $100,000 during any fiscal year, nor may dividends
exceed $.30 per share. No dividends were paid in 1995 or in 1994 on the Key
Production Common Stock.
52
<PAGE>
COMPARATIVE RIGHTS OF KEY PRODUCTION AND BROCK STOCKHOLDERS
If the Merger is consummated, the stockholders of Brock will become
stockholders of Key Production. The rights of the stockholders of both Key
Production and Brock are governed by and subject to the provisions of the
DGCL. The rights of current Brock stockholders following the Merger will be
governed by the Key Production Charter and Key Production's By-Laws rather
than the provisions of the Brock Charter and Brock's By-Laws. The following is
a brief summary of certain differences between the rights of Key Production
stockholders and the rights of Brock stockholders, and is qualified by
reference to the relevant provisions of the DGCL, the Key Production Charter,
Key Production's By-Laws, the Brock Charter and Brock's By-Laws.
POWER TO CALL SPECIAL MEETINGS
Key Production's By-Laws provide that a special meeting of stockholders may
be called by a majority of directors then in office or by the Chief Executive
Officer of Key Production. Brock's By-Laws provide that a special meeting of
stockholders may be called by the President, a majority of the Board of
Directors or by the holders of at least two-thirds of the stock entitled to
vote at the meeting.
CERTAIN MATTERS PRESENTED AT STOCKHOLDERS MEETINGS BY STOCKHOLDERS
Key Production's By-Laws require that if a stockholder wishes to nominate
directors for election or present matters for consideration at a meeting of
stockholders, he generally must give notice to the secretary of Key Production
not less than 60 nor more than 90 days before the first anniversary of the
preceding year's annual meeting, with certain exceptions, and the notice must
contain certain specified information. In order for the stockholders to
approve any proposal to request the Board of Directors to take specified
action, a majority of the outstanding stock entitled to vote must be voted for
the proposal. The Brock Charter and Brock's By-Laws contain no similar
restrictions.
Also see "Description of Key Production Capital Stock."
INDEPENDENT PUBLIC ACCOUNTANTS
It is expected that representatives of Arthur Andersen LLP will be present
at the Key Production Special Meeting and representatives of Ernst & Young LLP
will be present at the Brock Special Meeting to respond to appropriate
questions of stockholders and to make a statement if they so desire.
LEGAL MATTERS
The validity of the Key Production Common Stock offered hereby has been
passed upon for Key Production by Holme Roberts & Owen LLC, Denver, Colorado.
Certain tax consequences of the Merger have been passed upon for Brock by
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans,
Louisiana.
EXPERTS
The financial statements of Key Production as of December 31, 1993 and 1994
and for each of the three years in the period ended December 31, 1994,
included in Key Production's Annual Report on Form 10-K for the year ended
December 31, 1994, incorporated by reference in this prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority as said firm
as experts in giving
53
<PAGE>
said report. Reference is made to said report, which includes an explanatory
paragraph with respect to the change in the method of accounting for income
taxes as discussed in Note 3 to the financial statements.
The consolidated financial statements of Brock Exploration Corporation
appearing in Brock's Annual Report (Form 10-K) for the year ended December 31,
1994, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
STOCKHOLDERS' PROPOSALS
Any proposals of holders of Key Production Common Stock intended to be
presented at the Annual Meeting of Stockholders of Key Production to be held
in 1997 must be received by Key Production, addressed to the Corporate
Secretary at One Norwest Center, 20th Floor, 1700 Lincoln Street, Denver,
Colorado 80203-4520, no later than December 31, 1996, to be considered for
inclusion in the proxy statement and form of proxy relating to that meeting.
It is too late for stockholders of Key Production to submit proposals to be
presented at the 1996 Annual Meeting.
If the Merger is not consummated, any proposals of stockholders of Brock
intended to be presented at the Annual Meeting of Stockholders of Brock to be
held in 1996 must have been received by Brock, addressed to the Secretary at
225 Baronne Street, Suite 700, New Orleans, Louisiana 70112-1707, no later
than March 1, 1996, to be considered for inclusion in the proxy statement and
form of proxy relating to that meeting.
54
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), a Delaware corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees and agents in
connection with threatened, pending or completed actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in right of the corporation), brought against them by
reason of the fact that they were or are such directors, officers, employees
or agents, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in any such action, suit or proceeding.
Article 6 of Key Production's Bylaws provides for indemnification of each
person who is or was or is threatened to be made a party to any threatened,
pending or completed civil, administrative, criminal, arbitrative or
investigative action, suit or proceeding because such person is or was a
director, officer or employee of Key Production or is or was serving at the
request of Key Production as a director, officer, partner, trustee, fiduciary,
agent or employee of another corporation or of a partnership, joint venture,
trust, employee benefit plan or other enterprise, against judgments, fines,
penalties, amounts paid in settlement, reasonable expenses and other
liabilities arising in connection with such action, suit or proceeding, to the
fullest extent permitted by law.
Key Production also maintains policies of directors and officers liability
insurance.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit. Article IV of the Key Production's Charter contains
such a provision.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2.1* --Agreement and Plan of Merger dated December 21, 1995 among Key
Production Company, Inc., Key Acquisition One, Inc. and Brock
Exploration Corporation (included as Appendix I to the Joint Proxy
Statement/Prospectus)
2.2* --Stockholder Agreement executed by the Lawrence E. Brock and Lorena
Rowan Brock-Trust No. 2-A
4.1 --Certificate of Incorporation of Key Production Company, Inc
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-4, File No. 33-23533 filed with
the SEC on August 5, 1988)
4.2 --By-Laws of Key Production Company, Inc. (incorporated by reference
to Exhibit 3.3 to Form 10-Q of Key Production for quarter ended
June 30, 1995, File Number 0-17162)
5.1* --Opinion of Holme Roberts & Owen LLC regarding the legality of the
securities
8.1* --Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., New Orleans, Louisiana regarding tax matters
23.1 --Consent of Holme Roberts & Owen LLC (set forth in Exhibit 5.1)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
23.2 --Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., New Orleans, Louisiana (set forth in Exhibit 8.1)
23.3* --Consent of Arthur Andersen LLP (Key Production)
23.4* --Consent of Ernst & Young LLP (Brock)
23.5* --Consent of Stephens Inc.
23.6* --Consent of Ryder Scott Company Petroleum Engineers (Brock)
23.7* --Consent of Ryder Scott Company Petroleum Engineers (Key
Production)
99.1* --Form of Key Production Proxy
99.2* --Form of Brock Proxy
</TABLE>
- --------
* Filed with the original Form S-4 filed on February 13, 1996.
(b) Financial Statement Schedules:
None required.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective; and
(2) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF
COLORADO, ON FEBRUARY 14, 1996.
Key Production Company, Inc.
By: /s/ F.H. Merelli
--------------------------------------------
F.H. MERELLI
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below does hereby make, constitute and
appoint each of F.H. Merelli and Monroe W. Robertson as such person's true and
lawful attorney-in-fact and agent, with full power of substitution,
resubstitution and revocation to execute, deliver and file with the Securities
and Exchange Commission, for and on such person's behalf, and in any and all
capacities, this Registration Statement on Form S-4, and any and all amendments
(including post-effective amendments) thereto, with all exhibits thereto and
other documents in connection therewith, granting unto said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done as fully to all intents and purposes
as such person might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent or such person's substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
ON FEBRUARY 14, 1996.
NAME AND SIGNATURE TITLE
------------------ -----
/s/ F.H. Merelli Chairman, President and Chief
- ------------------------------------- Executive Officer (Principal
F.H. MERELLI Executive Officer)
/s/ Monroe W. Robertson Senior Vice President and Secretary
- ------------------------------------- (Principal Financial Officer)
MONROE W. ROBERTSON
/s/ Cathy L. Anderson Controller (Principal Accounting
- ------------------------------------- Officer)
CATHY L. ANDERSON
/s/ Cortlandt S. Dietler Director
- -------------------------------------
CORTLANDT S. DIETLER
/s/ Timothy J. Moylan Director
- -------------------------------------
TIMOTHY J. MOYLAN
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2.1* --Agreement and Plan of Merger dated December 21, 1996 among Key
Production Company, Inc., Key Acquisition One, Inc. and Brock
Exploration Corporation (included as Appendix I to the Joint Proxy
Statement/Prospectus)
2.2* --Stockholder Agreement executed by the Lawrence E. Brock and Lorena
Rowan Brock-Trust No. 2-A
4.1 --Certificate of Incorporation of Key Production Company, Inc.
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-4, File No. 33-23533 filed with the
SEC on August 5, 1988)
4.2 --By-Laws of Key Production Company, Inc. (incorporated by reference
to Exhibit 3.3 to Form 10-Q of Key Production for quarter ended June
30, 1995, File Number 0-17162)
5.1* --Opinion of Holme Roberts & Owen LLC regarding the legality of the
securities
8.1* --Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., New Orleans, Louisiana regarding tax matters
23.1 --Consent of Holme Roberts & Owen LLC (set forth in Exhibit 5.1)
23.2 --Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P., New Orleans, Louisiana (set forth in Exhibit 8.1)
23.3* --Consent of Arthur Andersen LLP (Key Production)
23.4* --Consent of Ernst & Young LLP (Brock)
23.5* --Consent of Stephens Inc.
23.6* --Consent of Ryder Scott Company Petroleum Engineers (Brock)
23.7* --Consent of Ryder Scott Company Petroleum Engineers (Key Production)
99.1* --Form of Key Production Proxy
99.2* --Form of Brock Proxy
</TABLE>
- --------
* Filed with the original Form S-4 filed on February 13, 1996.
