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As filed with the Securities and Exchange Commission on June 30, 1997
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
MAGNUM HUNTER RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada 1311 87-0462881
State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039, (972) 401-0752
(Address and telephone number of principal executive offices)
Morgan F.Johnston, Esq.,
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039, (972) 401-0752
(Name, address and telephone number, including area code, of agent for service)
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Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than in connection with dividend or interest
reinvestment plans, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement of the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C> <C>
Title of each Proposed Proposed
class of Amount maximum maximum Amount of
securities to be to be offering price aggregate registration
registered registered per share (1) offering price (1) fee
Common Stock,
par value $.002 227,300 $6.0625 $1,378,006.25 $417.58
</TABLE>
(1) Estimated pursuant to Rule 457 (c) solely for purpose of calculating the
registration fee based on the average of the high and low prices of the Common
Stock reported in the consolidated reporting system for the American Stock
Exchange on June 27, 1997.
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Page number 1 of 42 pages numbered sequentially.
The Exhibit Index may be found on Page 31.
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MAGNUM HUNTER RESOURCES, INC.
227,300 SHARES
Common Stock, par value $.002 per share
This Prospectus relates to 227,300 shares (the "Shares") of the Common
Stock, par value $.002 per share, of Magnum Hunter Resources, Inc., a Nevada
corporation ("Magnum Hunter" or the "Company"), which may be offered from time
to time by certain stockholders of the Company (the "Selling Stockholders"). See
"Selling Stockholders." The Shares were acquired from the Company under various
agreements more specifically described herein under the heading "Plan of
Distribution". The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. All expenses incurred in connection with
this offering, other than selling commissions and fees and expenses of counsel
and other representatives of the Selling Stockholders, are being borne by the
Company.
The Company has been advised by the Selling Stockholders that they or
their successors may sell all or a portion of the shares offered hereby from
time to time through the American Stock Exchange, in privately negotiated
transactions or otherwise, including sales through or directly to a broker or
brokers. Sales will be at prices and terms then prevailing or at prices related
to the then current market prices or at negotiated prices. In connection with
any sales, any broker or dealer participating in such sales may be deemed to be
an underwriter within the meaning of the Securities Act of 1933. Certain shares
covered by this Prospectus may be sold under Rule 144 instead of this
Prospectus. See "Plan of Distribution".
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor any
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer. solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The Common Stock of the Company is traded on the American Stock
Exchange (the "AMEX") under the symbol "MHR." On June 27, 1997, the last
reported sale price of the Common Stock on the AMEX was $6 1/16 per share.
See "Risk Factors" on page 5 for a discussion of certain risk factors
which should be considered in connection with an investment in the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July __, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the office of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the regional offices of the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of
such information can be obtained by mail from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Additionally, the Commission maintains a web site
that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's web site is http://www.sec.gov. The Company's Common Stock is
listed on the American Stock Exchange and copies of reports, proxy statements
and other information concerning the Company also can be inspected at the
offices of the American Stock Exchange, 86 Trinity Place, New York, New York
10006-1881.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in such
Registration Statement. For further information with respect to the Company and
the Common Stock being offered, reference is hereby made to the Registration
Statement and to the exhibits thereto.
The Company, a corporation organized under the laws of Nevada, has its
principal executive offices located at 600 East Las Colinas Blvd., Suite 1200,
Irving, Texas 75039; its telephone number is (972) 401-0752.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents and information heretofore filed with the
Commission by the Company are hereby incorporated by reference into this
Prospectus:
1. The Company's Annual Report on Form 10-KSB for the year ended December
31, 1996, as amended by Form 10-KSB/A filed on June 27, 1997;
2. An amendment to the Company's Quarterly Report on Form 10-QSB/A for the
quarter ended September 30, 1996, filed on March 18, 1997;
3. The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997, as amended by Form 10-QSB/A filed on May 21, 1997;
4. The Company's Current Reports on Form 8-K dated June 28, 1996 (as
amended by Forms 8K/A filed on August 13, 1996 and August 16, 1996),
December 23, 1996, January 20, 1997 (as amended by Form 8-K/A filed on
February 5, 1997), February 28, 1997, April 30, 1997, May 20, 1997 and
May 30, 1997; and
5. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed pursuant to Section 12(b) of
the Exchange Act, dated March 6, 1996.
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Each document filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Stock under this Prospectus
shall be deemed to be incorporated by reference into this Prospectus and to be
made a part hereof from the date of filing of such document, except as to any
portion of any future Annual or Quarterly Report to Stockholders which is not
deemed to be filed under said provisions. 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 Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated or deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any and all of the documents incorporated
by reference herein (other than exhibits to such documents which are not
specifically incorporated by reference in such documents). Written requests for
such copies should be directed to the Company, 600 East Las Colinas Blvd., Suite
1200, Irving, Texas 75039, Attention: Morgan F. Johnston, Vice President,
General Counsel and Secretary. Telephone requests may be directed to Mr.
Johnston at (972) 401-0752.
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RISK FACTORS
Information contained or incorporated by reference in this Prospectus may
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "expect," "intend," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The following matters and certain other factors noted
throughout this Prospectus constitute cautionary statements identifying
important factors with respect to any such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the following risk factors:
Substantial Leverage; Ability to Service Debt
The Company is highly leveraged, with outstanding long-term
indebtedness of approximately $186.5 million and stockholders' equity of $33.6
million as of May 31, 1997. The Company's level of indebtedness has several
important effects on its future operations, including (i) a substantial portion
of the Company's cash flow from operations is dedicated to the payment of
interest on its indebtedness and is not available for other purposes, (ii) the
covenants contained in the New Credit Facility (as defined) require the Company
to meet certain financial tests and limit the Company's ability to borrow
additional funds or to acquire or dispose of assets, and (iii) the Company's
ability to obtain additional financing in the future may be impaired.
Although the Company reported an operating profit for fiscal 1996, at
December 31, 1996 the Company had an accumulated deficit of $5.1 million due to
operating losses incurred in prior years. The Company's ability to meet its
financial covenants and to make scheduled payments of principal and interest to
repay its indebtedness is dependent upon its operating results and its ability
to obtain financing. However, there can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future bank
credit will be available in an amount sufficient to enable the Company to
service its indebtedness, or make necessary capital expenditures. In such event,
the Company would be required to obtain such financing from the sale of equity
securities or other debt financing. There can be no assurance that any such
financing will be available on terms acceptable to the Company. Should
sufficient capital not be available, the Company may not be able to continue to
implement its strategy.
The New Credit Facility limits the Company's borrowings to amounts
determined by the lenders, in their sole discretion, based upon a variety of
factors including the amount of indebtedness which can be adequately supported
by the value of oil and natural gas reserves and assets, contracts and
throughput attributable to the gas gathering systems and processing plant, and
assets owned by the Company (the "Borrowing Base"). As of May 31, 1997, the
Company had approximately $13.5 million borrowing availability under the
Borrowing Base of the New Credit Facility. If oil or natural gas prices decline
below their current levels, the availability of funds under the New Credit
Facility could be materially adversely affected.
The New Credit Facility also requires the Company to satisfy certain
financial ratios in the future. One covenant requires the Company to maintain a
ratio of the Company's funded indebtedness divided by the sum of funded
indebtedness plus equity (the "Debt to Capitalization Ratio") of not more than
0.86 from the closing of the New Credit Facility until March 31, 1998, not more
than 0.75 from April 1, 1998 until September 30, 1998, and not more than 0.70
thereafter. At May 31, 1997, the Company had a Debt to Capitalization Ratio of
0.846. Another covenant requires the Company to maintain a ratio of Consolidated
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EBITDA to Interest Expense (as defined in the New Credit Facility) of not less
than 2.00 to 1 through June 30, 1998, not less than 2.50 to 1 from July 1, 1998
until December 31, 1998 and not less than 2.75 to 1 thereafter. The Company had
a ratio of Consolidated EBITDA to Interest Expense of 2.22 to 1 as of May 31,
1997. The failure to satisfy these covenants or any of the other covenants in
the New Credit Facility would constitute an event of default thereunder and,
subject to certain grace periods, may permit the lenders to accelerate the
indebtedness then outstanding under the New Credit Facility and demand immediate
repayment thereof.
The agreement relating to the Company's 1996 Series A Convertible
Preferred Stock requires the Company to raise an aggregate of $15.0 million in
additional equity by December 31, 1997 or the Company will be required to redeem
333,333 shares of the 1996 Series A Convertible Preferred Stock on June 30 of
each of the years 2006, 2007 and 2008 for an aggregate purchase price of $10.0
million plus any accrued and unpaid dividends and interest thereon. Such a
mandatory redemption obligation of the Company could have negative implications
under the Company's credit arrangements and could negatively affect financial
covenants under future credit facilities and affect the Company's ability to
raise debt or equity capital in the future.
Volatility of Oil and Natural Gas Prices
The Company's revenues, profitability and the carrying value of its oil
and natural gas properties are substantially dependent upon prevailing prices
of, and demand for, oil and natural gas and the costs of acquiring, finding,
developing and producing reserves. The Company's ability to maintain or increase
its borrowing capacity, to repay outstanding indebtedness under any current or
future credit facility, and to obtain additional capital on attractive terms is
also substantially dependent upon oil and natural gas prices. Historically, the
markets for oil and natural gas have been volatile and are likely to continue to
be volatile in the future. Prices for oil and natural gas are subject to wide
fluctuations in response to: (i) relatively minor changes in the supply of, and
demand for, oil and natural gas; (ii) market uncertainty; and (iii) a variety of
additional factors, all of which are beyond the Company's control. These factors
include domestic and foreign political conditions, the price and availability of
domestic and imported oil and natural gas, the level of consumer and industrial
demand, weather, domestic and foreign government relations, the price and
availability of alternative fuels and overall economic conditions. The Company's
production is predominantly weighted toward natural gas, making earnings and
cash flow more sensitive to natural gas price fluctuations. For 1996, the
Company has estimated that a $0.10 per Mcf change in natural gas prices would
have resulted in a change of approximately $0.01 in earnings per share, and a
$1.00 per Bbl change in oil prices would have resulted in a change of
approximately $0.01 in earnings per share. On a pro forma basis for the Permian
Basin Acquisition (as defined) for 1996, the Company has estimated that a $0.10
per Mcf change in natural gas prices would have resulted in a change of
approximately $0.06 in earnings per share, and a $1.00 per Bbl change in oil
prices would have resulted in a change of approximately $0.05 in earnings per
share. Furthermore, the marketability of the Company's production depends in
part upon the availability, proximity and capacity of gathering systems,
pipelines and processing facilities. Volatility in oil and natural gas prices
could affect the Company's ability to market its production through such
systems, pipelines or facilities.
Under full cost accounting, the Company would be required to take a
non-cash charge against earnings to the extent capitalized costs of acquisition,
exploration and development (net of depletion and depreciation), less deferred
income taxes, exceed the SEC PV-10 of its proved reserves and the lower of cost
or fair value of unproved properties after income tax effects.
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Uncertainty of Estimates of Reserves and Future Net Cash Flows
Certain documents incorporated by reference into this Prospectus
contain estimates of the Company's oil and natural gas reserves and the future
net cash flows from those reserves, which have been prepared or audited by
certain independent petroleum consultants. There are numerous uncertainties
inherent in estimating quantities of proved reserves of oil and natural gas and
in projecting future rates of production and the timing of development
expenditures, including many factors beyond the Company's control. The estimates
in these documents are based on various assumptions, including, for example,
constant oil and natural gas prices, operating expenses, capital expenditures
and the availability of funds, and, therefore, are inherently imprecise
indications of future net cash flows. Actual future production, cash flows,
taxes, operating expenses, development expenditures and quantities of
recoverable oil and natural gas reserves may vary substantially from those
assumed in the estimates. Any significant variance in these assumptions could
materially affect the estimated quantity and value of reserves set forth in such
documents. Additionally, the Company's reserves may be subject to downward or
upward revision based upon actual production performance, results of future
development and exploration, prevailing oil and natural gas prices and other
factors, many of which are beyond the Company's control.
The SEC PV-10 of proved reserves referred to in such documents should
not be construed as the current market value of the estimated proved reserves of
oil and natural gas attributable to the Company's properties. In accordance with
applicable requirements of the Commission, the estimated discounted future net
cash flows from proved reserves are generally based on prices and costs as of
the date of the estimate, whereas actual future prices and costs may be
materially higher or lower. The calculation of the SEC PV-10 of the Company's
oil and natural gas reserves on a pro forma basis at December 31, 1996 is based
on average prices at December 31, 1996 of $24.18 per Bbl of oil and $4.05 per
Mcf of natural gas. These prices were higher than the market prices of $20.41
per Bbl of oil and $2.30 per Mcf of natural gas (with appropriate adjustments
for Btu content) at March 31, 1997 and are higher than historical prices used in
recent years to estimate the SEC PV-10 of the Company's reserves. These numbers
compare to the Company's pro forma average product prices of $20.15 per Bbl of
oil and $2.22 per Mcf of natural gas, which are based on the average of the
actual prices received at the respective properties during 1996. Actual future
net cash flows also will be affected by (i) the timing of both production and
related expenses; (ii) changes in consumption levels and (iii) governmental
regulations or taxation. In addition, the calculation of the present value of
the future net cash flows using a 10% discount as required by the Commission is
not necessarily the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the Company's reserves or the
oil and gas industry in general. Furthermore, the Company's reserves may be
subject to downward or upward revision based upon actual production, results of
future development, supply and demand for oil and natural gas, prevailing oil
and natural gas prices and other factors.
Finding and Acquiring Additional Reserves; Depletion
The Company's future success depends upon its ability to find or
acquire additional oil and natural gas reserves that are economically
recoverable. Except to the extent the Company conducts successful exploration,
exploitation or development activities or acquires properties containing proved
reserves, the proved reserves of the Company will generally decline as they are
produced. The decline rate varies depending upon reservoir characteristics and
other factors. The Company's future oil and natural gas reserves and production,
and, therefore, cash flow and income, are highly dependent upon the Company's
level of success in exploiting its current reserves and acquiring or finding
additional reserves. There can be no assurance that the Company's planned
development projects and acquisition activities will result in
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significant additional reserves or that the Company will have success drilling
productive wells at economic returns to replace its current and future
production.
Acquisition Risks
The Company has grown primarily through acquisitions and intends to
continue acquiring proved oil and natural gas properties. Although the Company
performs a review of the properties proposed to be acquired, such reviews are
subject to uncertainties. It generally is not feasible to review in detail every
individual property involved in an acquisition. Ordinarily, review efforts are
focused on the higher-valued properties. However, even a detailed review of all
properties and records may not reveal existing or potential problems; nor will
it permit the Company to become sufficiently familiar with the properties to
assess fully their deficiencies and capabilities. Inspections are not always
performed on every well, and potential problems, such as mechanical integrity of
equipment and environmental conditions that may require significant remedial
expenditures, are not necessarily observable even when an inspection is
undertaken.
The Company has recently begun to focus its acquisition efforts on
larger packages of oil and natural gas properties, such as the properties
involved in the Panoma and Permian Basin Acquisitions. The acquisition of larger
oil and gas properties may involve substantially higher costs and may pose
additional issues regarding operations and management. There can be no assurance
that oil and natural gas properties acquired by the Company will be successfully
integrated into the Company's operations or will achieve desired profitability
objectives.
Exploration and Development Risks; Waterflood Projects
The Company intends to increase its development and exploration
activities. Exploration drilling and, to a lesser extent, development drilling
of oil and natural gas reserves involve a high degree of risk that no commercial
production will be obtained and/or that production will be insufficient to
recover drilling and completion costs. The cost of drilling, completing and
operating wells is often uncertain. The Company's drilling operations may be
curtailed, delayed or canceled as a result of numerous factors, including title
problems, weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment. Furthermore, completion of a
well does not assure a profit on the investment or a recovery of drilling,
completion and operating costs.
There are certain risks associated with secondary recovery operations,
especially the use of waterflooding techniques, and drilling activities in
general. Part of the Company's inventory of development prospects consists of
waterflood projects. With respect to the Permian Basin Properties, the Company
has identified significant potential expenditures related to further developing
an existing waterflood. A proposed waterflood project in West Texas is estimated
to cost an aggregate of $38.1 million over a four-year period, which costs are
reflected in the Company's reserve reports. While the reserve report for the
Permian Basin Properties assumes approximately $6.6 million of development
expenditures in 1997 to enhance this waterflood, the Company is evaluating the
timing of these development expenditures relative to the Company's other capital
expenditure requirements. The Company has initially budgeted approximately $5.0
million for development expenditures on the Permian Basin Properties for 1997.
Waterflooding involves significant capital expenditures and uncertainty as to
the total amount of secondary reserves that can be recovered. In waterflood
operations, there is generally a delay between the initiation of water injection
into a formation containing hydrocarbons and any increase in production that may
result. The operating cost per unit of production of waterflood projects is
generally higher during the initial phases of such projects due to the purchase
of injection water and related costs, as well as during the later stages of the
life of the project
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as production declines. The degree of success, if any, of any secondary recovery
program depends on a large number of factors, including the porosity of the
formation, the technique used and the location of injector wells.
Operating Hazards and Uninsured Risks; Production Curtailments
The Company's oil and natural gas business involves a variety of
operating risks, including, but not limited to, unexpected formations or
pressures, uncontrollable flows of oil, gas, brine or well fluids into the
environment (including groundwater contamination), blowouts, fires, explosions,
pollution and other risks, any of which could result in personal injuries, loss
of life, damage to properties and substantial losses. Although the Company
carries insurance at levels which it believes are reasonable, it is not fully
insured against all risks. The Company does not carry business interruption
insurance. Losses and liabilities arising from uninsured or under-insured events
could have a material adverse effect on the financial condition and operations
of the Company.
From time to time, due primarily to contract terms, pipeline
interruptions or weather conditions, the producing wells in which the Company
owns an interest have been subject to production curtailments. The curtailments
range from production being partially restricted to wells being completely
shut-in. The duration of curtailments vary from a few days to several months. In
most cases the Company is provided only limited notice as to when production
will be curtailed and the duration of such curtailments. The Company is not
currently experiencing any material curtailment on its production.
Marketing Risks
For the year ended December 31, 1996, natural gas revenues comprised
approximately 62% of total oil and natural gas revenues on a historical basis
and approximately 58% on a pro forma basis. The types of natural gas contracts
under which production is sold vary, but generally can be grouped into three
categories: (i) life-of-well, (ii) long-term (one year or longer), and (iii)
short-term contracts. Short-term contracts are defined as contracts which may
have a primary term of less than one year, but which are cancelable at either
party's discretion in 30 to 120 days. Substantially all of the Company's natural
gas production is currently sold to gas marketing firms or end users either on
the spot market on a month-to-month basis at prevailing spot market prices or
under long-term contracts based on current spot market prices. For the year
ended December 31, 1996, one gas marketing company accounted for approximately
91% of the Company's natural gas revenues. The Company does not believe that any
discontinuation of its sales arrangement with such firm would be disruptive to
the Company's natural gas marketing operations.
Approximately 5% of the estimated natural gas reserves in the Permian
Basin Properties are served by a single gas gathering system operated by
Burlington Resources Oil and Gas Company, a Burlington affiliate. Burlington has
agreed, however, that it will deliver the natural gas at a sufficient pressure
to enter at least one third party gas transmission system and that it will only
impose any natural gas curtailments in the same proportion as its own natural
gas. The Company is not otherwise protected from increased gas gathering charges
that would make it uneconomic to continue production in times of low natural gas
prices.
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Hedging Risks
As of May 31, 1997, the Company had hedged approximately 16% of its oil
production and 17% of its natural gas production. These hedges have in the past
involved fixed price arrangements and other price arrangements at a variety of
prices, floors and caps. The Company is currently evaluating the use of hedges
on the oil and natural gas produced from the Permian Basin Properties. The
Company has in the past and may in the future enter into oil and natural gas
futures contracts, options and swaps. The Company's hedging activities, while
intended to reduce the Company's sensitivity to changes in market prices of oil
and natural gas, are subject to a number of risks including instances in which
the Company or the counterparties to its futures contracts could fail to
purchase the contracted quantities of oil or natural gas. Additionally, the
fixed price sales and hedging contracts limit the benefits the Company will
realize if actual prices rise above the contract prices.
Laws and Regulations
The Company's operations are affected by extensive regulation pursuant
to various federal, state and local laws and regulations relating to the
exploration for and development, production, gathering and marketing of oil and
natural gas. Matters subject to regulation include discharge permits for
drilling operations, drilling and abandonment bonds or other financial
responsibility requirements, reports concerning operations, the spacing of
wells, unitization and pooling of properties, and taxation. From time to time,
regulatory agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and natural gas wells below actual
production capacity in order to conserve supplies of oil and natural gas.
Operations of the Company are also subject to numerous environmental
laws, including but not limited to, those governing management of waste,
protection of water, air quality, the discharge of materials into the
environment, and preservation of natural resources. Non-compliance with
environmental laws and the discharge of oil, natural gas, or other materials
into the air, soil or water may give rise to liabilities to the government and
third parties, including civil and criminal penalties, and may require the
Company to incur costs to remedy the discharge. Laws and regulations protecting
the environment have become more stringent in recent years, and may in certain
circumstances impose retroactive, strict, and joint and several liability
rendering entities liable for environmental damage without regard to negligence
or fault. From time to time the Company has agreed to indemnify sellers of
producing properties from whom the Company has acquired reserves against certain
liabilities for environmental claims associated with such properties. There can
be no assurance that new laws or regulations, or modifications of or new
interpretations of existing laws and regulations, will not increase
substantially the cost of compliance or otherwise adversely affect the Company's
oil and natural gas operations and financial condition or that material
indemnity claims will not arise against the Company with respect to properties
acquired by the Company. While the Company does not anticipate incurring
material costs in connection with environmental compliance and remediation, it
cannot guarantee that material costs will not be incurred.
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Competition
The Company encounters substantial competition in acquiring properties,
marketing oil and natural gas, securing trained personnel and operating its
properties. Many competitors have financial and other resources that
substantially exceed those of the Company. The Company's competitors in
acquisitions, development, exploration and production include major oil
companies, numerous independents, individual proprietors and others. Therefore,
competitors may be able to pay more for desirable leases and to evaluate, bid
for and purchase a greater number of properties or prospects than the financial
or personnel resources of the Company will permit.
Dependence Upon Key Personnel
The Company is substantially dependent upon three key individuals
within its management, Gary C. Evans, Matthew C. Lutz and Richard R. Frazier,
all of whom were executives of Hunter Resources, Inc. prior to the Magnum Hunter
Combination (as defined). The loss of the services of any one of these
individuals could have a material adverse impact upon the Company.
Shares Eligible for Future Sale; Absence of Dividends
The Company is authorized to issue up to 50,000,000 shares of Common
Stock. As of March 31, 1997, 13,608,098 shares were issued and outstanding, and
4,062,330 shares were reserved for issuance upon the conversion of shares of the
Company's 1996 Series A Convertible Preferred Stock and upon the exercise of
certain outstanding warrants and options. The issuance of additional shares of
Common Stock pursuant to such conversion rights and outstanding warrants and
options would reduce the proportionate ownership and voting rights of the Common
Stock then outstanding. The Company's existing management or their affiliates
own 2,741,801 shares of Common Stock that may in the future be sold in
compliance with Rule 144 adopted under the Securities Act. Moreover, the
agreement relating to the Company's 1996 Series A Convertible Preferred Stock
requires the Company to raise an aggregate of $15 million in additional equity
by December 31, 1997, or the Company will be required to redeem 333,333 shares
of the Company's 1996 Series A Convertible Preferred Stock on June 30 of each of
the years 2006, 2007 and 2008. In addition, the New Credit Facility contains a
Debt to Capitalization Ratio covenant requiring the Company to reduce such ratio
from approximately 0.84 on a pro forma basis at December 31, 1996 to 0.75 by
March 31, 1998 and 0.70 by September 30, 1998. As a result, the Company is
currently evaluating the possibility of undertaking an equity-related financing,
among other alternatives, prior to such dates to reduce its overall indebtedness
subsequent to the Permian Basin Acquisition. The possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing and future market prices for the Common Stock and could impair the
Company's ability to raise capital through the sale of its equity securities in
the future.
The Company has not previously paid any cash dividends on the Common
Stock and does not anticipate paying dividends on the Common Stock in the
foreseeable future. It is the present intention of management to utilize all
available funds for the development of the Company's business. In addition, the
Company is not permitted to pay any dividends on the Common Stock unless and
until all dividend rights on outstanding Preferred Stock have been satisfied.
The New Credit Facility restricts the payment of cash dividends.
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<PAGE>
Preferred Stock; Anti-takeover Provisions
The Common Stock is subordinate to all outstanding classes of Preferred
Stock of the Company in the payment of dividends and other distributions made
with respect to the stock, including distributions upon liquidation or
dissolution of the Company. The Board of Directors of the Company is authorized
to issue up to 10,000,000 shares of Preferred Stock without first obtaining
stockholder approval except in limited circumstances. The Company has previously
issued several series of Preferred Stock, although only the Series A Preferred
Stock and the 1996 Series A Convertible Preferred Stock are currently
outstanding. The holders of the Company's 1996 Series A Convertible Preferred
Stock currently have the right to appoint one additional member to the Board of
Directors and upon certain circumstances, up to 75% of the Board. The
designation and issuance of other series of Preferred Stock will create
additional securities that will have dividend and liquidation preferences over
the Common Stock or, in the case of convertible preferred stock, may have the
effect of diluting the current stockholders' interest in the Company upon
conversion.
The Company's Articles of Incorporation and Bylaws include certain
provisions that may have the effect of encouraging persons considering
unsolicited tender offers or other unilateral takeover proposals to negotiate
with the Board of Directors rather than pursue non-negotiated takeover attempts.
These provisions include authorized "blank check" Preferred Stock, and the
availability of authorized but unissued Common Stock. The issuance of Preferred
Stock may have the effect of delaying or preventing a change in control of the
Company without further stockholder action and may adversely affect the rights
and powers, including voting rights, of the holders of Common Stock. In certain
circumstances the issuance of Preferred Stock could depress the market price of
the Common Stock. In addition, a change of control covenant in the New Credit
Facility could have the effect of discouraging a takeover of the Company by
making such an attempt potentially more expensive.
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<PAGE>
THE COMPANY
Magnum Hunter Resources, Inc. is an independent energy company engaged
in the exploitation and development, acquisition, exploration and operation of
oil and natural gas properties with a focus on Texas, Oklahoma and New Mexico.
In December 1995, Magnum Petroleum, Inc. and Hunter Resources, Inc. ("Hunter")
combined their oil and natural gas reserves and other assets (the "Magnum Hunter
Combination"), whereby the management of Hunter assumed operating control of the
Company. The new management implemented a business strategy emphasizing
acquisitions of long-lived proved reserves with significant exploitation and
development opportunities where the Company generally can control operations of
the properties. As part of this strategy, in June 1996 the Company acquired from
a subsidiary of Burlington Resources, Inc. ("Burlington") property interests
located in the Texas Panhandle and western Oklahoma (the "Panoma Properties")
for $34.7 million. Additionally, in April 1997, the Company acquired from
Burlington property interests located in west Texas and southeast New Mexico
(the "Permian Basin Properties") for a net purchase price of $133.0 million.
While the Company is considering further acquisitions and, to a lesser extent,
plans to pursue selected exploratory drilling opportunities, the Company intends
to primarily focus its efforts on the substantial inventory of exploitation and
development opportunities arising from the acquisitions.
The Company is a holding company that operates through three primary
subsidiaries: (i) Gruy Petroleum Management Company, which conducts the
Company's operations; (ii) Magnum Hunter Production, Inc., which owns the
Company's oil and natural gas assets; and (iii) Hunter Gas Gathering, Inc.,
which owns the Company's gas gathering and processing facilities.
On a pro forma basis at December 31, 1996, the Company had an interest
in 2,581 wells and had estimated proved reserves of 314.2 Bcfe with an SEC PV-10
of $408.0 million. As adjusted to use market prices in effect on March 31, 1997,
the proved reserves were 300.5 Bcfe with an SEC PV-10 of $224.8 million on a pro
forma basis at December 31, 1996. Approximately 68% of these reserves were
classified as proved developed producing reserves and 86% were attributable to
both the Panoma Properties and the Permian Basin Properties. On a pro forma
basis at December 31, 1996, the Company's proved reserves had an estimated
reserve life of 14.6 years and were 61% natural gas. The Company serves as
operator for approximately 71% of its properties. Additionally, the Company owns
over 500 miles of gas gathering systems and a 50% interest in a gas processing
plant that is connected to the gas gathering system purchased with the Panoma
Properties. In 1996, on a pro forma basis, the Company had revenues of $63.6
million.
Beginning with the Magnum Hunter Combination in December 1995, the
Company has made nine acquisitions for an aggregate net purchase price of $185.4
million. This strategy has added approximately 305.6 Bcfe of reserves
(determined as of the respective times of their acquisition) at an average cost
of $0.61 per Mcfe, as well as a 427 mile gas gathering system and a 50% interest
in a gas processing plant.
RECENT DEVELOPMENTS
The Permian Basin Acquisition
On April 30, 1997, the Company acquired the Permian Basin Properties
from Burlington effective as of January 1, 1997 (the "Permian Basin
Acquisition"). The Permian Basin Properties consist of 47 field areas in west
Texas and southeast New Mexico. The net purchase price was $133.0 million after
adjustments of $10.5 million for estimated production cash flow from January 1,
1997 to the closing date and other minor adjustments. The Permian Basin
Properties include 1,852 producing oil and natural gas wells on approximately
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113,810 gross acres (82,175 net acres), which the Company believes have
significant additional exploitation, development and exploration opportunities.
Approximately 66% of the wells acquired are operated by the Company. Among other
opportunities, the Company has identified approximately 250 drilling locations,
including production and injection wells, to further develop an existing
waterflood in the Westbrook Field in Mitchell County, Texas. The proposed
waterflood project is estimated to cost approximately $38.1 million over a
four-year period.
According to Ryder Scott Co., independent petroleum engineers engaged
by the Company to evaluate the Permian Basin Properties, the proved reserves
attributable to the Permian Basin Properties as of December 31, 1996 aggregated
191.6 Bcfe with an SEC PV-10 of $243.3 million, including 60.4 Bcfe of proved
undeveloped reserves. At December 31, 1996, on a pro forma basis, the Permian
Basin Acquisition increased the Company's proved reserves to 314.2 Bcfe with an
SEC PV-10 of $408.0 million as compared to proved reserves of 122.6 Bcfe with an
SEC PV-10 of $164.8 on a historical basis at December 31, 1996. As adjusted to
use market prices in effect on March 31, 1997, the proved reserves attributable
to the Permian Basin Properties as of December 31, 1996 aggregated 181.6 Bcfe
with an SEC PV-10 of $139.6 million, including 60.3 Bcfe of proved undeveloped
reserves.
Recent Financings
The Company financed the acquisition of the Permian Basin Properties
with a new $130.0 million credit facility (the "New Credit Facility") and a
senior subordinated credit facility of $60.0 million (the "Term Loan Facility").
Borrowings of $119.5 million under the New Credit Facility and $60.0 million
under the Term Loan Facility were used to pay the $123.0 million balance of the
$133.0 million net purchase price for the Permian Basin Properties, to repay the
$53.7 million in outstanding indebtedness as of April 30, 1997 under the
Company's previous $100.0 million credit facility and to pay the costs
associated with the Permian Basin Acquisition and the related financings.
On May 28, 1997, the Company completed an offering of $140,000,000
aggregate principal amount of its 10% Senior Notes due 2007 (the "Notes").
Interest on the Notes will accrue from their date of original issuance and will
be payable semi-annually in arrears on June 1 and December 1 of each year,
commencing on December 1, 1997, at the rate of 10% per annum. The Notes will be
redeemable, in whole or in part, at the option of the Company on or after June
1, 2002, at the redemption prices set forth herein, plus accrued interest to the
date of redemption. The Notes will be general unsecured obligations of the
Company and will rank pari passu with any unsubordinated indebtedness of the
Company and will rank senior in right of payment to all subordinated obligations
of the Company. The net proceeds from the offering were approximately $135.5
million after deducting estimated fees and expenses of $4.5 million payable by
the Company. The Company utilized the net proceeds to repay the $60.0 million of
outstanding indebtedness under the Term Loan Facility and to reduce indebtedness
under the New Credit Facility by approximately $75.5 million. As of May 31,
1997, the Company had approximately $46.5 million of secured indebtedness
outstanding (excluding unused commitments of $13.5 million under the New Credit
Facility).
McLean Plant Acquisition
In January 1997, the Company acquired for $2.5 million a 50% ownership
interest in the McLean gas processing plant (the "McLean Gas Plant"), which
currently processes 100% of the natural gas produced from the Panoma Properties.
The Company receives 100% of the net profits from the McLean Gas Plant until it
recoups the $2.5 million purchase price, after which time it will receive 50% of
the net profits.
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SELLING STOCKHOLDERS
The following table provides certain information with respect to the
shares of Common Stock held by each Selling Stockholder.
<TABLE>
<S> <C> <C> <C>
Number of Number of
Shares of Common Number of Shares of
Stock Beneficially Shares of Common Common Stock
Owned Before the Stock Registered Beneficially Owned
Name Offering Hereunder After the Offering
- ---- -------- --------- ------------------
Frank Girardi 100,000 (1) 100,000(1) ---
The Research Works, Inc. 60,000(2) 60,000(2) ---
Barry Gross 68,800(3) 21,000(3) 47,800
William Jones 46,300 46,300 ---
-------- -------
Total 275,100 227,300 47,800
- ----------
</TABLE>
(1) Includes 100,000 shares of common stock underlying common stock
purchase warrants held by Mr. Girardi at an exercise price of $4.125 per share.
The warrants are currently exercisable.
(2) Includes 60,000 shares of common
stock underlying common stock purchase warrants held by The Research Works, Inc.
at an exercise price of $3.375 per share. 45,000 of the warrants are currently
exercisable.
(3) Includes 21,000 shares of common stock underlying common stock
purchase warrants held by Mr. Gross at an exercise price of $4.50 per share. The
warrants are currently exercisable.
PLAN OF DISTRIBUTION
The shares may be sold by the Selling Stockholders or by pledgees,
donees, transferees or other successors-in-interest. Such sales may be made in
the over-the-counter market, in privately negoiated transctions, or otherwise,
at prices and at terms then prevailing, at prices related to the then current
market prices or at negotiated prices. The shares may be sold by one or more of
the following methods: (a) a block trade in which the broker or dealer so
engaged will attempt to sell the shares as an agent but may position and resell
a portion of the block as principal in order to consummate the transaction; (b)
a purchase by a broker or dealer as principal. and the resale by such broker or
dealer for its account pursuant to this Prospectus, including resale to another
broker or dealer; (c) ordinary brokerage transactions and transacions in which
the broker solicits purchasers; or (d) an exchange distribution in accordance
with the rules of such exchange.
In effecting sales, brokers or dealers engaged by the Selling
Stockholder may arrange for other brokers or dealers to participate. Any such
brokers or dealers will receive commissions or discounts from a Selling
Stockholder in amounts to be negotiated immediately prior to the sale. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, as
amended. Any gain realized by such a broker or dealer on the sale of such shares
which it purchases as a principal may be deemed to be compensation to the broker
or dealer in addition to any commission paid to the broker by a Selling
Stockholder. The Company will not receive any portion of the proceeds of the
shares sold by the Selling Stockholders. There is no assurance that the Selling
Stockholders will sell any or all of the shares of Common Stock available under
such options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Common Stock
The Company is presently authorized to issue 50,000,000 shares of
Common Stock, par value $.002, of which 13,608,098 shares were issued and
outstanding at May 31, 1997. The holders of Common Stock are entitled to equal
dividends and distributions, per share, with respect to the Common Stock when,
as and if declared by the Board of Directors from funds legally available
therefor. No holder of any shares of Common Stock has a preemptive right to
subscribe for any securities of the Company nor are any shares of Common Stock
subject to redemption or convertible into other securities of the Company. Upon
liquidation, dissolution or winding up of the Company, and after payment of
creditors and preferred shareholders, if any, the assets will be divided
pro-rata on a share-for-share basis among the holders of the shares of Common
Stock. All shares of Common Stock now outstanding are fully paid, validly issued
and non-assessable. Holders of the Common Stock do not have cumulative voting
rights, so that holders of more than 50% of the combined shares voting for the
election of directors may elect all of the directors, if they choose to do so
and, in that event, the holders of the remaining shares will not be able to
elect any members to the Board of Directors. At May 31, 1997, there were
reserved for issuance (i) 1,182,676 shares of Common Stock issuable upon
exercise of various outstanding warrants; (ii) 1,177,527 shares of Common Stock
issuable upon exercise of options held by management; and (iii) 1,702,127 shares
of Common Stock issuable upon conversion of the TCW Preferred Stock (as
defined).
Preferred Stock
Under the Company's Articles of Incorporation, as amended, the Board of
Directors has the power, generally without further action by the holders of the
Common Stock, to designate the relative rights and preferences of the Preferred
Stock, par value $.001 (the "Preferred Stock") and issue the Preferred Stock in
one or more series as designated by the Board of Directors. The designation of
rights and preferences could include preferences as to liquidation, redemption
and conversion rights, voting rights, dividends or other preferences, any of
which may be dilutive of the interest of the holders of the Common Stock or
other series of Preferred Stock. The issuance of Preferred Stock may have the
effect of delaying or preventing a change in control of the Company without
further shareholder action and may adversely affect the rights and powers,
including voting rights, of the holders of Common Stock. In certain
circumstances, the issuance of Preferred Stock could depress the market price of
the Common Stock. The Board of Directors effects a designation of each series of
Preferred Stock by filing with the Nevada Secretary of State a Certificate of
Designation defining the rights and preferences of each such series. Documents
so filed are matters of public record and may be examined in accordance with
procedures of the Nevada Secretary of State, or copies thereof may be obtained
from the Company.
The Board of Directors designated a Series A Preferred Stock in May
1993 and subsequently issued 216,000 shares of such series, of which 80,000
shares are presently outstanding. The Board of Directors also previously
designated a Series B Preferred Stock and issued 248,500 shares of such series,
and a Series C Preferred Stock and issued 625,000 shares of such series. No
shares of either the Series B or Series C Preferred Stock are currently
outstanding. All the shares of Series B and Series C Preferred Stock have either
been converted into Common Stock or redeemed. The Board of Directors designated
a 1996 Series A Convertible Preferred Stock (the "TCW Preferred Stock") and
issued 1,000,000 shares of such series in December 1996.
See "--TCW Preferred Stock."
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<PAGE>
Series A Preferred Stock
There are presently 80,000 shares of Series A Preferred Stock
outstanding, which are entitled to an aggregate dividend in the total amount of
$7.50 per share, payable only from the allocation of 50% of the net operating
revenue received by the working interest owners in the West Dilley Prospect and
between 50% and 60% of the net operating revenue in excess of $500,000 received
by the working interest owners in the Hope Prospect. The Company owns 90% of the
working interest in such prospects. The dividend is cumulative to the extent
accrued but not paid. To date, no dividends have accrued or been paid on the
Series A Preferred Stock because the revenues generated from such prospect,
which are allocable to the working interests, have not exceeded the associated
costs, so no net operating revenue has yet been generated that could be
allocated to the payment of such dividends. The shares of Series A Preferred
Stock have a liquidation preference on the liquidation proceeds from the
Company's interest in the West Dilley Prospect and the Hope Prospect. The
Company has not yet paid and does not anticipate paying any dividends on the
Series A Preferred Stock because the wells located in the West Dilley Prospect
and the Hope Prospect from which the dividends are required to be paid are
plugged and abandoned. The Company has agreed with TCW to use its best efforts
to negotiate with the holders of the Series A Preferred Stock for the repurchase
of their shares by June 30, 1997.
TCW Preferred Stock
In December 1996, the Company issued 1,000,000 shares of its TCW
Preferred Stock in a private placement with Trust Company of the West, as
trustee, custodian or agent for certain institutional investors, TCW Asset
Management Company, as agent for certain institutional investors, TCW Debt and
Royalty Fund IVB and TCW Debt and Royalty Fund IVC (collectively, "TCW").
Holders of such shares are entitled to receive when, as and if declared by the
Board of Directors out of funds legally available for the purpose, cumulative
dividends at a quarterly rate of $.21875 per share, commencing December 31,
1996. Dividends on the TCW Preferred Stock cumulate from the date of original
issue of the TCW Preferred Stock, and accumulations of dividends bear interest
at 8.75% per annum. Such dividends are normally to be paid in cash, but the
holders of the TCW Preferred Stock can require the Company to pay accumulated
dividends in tradeable shares of Common Stock if dividends are not declared or
paid within certain time limitations. If the holders make such a demand, the
Company is obligated to file a "shelf" registration statement with respect to
such shares. The use of proceeds from the sale of the TCW Preferred Stock is
limited to development of proved undeveloped properties, working capital and/or
a reduction of any indebtedness outstanding under its credit facilities.
The shares are convertible into shares of Common Stock at a conversion
price of $5.875 per share (subject to various adjustments). Beginning in
December 1998, the Company has an option, if certain conditions are satisfied,
to exchange shares of the TCW Preferred Stock into convertible subordinated
debentures of equivalent value or into shares of Common Stock. In the event that
the Company has not received before December 31, 1997 at least $15 million of
net cash proceeds from the issuance and sale by the Company of Common Stock
which was not issued and outstanding at the time of the first issuance of the
TCW Preferred Stock, (i) the conversion price is reduced to the lower of $4.875
per share or that price which is 25% above certain trailing average prices for
the Common Stock and (ii) the Company is required to redeem 333,333 shares of
the TCW Preferred Stock on June 30 of each of the years 2006, 2007 and 2008. The
holders also have the right to require the Company to redeem all or any part of
the 1996 Series A Preferred Stock upon certain sales of all or substantially all
of the Company's assets or upon changes in control.
The holders of the TCW Preferred Stock are entitled, on all matters
submitted for a vote of the holders of shares of Common Stock, whether pursuant
to law or otherwise, to a number of votes per share of the TCW
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<PAGE>
Preferred Stock equal to the number of shares of Common Stock issuable upon
conversion of one share of the TCW Preferred Stock on the date of such vote, and
on all such matters such holders vote together as one class with the holders of
Common Stock and the holders of all other shares of stock entitled to vote with
the holders of Common Stock on such matters. The holders of the TCW Preferred
Stock have the right, as a class, to elect at least one member of the Board of
Directors of the Company. Upon certain special events, the holders of the TCW
Preferred Stock will have the right, voting separately from all other classes
and series, to elect a total of 75% of the directors of the Company either
through call of a special meeting of the shareholders of the Company or at the
annual meeting to elect directors. Such special events ("Voting Events") include
but are not limited to (i) failure by the Company to redeem the TCW Preferred
Stock when such redemption is required, (ii) certain events causing any debt or
security of the Company or any of its subsidiaries to become due prior to its
stated maturity or prior to its regularly scheduled payment (if, except for the
Company's senior bank or other credit facility, such debt exceeds $3 million;
and if the Company is given notice of the acceleration), (iii) bankruptcy of the
Company, (iv) dissolution of the Company and (v) breach by the Company of any
terms regarding the TCW Preferred Stock in the TCW Stock Purchase Agreement or
Certificate of Designation. If the average closing price of the Company's Common
Stock is below certain levels after January 1, 1999, the occurrence of a Voting
Event will give the holders of the TCW Preferred Stock the right, voting
separately from all other classes and series, to elect one additional director
of the Company every 60 days (or every 45 days, if the Board of Directors
increases above seven persons, excluding persons appointed by such holders)
until the Voting Event no longer remains outstanding.
So long as any TCW Preferred Stock is outstanding, the Company cannot,
without the affirmative vote of all of the holders of the outstanding shares of
TCW Preferred Stock, voting separately as a class, amend or repeal any provision
of the Articles of Incorporation which affect the dividend rate, liquidation
amount, liquidation preference, conversion price, dividend and liquidation
priority, voting rights, or mandatory redemption rights and terms of the TCW
Preferred Stock. Unless the vote or consent of the holders of a greater number
of shares is then required by law or as provided in the immediately preceding
sentence, and so long as any shares of the TCW Preferred Stock are outstanding,
the Company cannot, without the affirmative vote or consent of the holders of at
least 70% of the outstanding shares of TCW Preferred Stock, voting as a separate
class: (i) amend or repeal any provision of, or add any provision to, the
Company's Articles of Incorporation which affect the other rights, powers,
preferences or terms of the TCW Preferred Stock; (ii) consolidate or merge with
or into any other corporation where (1) the Company is not the surviving
corporation or (2) the Company issues to any person as consideration in respect
of such consolidation or merger any capital stock of the Company representing
50% or more of the Company's outstanding capital stock prior to such
consolidation or merger; (iii) sell, transfer or convey all or substantially all
of the assets of the Company, or dissolve or liquidate the Company; (iv)
reclassify any Common Stock into shares having any preference or priority as to
the payment of dividends or the distribution of assets superior to or on a
parity with any such preference or priority of the 1996 Series A Preferred
Stock; (v) declare or pay any divided, or make any distribution, or purchase,
redeem or otherwise acquire for value any capital stock or other interest in the
Company outstanding on or after first issuance of the 1996 Series A Preferred
Stock, or make any other distribution of its assets, to the holders of any stock
junior to the 1996 Series A Preferred Stock, unless (i) no Voting Events have
occurred and are continuing immediately prior to and after such distributions,
and (ii) all accumulated dividends with respect to the 1996 Series A Preferred
Stock have been paid in full immediately prior to such distribution; or (vi)
amend or otherwise modify in any material respect the Company's Development Plan
furnished pursuant to the Stock Purchase Agreement relating to the TCW Preferred
Stock.
Upon the request of at least 51% of the outstanding TCW Preferred Stock
and the Common Stock issuable upon conversion or redemption of the TCW Preferred
Stock and in payment of dividends on the TCW
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<PAGE>
Preferred Stock (collectively, the "Conversion Shares"), the Company has the
obligation to register the Conversion Shares under the Securities Act (subject
to certain limitations). The holders of the TCW Preferred Stock are entitled to
require two effective registration statements pursuant to their demand
registration rights. If the Company proposes to register any of its securities
under the Securities Act, the Company has the obligation (subject to certain
limitations and exceptions) to give written notice to the holders of outstanding
TCW Preferred Stock and Conversion Shares of its intention to do so. Upon the
written request of a holder or holders of any such TCW Preferred Stock and
Conversion Shares given within 30 days after receipt of any such notice, the
Company has an obligation to use its best efforts to cause all Conversion
Shares, the holders of which have requested registration thereof, to be
registered under the Securities Act. The Company has promised to indemnify (i)
the holders of common stock registered pursuant to the foregoing registration
rights provisions and (ii) the underwriters of such registered offerings for any
losses arising from any misstatement or omission in any offering materials
related to such registered offerings.
Pursuant to the provisions of the TCW Preferred Stock, the Company has
agreed (i) not to effect any public or private sale or distribution of its
equity securities, subject to certain exceptions and (ii) to cause each holder
of its privately-placed equity securities purchased from the Company at any time
after the date of the TCW Stock Purchase Agreement to agree not to effect any
public sale or distribution of any such securities, including a sale pursuant to
Rule 144 under the Securities Act (except as part of a permitted underwritten
registration). Currently, the conversion of the Notes into Common Stock and the
resale of such Notes and Common Stock is restricted by this provision. However,
the Company has obtained a waiver of this provision from TCW in connection with
this Offering.
Warrants
Public Warrants
In November 1993, the Company issued warrants in a public offering (the
"Warrants"). Each Warrant represents the right to purchase three shares of
Common Stock at an initial exercise price of $5.50 per share and is redeemable
at $0.02 per share. The exercise price and the number of shares issuable upon
exercise of the Warrants are subject to adjustment in certain events, including
the issuance of Common Stock as a dividend on shares of Common Stock,
subdivisions or combinations of the Common Stock or similar events. Except as
stated in the preceding sentence, the Warrants do not contain provisions
protecting against dilution resulting from the sale of additional shares of
Common Stock for less than the exercise price of the Warrants or the current
market price of the Company's securities.
The Warrants are exercisable until November 12, 1998. Holders of
Warrants may exercise their Warrants for the purchase of shares of Common Stock
only if a current prospectus relating to such shares is then in effect and only
if such shares are qualified for sale, or deemed to be exempt from
qualifications, under applicable state securities law. The Company will use its
best efforts to maintain a current prospectus relating to such shares of Common
Stock at all times when the market price of the Common Stock exceeds the
exercise price of the Warrants until the expiration date of the Warrants,
although there can be no assurance that the Company will be able to do so.
Regardless of whether a current prospectus was in effect or not, the outstanding
Warrants have been redeemable, in whole or in part, at the option of the
Company, upon not fewer than 30 days notice, at a redemption price equal to
$0.02 per Warrant since November 12, 1995. The Company may therefore consider in
the future calling the Warrants for redemption since the Warrants are presently
exercisable for Common Stock, assuming a current prospectus is in effect, at an
exercise price of $5.50 per share. In the event the Company calls for the
redemption of the Warrants at a time when a current prospectus is not in effect
(which
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<PAGE>
the Company does not expect to do), Warrant Holders would have no opportunity to
exercise their Warrants, and would be compelled to accept the redemption price
of $0.02 per Warrant. If the Company should call for the redemption of the
Warrants when a current prospectus is in effect, Warrant Holders will have a
minimum of 30 days in which to decide whether to exercise their Warrants, after
which they will have to accept the redemption price.
Holders of Warrants will be entitled to notice in the event of (a) the
granting by the Company to all Holders of its Common Stock of rights to purchase
any share of capital stock or any other rights or (b) any reclassification of
the Common Stock, any consolidation of the Company with, or merger of the
Company into any other person or merger of any other person into the Company
(other than a merger that does not result in any reclassification, conversion,
exchange or cancellation of any outstanding shares of Common Stock), or any sale
or transfer of all or substantially all of the assets of the Company.
The Company has reserved from its authorized but unissued shares a
sufficient number of shares of Common Stock for issuance upon exercise of the
Warrants. During the period in which a Warrant is exercisable, exercise of such
Warrant may be effected by delivery of the Warrant, duly endorsed for exercise
and accompanied by payment of the exercise price and any applicable taxes or
governmental charges, to the Warrant Agent. The shares of Common Stock issuable
on exercise of the Warrant will be, when issued in accordance with the Warrants,
fully paid and non-assessable.
For the life of the Warrants, the Holders thereof have the opportunity
to profit from a rise in the market for the Company's Common Stock, with a
resulting dilution in the interest of all other shareholders. So long as the
Warrants are outstanding, the terms on which the Company could obtain additional
capital may be adversely affected. The Holders of such Warrants might be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital by a new offering of securities on terms
more favorable than those provided for by such Warrants.
Except as described above, the Holders of the Warrants have no rights
as shareholders of the Company until they exercise their Warrants.
Miscellaneous Outstanding Warrants
In October 1995, as part of a property acquisition, the Company granted
Whitestone Industries, Inc. warrants to purchase (i) 25,000 shares of Common
Stock for $4.50 per share, and (ii) 25,000 shares of Common Stock for $4.00 per
share. These warrants expire on October 16, 1997 and are subject to adjustment
upon certain reclassifications of the shares of Common Stock underlying the
warrants.
Between December 1995 and January 1997, the Company issued warrants
exercisable for an aggregate of 203,500 shares of Common Stock at exercise
prices ranging from $3.00 to $4.50 per share. These warrants, which expire
between June 1997 and January 1999, were issued in exchange for certain services
rendered. With respect to one such issuance of these warrants, which are
exercisable through June 30, 1997 for 100,000 shares of Common Stock, the
Company has agreed that if the price of the Common Stock is at least $4.125 for
ten consecutive days during the period from September 1996 to June 30, 1997, the
Company will use its best efforts to file a registration statement with the
Commission covering such warrants and the underlying Common Stock prior to June
30, 1997, and to cause the registration statement to be declared effective. If
the Company has filed such a registration statement before June 30, 1997 but it
has not been declared effective by that date, the exercise
19
<PAGE>
period will automatically be extended to 30 days after the effective date (but
in no event later than June 30, 1998).
In October 1996, the Company granted American Founders Life Insurance
Company warrants to purchase 75,000 shares of Common Stock for prices ranging
from $5.18 to $6.13 per share (25,000 at $5.18, 25,000 at $5.65 and 25,000 at
$6.13) as part of a production payment financing. These warrants expire between
October 31, 1999 and October 31, 2001, depending upon the balance of a certain
investment. The warrants are subject to adjustment upon certain
reclassifications of the shares of Common Stock underlying the warrants.
Registration Rights
Certain holders of the Company's securities have been granted
registration rights for their Common Stock. These include (i) certain piggyback
and demand registration rights held by the holders of the TCW Preferred Stock,
(ii) registration rights held by holders of warrants issued on December 19, 1993
pursuant to the Company's initial public offering, (iii) piggyback registration
rights on shares received upon exercising a warrant issued to Research Works,
Inc. on January 16, 1996 and (iv) demand registration rights held by holders of
warrants exercisable through June 30, 1997, provided that the price of the
Common Stock is at least $4.125 for 10 consecutive trading days during the
period from September, 1996 to June 30, 1997.
Transfer Agent
Securities Transfer Corporation of Dallas, Texas is the transfer agent
and registrar for the Common Stock and the Warrants.
Indemnification
The General Corporation Law of Nevada permits provisions in the
articles, by-laws or resolutions approved by shareholders which limit liability
of directors for breach of fiduciary duty of certain specified circumstances.
The Articles of Incorporation, with certain exceptions, eliminate any personal
liability of a director to the Company or its shareholders for monetary damages
for the breach of a director's fiduciary duty, and therefore a director cannot
be held liable for damages to the Company or its shareholders for gross
negligence or lack of due care in carrying out his fiduciary duties as a
director. Nevada law permits indemnification if a director or officer acts in
good faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation. A director or officer must be indemnified as to
any matter in which he successfully defends himself. Indemnification is
prohibited as to any matter in which the director or officer is adjudged liable
to the corporation. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Company pursuant to the foregoing provisions or otherwise, the Company
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.
20
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the Shares
offered hereby will be passed upon for the Company by Morgan F. Johnston,
Vice-President, General Counsel and Secretary to the Company.
INDEPENDENT ACCOUNTANTS
The financial statements incorporated in this Prospectus by reference from
the the Company's Annual Report on Form 10-K for the year ended December 31,
1996 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The audited financial statements of the Company as of December 31, 1995
and for the year then ended, incorporated by reference in this Prospectus, have
been so incorporated in reliance on the report of Hein + Associates LLP,
independent certified public accountants, given on the authority of said firm as
experts in auditing and accounting. The change in accountants from Hein +
Associates LLP to Deloitte & Touche LLP was effective for fiscal 1996 and was
not due to any disagreements between the Company and Hein + Associates LLP.
The audit of the historical summaries of revenues and direct operating
expenses of the Permian Basin properties for the years ended December 31, 1996
and 1995 have been audited by Hein + Associates LLP, independent certified
public accountants, as stated in their report which is included and incorporated
by reference herein.
EXPERTS
The reference to the report of Gaffney, Cline & Associates Inc.,
independent petroleum consultants, incorporated by reference in this Prospectus,
have been so incorporated in reliance on the report of Gaffney, Cline &
Associates, Inc. estimating the proved reserves, future net cash flows from such
proved reserves and the SEC PV-10 of such estimated future net cash flows for
the Company's properties (other than certain west Texas properties) as of
December 31, 1996 and is made in reliance upon the authority of such firm as
experts with respect to such matters.
The reference to the report of Glenn Harrison Petroleum Consultants,
Inc., independent petroleum consultants, incorporated by reference in this
Prospectus, have been so incorporated in reliance on the report of Glenn
Harrison Petroleum Consultants, Inc., estimating the Company's proved reserves,
future net cash flows from such proved reserves and the SEC PV-10 of such
estimated future net cash flows for certain west Texas properties as of December
31, 1996 and is made in reliance upon the authority of such firm as experts with
respect to such matters.
The reference to the reports of James J. Weisman, Jr., an independent
petroleum engineer, incorporated by reference in this Prospectus, have been so
incorporated in reliance on the report of James J. Weisman, auditing the
Company's estimates of its proved reserves, the estimated future net cash flows
from such proved reserves, and the SEC PV-10 of such estimated future net cash
flows as of December 31, 1995 and is made in reliance upon the authority of such
individual as an expert with respect to such matters.
21
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
22
<PAGE>
No dealer, salesman or any other person has been
authorized to give any information or to make any
representation other than those contained in this
Prospectus in connection with the offering herein
contained, and if given or made, such information
or representation must not be relied upon as
having been authorized by the Company. This PROSPECTUS
Prospectus does not constitute an offer to sell
any security other than the registered securities
to which it relates,or an offer to or solicitation
of any person in any jurisdiction in which such
offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstance, create an
implication that there has been no change in the
facts herein set forth since the date hereof.
-----------------------------------
TABLE OF CONTENTS
Page
Available Information 2
Incorporation of Certain 2
Information by Reference
Risk Factors 4 MAGNUM HUNTER RESOURCES,
The Company 12 INC.
Recent Developments 12
Selling Stockholders 14 227,300
Plan of Distribution 14
Description of Capital Stock 15 COMMON STOCK
Legal Matters 21
Independent Accountants 21
Experts 21
Disclosure of Commission Position 22
On Indemnification for
Securities Act Liabilities
- ---------------------------------------
July , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses Of Issuance and Distribution
The following table sets forth the estimated expenses, in connection
with the offering described in this Registration Statement.
Total
SEC Filing Fee $ 417.58
Accounting Fees and Expenses $ 5,000.00
Legal Fees and Expenses $ 5,000.00
Miscellaneous $ 3,000.00
Total $ 13,417.58
ITEM 15. Indemnification of Directors and Officers.
The statutes, charter provisions, bylaws, contracts or other
arrangements under which controlling persons, directors or officers of the
registrant are insured or indemnified in any manner against any liability which
they may incur in such capacity are as follows:
(a) Section 78.751 of the Nevada Business Corporation Act provides that each
corporation shall have the following powers:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made party to any threatened, pending or completed actions,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorney's fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had proceeding, he had reasonable cause to believe that his
conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorney's fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom,
<PAGE>
to be liable to the corporation or for amount paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction, determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in the defense
of any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorney's fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. That
determination must be made:
(a) By the shareholders;
(b) By the board of directors by majority vote or a quorum
consisting of directors who were not parties to the act,
suit or proceedings;
(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by
independent legal counsel, in a written opinion; or
(d) If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by independent
legal counsel in a written opinion.
5. The certificate or articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do not affect
any rights to advancement of expenses to which corporate personnel other than
director of officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation of any bylaw, agreement, vote
of shareholders or disinterested directors or otherwise, for either an
action in his official capacity or an action in another capacity while
holding his office, except that indemnification, unless ordered by a
court pursuant to subsection 2 or for the advancement of expenses made
pursuant to subsection 5, may not be made to or on behalf of any
director or officer if a final adjudication establishes that his acts
or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
(b) The registrant's Articles of Incorporation limit liability of its Officers
and Directors to the full extent permitted by the Nevada Business Corporation
Act.
<PAGE>
ITEM 16.
<TABLE>
<S> <C> <C>
Exhibits Index
Sequential
Page Number
Exhibit No. Document Or Location
4.1 Articles of Incorporation *
4.2 Articles of Amendment **
4.3 Articles of Amendment **
4.4 Articles of Amendment
4.5 Certificate of Designations for ****
1996 Series A Convertible Preferred Stock
4.6 Amendment to Certificate of Designations for
1996 Series A Convertible Preferred Stock
4.7 By-Laws, as Amended ***
5.1 Opinion of counsel
23.1 Consent of Deloitte & Touche LLP as
Accountants
23.2 Consent of Hein + Associates LLP as
Accountants
23.3 Consent of counsel (contained in the opinion filed as Exhibit 5.1)
24.1 Power of attorney (included on the signature page of this
Registration Statement)
* Incorporated by reference to Registration Statement on Form S-18, File No. 33-30298-D.
** Incorporated by reference to Form 10-K for the year ended December 31, 1990.
*** Incorporated by reference to Registration Statement on Form SB-2, File No. 33-66190.
**** Incorporated by reference to Form 8-K dated December 23, 1996.
</TABLE>
ITEM 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933; (ii) To reflect in the prospectus
any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
<PAGE>
(4) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(5) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe its meets all of
the requirements for filing Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irving, State of Texas on June 30, 1997.
MAGNUM HUNTER RESOURCES, INC.
By: /s/ Gary C. Evans
- -------------------------------
Gary C. Evans, President, CEO
POWER OF ATTORNEY
The Company and each person who signature appears below hereby
designates and appoints Gary C. Evans and David S. Krueger, and each of them, as
its or his attorneys-in-fact (the "Attorneys-in-Fact") with full power to act
alone, and to execute in the name of and on behalf of the Company and each
person, individually in each capacity stated below, any additional amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as either
Attorney-in-Fact deems appropriate, and to file each such amendment to this
Registration Statement together with all exhibits thereto and any and all
documents in connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Gary C. Evans President, Chief Executive June 30, 1997
- ------------------------- Officer, Chief Financial
Gary C. Evans Officer and Director
/s/ Matthew C. Lutz Chairman and Executive June 30, 1997
- ------------------------- Vice President of Exploration
Matthew C. Lutz and Business Development
/s/ David S. Krueger Vice President and June 30, 1997
- -------------------------- Chief Accounting Officer
David S. Krueger
/s/ Gerald W. Bolfing Director June 30, 1997
- --------------------------
Gerald W. Bolfing
/s/ Oscar C. Lindemann Director June 30, 1997
- --------------------------
Oscar C. Lindemann
/s/ John W. Trescot, Jr. Director June 30, 1997
- --------------------------
John W. Trescot, Jr.
/s/ James E. Upfield Director June 30, 1997
- --------------------------
James E. Upfield
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
<S> <C> <C>
Sequential
Page Number
Exhibit No. Document Or Location
4.4 Articles of Amendment 32
4.6 Amendment to Certificate of Designations for
1996 Series A Convertible Preferred Stock 34
5.1 Opinion of Morgan F. Johnston, Esq. regarding
legality (including consent) 39
23.1 Consent of Deloitte & Touche LLP as
Accountants 41
23.2 Consent of Hein + Associates LLP as
Accountants 42
23.3 Consent of Morgan F. Johnston, Esq. (contained in his
opinion filed as Exhibit 5.1).
</TABLE>
EXHIBIT 4.4
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION OF
MAGNUM PETROLEUM, INC.
Pursuant to the applicable provisions of the Nevada Business Corporations Act,
Magnum Petroleum, Inc. (the "Corporation") adopts the following Articles of
Amendment to its Articles of Incorporation by stating the following:
First: The present name of the Corporation is Magnum Petroleum, Inc.
Second: That the Board of Directors of said Corporation at a meeting duly
convened and held on the 20th day of February, 1997, adopted a resolution to
amend the articles as follows:
Article I is hereby amended to read as follows:
ARTICLE I - CORPORATE NAME
The name of the corporation (hereinafter called the "Corporation") is Magnum
Hunter Resources, Inc.
Third: The number of shares of the Corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation are 13,708,327, that the
said change and amendment has been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
Dated: March 11, 1997.
MAGNUM PETROLEUM, INC.
/s/ Matthew C. Lutz
By:____________________________________
Matthew C. Lutz, Vice-Chairman and
Vice-President of Exploration and Development
/s/ Morgan F. Johnston
By:_____________________________________
Morgan F. Johnston, Secretary
<PAGE>
COUNTY OF DALLAS ss.
ss.
STATE OF TEXAS ss.
Before me, the undersigned authority, personally appeared Matthew C. Lutz, known
to me to be the identical person who signed the name of the maker thereof to the
within and foregoing instrument as Vice President of Exploration and Development
of Magnum Petroleum, Inc. and that he acknowledged to me that he executed the
same as his free and voluntary act and deed and as the free and voluntary act
and deed of said corporation, for the uses and purposes therein expressed.
Subscribed and sworn to before me on this 11th day of March, 1997.
MY COMMISSION EXPIRES: NOTARY PUBLIC
3-9-97 /s/ Brenda M. Yerian
- --------------------------- -----------------------------
(SEAL) Brenda M. Yerian
COUNTY OF DALLAS ss.
ss.
STATE OF TEXAS ss.
Before me, the undersigned authority, personally appeared Morgan F. Johnston
known to me to be the identical person who signed the name of the maker thereof
to the within and foregoing instrument as Secretary of Magnum Petroleum, Inc.
and that he acknowledged to me that he executed the same as his free and
voluntary act and deed and as the free and voluntary act and deed of said
corporation, for the uses and purposes therein expressed.
Subscribed and sworn to before me on this 11th day of March, 1997.
MY COMMISSION EXPIRES: NOTARY PUBLIC
3-9-97 /s/ Brenda M. Yerian
- --------------------------- ----------------------------
(SEAL) Brenda M. Yerian
EXHIBIT 4.6
EXECUTION ORIGINAL
FIRST AMENDMENT OF CERTIFICATE OF VOTING POWERS,
DESIGNATIONS, PREFERENCES, AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF
1996 SERIES A CONVERTIBLE PREFERRED STOCK
We, Gary C. Evans, President and Chief Executive Officer, and Morgan
Johnston, Secretary, of Magnum Hunter Resources, Inc., formerly known as Magnum
Petroleum, Inc. (the "Company"), a corporation organized and existing under the
General Corporation Law of the State of Nevada, in accordance with the
provisions of Section 78.195 of the Nevada Revised Statutes thereof, DO HEREBY
CERTIFY:
WHEREAS, the Company executed that certain Certificate of Voting
Powers, Designations, Preferences, and Relative, Participating, Optional or
Other Special Rights of Series A Convertible Preferred Stock dated as of
December 6, 1996 (the "Certificate of Designations");
WHEREAS, the Company issued one million (1,000,000) shares of preferred
stock designated as 1996 Series A Convertible Preferred Stock pursuant to the
Certificate of Designations;
WHEREAS, pursuant to the authority conferred upon the Board of
Directors by the Articles of Incorporation, as amended, of the Company, such
Board of Directors, at a meeting of the Board of Directors held pursuant to the
General Corporation Law of the State of Nevada, duly adopted a resolution
providing for the amendment of the Certificate of Designations (this
"Amendment"); and
WHEREAS, the Company has received the consent of at least seventy
percent (70%) of the holders of the 1996 Series A Convertible Preferred Stock to
execute this Amendment.
NOW THEREFORE, the Company does hereby amend the Certificate of
Designations as follows:
1. The clause (iv) (a) of definition of "Additional Shares of
Nonpreferred Stock" heretofore providing "(a) in one or more underwritten public
offerings after the Closing Date and on or before June 30, 1997 at a price per
share less than the Conversion Price but not less than $4.00 and/or"' shall be
amended to read as follows:
(a) in one or more underwritten public offerings after the Closing Date and
on or before December31, 1997 at a price per share less than the Conversion
Price but not less than $4 40 and/or
<PAGE>
2. Section 4.1 of the Certificate of Designations shall be amended by
deleting the first sentence thereof and replacing it with the following:
In the event that the Company has not received before December 31, 1997
net cash proceeds from the issuance and sale by the Company of Common
Stock which (a) was not issued and outstanding on the Closing Date and
(b) shall be issued and sold for cash consideration received by the
Company including without limitation pursuant to the exercise of the
IPO Warrants at a price of $5.50 per share or more but otherwise not
upon the conversion of any debt, equity or other securities of the
Company in an amount equal to or more than $15,000,000, the Company
shall redeem annually on each of June 30, 2006, June 30, 2007 and June
30, 2008, 333,333 shares of the 1996 Seri es A Preferred Stock.
3. Section 8.6 of the Certificate of Designations shall be amended by
deleting it in its entirety and replacing it following:
8.6 Adjustment to Conversion Price on December 31, 1997. In
the event that the Company has not received on or before December 31,
1997 at least 315,000,000 of net cash proceeds from the issuance and
sale by the Company of common Stock which (a) was not issued and
outstanding on the Closing Date and (b) shall be issued and sold for
cash consideration received by the Company including without limitation
pursuant to the exercise of the IPO Warrants at a price of $5.50 per
share or more but otherwise not upon the conversion of any debt, equity
or other securities of the Company, the Conversion Price in effect on
December 31, 1997 shall be reduced to the lower of (i) $4.875 (as
reduced or increased, for stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or the like), or
(ii) 125% of the lower of, as calculated on December 31, 1997, (A) the
10-Day Average Price or (B) the 60-Day Average Price.
4. Section 8.7 of the Certificate of Designations shall be amended by
deleting it in its entirety and replacing it with the following:
.
<PAGE>
8.7 Adjustment to Conversion Price on January 1. 1998. In the
event that the mean average price per share (the "1/1/98 Average
Price") received by the company upon the issuance of Common Stock in
connection with the public offerings described in clause (iv) of the
definition of "Additional Shares of Nonpreferred Stock" shall be less
than $4.70 (as reduced or increased, for stock dividends, split-up,
mergers, recapitalizations, combinations, exchanges of shares or the
like), then the Conversion Price in effect on January 1, 1998 shall be
reduced (but not increased) to an amount equal to the product of the
percentage set forth in the column entitled "Applicable Percentage"
below opposite the applicable 1/l/98 Average Price multiplied by the
1/1/98 Average Price.
1/1/98 Average Price: Applicable Percentage:
$4.6999 to $4.60 125%
$4.5999 to $4.50 124%
$4.4999 to $4.40 123%
Below $4.40 122%
5. The Certificate of Designation shall remain in full force and effect
as amended hereby and the Company hereby ratifies and affirms the Certificate of
Designations as so amended.
<PAGE>
IN WITNESS WHEREOF, MAGNUM HUNTER RESOURCES, INC. has caused its corporate
seal to be hereunto affixed and this Amendment to be signed by Gary C. Evans,
its President and Morgan Johnston, its Secretary, this 30th day of April, 1997.
/s/ Gary C. Evans
By:______________________
Gary C. Evans
President and Chief Executive Officer
/s/ Morgan F. Johnston
By:_______________________
Morgan Johnston
Secretary
<PAGE>
COUNTY OF DALLAS )
)
STATE OF TEXAS )
Before me, the undersigned authority, personally appeared GARY C. EVANS, known
to me to be the identical person who signed the name of the maker thereof to the
within and foregoing instrument as President and Chief Executive Officer of
Magnum Hunter Resources, Inc. and that he acknowledged to me that he executed
the same as his free and voluntary act and deed and as the free and voluntary
act and deed of said corporation, for the uses and purposes therein expressed.
Subscribed and sworn to before me on this 30th day of April. 1997.
MY COMMISSION EXPIRES: NOTARY PUBLIC
BRENDA M. YERIAN
NOTARY PUBLIC /s/ Brenda M. Yerian
STATE OF TEXAS __________________________________
My Comm. Exp. 3-9-99 In and for the State of Texas
EXHIBIT 5.1
Magnum Hunter Resources, Inc. 600 East Las Colin as Blvd. o Suite 1200 o
Irving, TX 75039 o (214) 401-0752 o Fax (214) 401-3110 Mailing Address: P.O. Box
140908 o Irving, TX 75014-0908 An American Stock Exchange Company
June 30, 1997
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas, 75039
Re: S-3 Registration Statement
Gentlemen:
At your request, I have examined the form of Registration
Statement, No.333-____, which you have filed on June 30, 1997 with the
Securities and Exchange Commission, on Form S-3 (the "Registration Statement"),
in connection with the registration under the Securities Act of 1933, as
amended, of an aggregate of 227,300 shares of your Common Stock (the "Stock") to
be sold by certain selling securityholders.
In rendering the following opinion, I have examined and relied
only upon the documents, and certificates of officers and directors of the
Company as are specifically described below. In my examination, I have assumed
the genuineness of all signatures, the authenticity, accuracy and completeness
of the documents submitted to me as originals, and the conformity with the
original documents of all documents submitted to me as copies. My examination
was limited to the following documents and no others:
1. Certificate of Incorporation of the Company, as amended to date;
2. Bylaws of the Company, as amended to date;
3. Certified Resolutions adopted by the Board of Directors of the Company
authorizing the original issuances of the Stock; and
4. The Registration Statement.
I have not undertaken, nor do I intend to undertake, any independent
investigation beyond such documents and records, or to verify the adequacy of
accuracy of such documents and records.
Based on the foregoing, it is my opinion that the Stock to be sold under
the Registration Statement by the selling securityholders, subject to
effectiveness of the Registration Statement and compliance with applicable blue
sky laws, when sold, will by duly and validly authorized, fully paid and
non-assessable.
I consent to the filing of this opinion as an exhibit to any filing made
with the Securities and Exchange Commission or under any state or other
jurisdiction's securities act for the purpose of registering,
<PAGE>
qualifying or establishing eligibility for an exemption from registration or
qualification of the Stock described in the Registration Statement in connection
with the offering described therein. Other than as provided in the preceding
sentence, this opinion (i) is addressed solely to you, (ii) covers only matters
of Nevada and federal law and nothing in this opinion shall be deemed to imply
any opinion related to the laws of any other jurisdiction, (iii) may not be
quoted or reproduced or delivered by you to any other person, and (iv) may not
be relied upon for any other purpose whatsoever. Nothing herein shall be deemed
to relate to or constitute an opinion concerning any matters not specifically
set forth above.
The information set forth herein is as of the date of this letter. I
disclaim any undertaking to advise you of changes which may be brought to my
attention after the effective date of the Registration Statement.
Very truly yours,
/s/ Morgan F. Johnston
- -------------------------
Morgan F. Johnston
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement
of Magnum Hunter Resources, Inc. on Form S-3 of our reports dated March 14,
1997, (April 30, 1997 as to Note 16) appearing in the Annual Report on Form 10-K
of Magnum Hunter Resources, Inc. for the year ended December 31, 1996 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
June 30, 1997
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Form S-3 Registration Statement of Magnum
Hunter Resources, Inc. ("The Company") of our reports, which are dated April 23,
1997, August 2, 1996 and April 3, 1996, respectively, accompanying the
consolidated financial statements of The Company and the historical summaries of
revenues and direct operating expenses of the Properties to be Acquired April
30, 1997 and the Properties Acquired June 28, 1997 contained in such
Registration Statement, and to the use of our name and the statements with
respect to us, as appearing under the heading "Independent Accountants" in the
Registration Statement.
/s/ HEIN + ASSOCIATES LLP
- ----------------------------
HEIN + ASSOICATES LLP
Certified Public Accountants
June 27, 1997
Dallas, Texas
