As Filed With The Securities And Exchange Commission on May 24, 1999
Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
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
(State or other jurisdiction of
incorporation or organization)
87-0462881
(I.R.S. Employer
Identification No.)
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
(972) 401-0752
(Address, including zip code,
and telephone number, including
area code, of Registrant's
principal executive offices)
MORGAN F. JOHNSTON
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
(972) 401-0752
(Name, address, including zip code,
and telephone number, including
area code, of agent for service)
---------------
Copy to:
DAVID E. MORRISON
JANE E. RAST
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
(214) 969-1700
---------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after effectiveness of the Registration Statement.
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 securities offered only 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
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE>
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Proposed Maximum
Title of Each Class of Amount to Be Proposed Maximum Aggregate Offering Amount of
Securities to Be Registered Registered (1) Offering Price per Unit(2) Price(2) Registration Fee
- --------------------------- ------------------ -------------------------- --------------------- -------------------
Warrants to Purchase 10,512,149 (3) (3) (3)
Common Stock Warrants
- --------------------------- ------------------ -------------------------- --------------------- -------------------
Common Stock, $.002 par 10,512,149 shares $6.50 $68,328,969 $18,966
value per share
- --------------------------- ------------------ -------------------------- --------------------- -------------------
</TABLE>
(1) Maximum number of shares of Magnum Hunter Resources, Inc.'s common stock to
be sold to record holders of common and convertible preferred stock upon
exercise of the warrants distributed in this warrants offering.
(2) Calculated in accordance with Rule 457(g) of the Securities Act. Because
both the warrants and the Common Stock underlying the warrants are being
registered for distribution under this Registration Statement, for purposes
of Rule 457(g), no separate registration fee is required for the warrants.
(3) The warrants will be issued to record holders of common stock and
convertible preferred stock at no cost to the holders.
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 Section 8(a), may
determine.
<PAGE>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell, and it is not soliciting an offer to buy, these securities in any state
where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 24, 1999
PROSPECTUS
10,512,149 WARRANTS TO PURCHASE COMMON STOCK
10,512,149 SHARES
[Logo]
MAGNUM HUNTER RESOURCES, INC.
Common Stock
$6.50 Per Share
We are distributing transferable common stock purchase warrants to holders
of our common and preferred stock. If these holders exercise all of the warrants
issued to them in this warrants offering, we will issue up to 10,512,149 shares
of common stock.
Our common stock is listed on the American Stock Exchange under the symbol
"MHR."
See "Risk Factors" beginning on page 8 to read about certain risks that you
should consider before exercising the warrants issued in this warrants offering.
------------------
Per Share Total
Warrants price.......................... $ 6.50 $68,328,969
Proceeds, before expenses, to us........ $ 6.50 $68,328,969
------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is _________, 1999.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary and Recent Events...........................................1
Disclosure Regarding Forward-looking Statements................................9
Risk Factors...................................................................9
The Warrants Offering.........................................................17
Use of Proceeds...............................................................21
Plan of Distribution..........................................................22
Federal Income Tax Considerations.............................................22
Taxation of U.S. Stockholders.................................................22
Taxation of Non-U.S. Stockholders.............................................24
Taxation of Magnum Hunter Resources, Inc......................................25
Price Range of Common Stock...................................................26
Legal Matters.................................................................26
Experts.......................................................................26
If You Would like Additional Information......................................27
i
<PAGE>
PROSPECTUS SUMMARY AND RECENT EVENTS
This section answers in summary form some questions you may have about
Magnum Hunter Resources, Inc. and this warrants offering. You should read the
entire prospectus carefully, including the risks discussed under "Risk Factors,"
before exercising or selling your warrants. In this prospectus, when we use the
terms "Magnum Hunter,""we," "us," and "our," these terms refer to Magnum Hunter
Resources, Inc. and our subsidiaries, unless the context otherwise requires.
Certain Definitions
As used in this prospectus, "Mcf" means thousand cubic feet, "MMcf" means
million cubic feet, "Bcf" means billion cubic feet, "Bbl" means barrel, "Mbbls"
means thousand barrels and "MMBbls" means million barrels. "BOE" means barrel of
oil equivalent, "Mcfe" means thousand cubic feet of natural gas equivalent,
"MMcfe" means million cubic feet of natural gas equivalent and "Bcfe" means
billion cubic feet of natural gas equivalent. Natural gas equivalents and crude
oil equivalents are determined using the ratio of six Mcf of natural gas to one
Bbl of crude oil, condensate or natural gas liquids). "Proved reserves" means
the estimated quantities of oil, gas and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under exiting economic and operating
conditions. "Reserve life" is an estimate of the productive life of a proved
reservoir and for purposes of this prospectus is calculated by dividing the
proved reserves (on an Mcfe basis) at the end of the period by projected
production volumes for the next 12 months. All estimates of reserves, unless
otherwise noted, are reported on a "net" basis. Information regarding
production, acreage and numbers of wells is set forth on a gross basis, unless
otherwise noted.
Questions and Answers about Magnum Hunter Resources, Inc.
What Is Magnum Hunter Resources, Inc.?
Through our subsidiaries, we operate as an independent energy company.
Magnum Hunter Resources, Inc. is a holding company for:
o Magnum Hunter Production, Inc., a Texas corporation, of which Magnum
Hunter owns 100%;
o Gruy Petroleum Management Company, a Texas corporation, of which
Magnum Hunter owns 100%;
o Hunter Gas Gathering, Inc., a Texas corporation, of which Magnum
Hunter owns 100%;
o Tel Offshore Trust, a trust created under the laws of Texas, of
which Magnum Hunter owns approximately 40%;
o Bluebird Energy, Inc., an Oklahoma corporation, of which Magnum
Hunter owns 100%;
o Conmag Energy Corporation, a Texas corporation, of which Magnum
Hunter indirectly owns 100%;
o Rampart Petroleum Inc., a Texas corporation, of which Magnum
Hunter indirectly owns 100%;
o NGTS, LLC, a Texas limited liability company, of which Magnum Hunter
indirectly owns 30%; and
o Swanson Consulting Services, Inc., Texas corporation, of which
Magnum Hunter indirectly owns 15%.
What do we do?
o We exploit and develop, acquire, explore and operate oil and gas
properties with a geographic focus in Texas, Oklahoma, New Mexico
and offshore Louisiana.
o In December 1995 we acquired all the subsidiaries of Hunter
Resources, Inc., a Pennsylvania corporation, and the management of
Hunter Resources, Inc. assumed operating control of our Company.
1
<PAGE>
The new management team implemented a business strategy that
emphasized acquisitions of long-lived proved reserves with
significant exploitation and development opportunities where we
generally could control the operation of the properties.
o At December 31, 1998, we had an interest in 3,059 wells and had
estimated proved reserves of 323.2 Bcfe with a present value of
$179.4 million (estimated in accordance with regulations of the
Securities and Exchange Commission). Approximately 70% of these
reserves were proved developed producing reserves, or reserves that
can be expected to be recovered through existing wells with existing
equipment and operating methods. At December 31, 1998, our proved
reserves had an estimated reserve life of approximately 13 years and
consisted of 68% natural gas. We operate approximately 65% of our
properties (based on the number of producing wells inwhich we own an
interest). We also own over 480 miles of gas gathering systems
and a 50% interest in a gas processing plant that is located
adjacent to our largest gas gathering system.
o Beginning with the acquisition of Hunter Resources, Inc. in December
1995, we have completed 12 acquisitions with a total net purchase
price of $221.8 million. This strategy has added approximately 346.6
Bcfe of reserves (determined at the time of the respective
acquisitions) at an average cost of $0.63 per Mcfe. As a result of
our property acquisitions and successful drilling activities, we
have achieved substantial growth.
o We have recently significantly expanded our exploration efforts.
Magnum Hunter acquired from Tana Oil and Gas Corporation a 25%
ownership interest in 12 federal lease blocks located offshore
Louisiana in the Gulf of Mexico. As a result of the purchase from
Tana, we own a 25% working interest in nine of those blocks and
approximately a 12.5% interest in the other three. We have allocated
approximately 50% of our capital budget for 1999 to exploration,
compared to approximately 20% in 1998.
o We presently intend to focus on additional producing property
acquisitions, our substantial inventory of exploitation and
development opportunities and selected exploratory drilling
prospects. We have identified over 400 development drilling
locations (including both production and injection wells) on our
properties, substantially all of which are low-risk in-fill drilling
opportunities.
What are some of our recent accomplishments?
o On February 3, 1999, we closed various transactions with ONEOK
Resources Company, a wholly-owned subsidiary of ONEOK, Inc. ONEOK,
Inc. is the eighth largest natural gas distributor in the United
States. ONEOK Resources Company purchased $50 million of our 1999
Series A 8% Convertible Preferred Stock. As a result of these
transactions, ONEOK Resources Company will have the right to
market a portion of our natural gas production in the State of
Oklahoma and will have the opportunity to participate in our future
acquisitions in the State of Oklahoma.
o On December 31, 1998, we acquired from Spirit Energy 76, a business
unit of Union Oil Company of California, natural gas reserves and
associated assets in producing fields located in Oklahoma and Texas
currently producing approximately 12 MMcfe per day. The net purchase
price was approximately $25 million after certain purchase price
adjustments.
o On March 27, 1998, we acquired an approximately 40% beneficial
ownership interest in the TEL Offshore Trust, a trust created under
the laws of the state of Texas, pursuant to a cash tender offer for
an aggregate purchase price of approximately $10.3 million. The
principal asset of TEL consists of a 99.99% interest in the TEL
Offshore Trust partnership. Chevron USA Inc. owns the remaining .01%
interest in the partnership. The partnership owns an overriding
royalty interest equivalent to a 25% net profits interest in certain
oil and gas properties located offshore Louisiana.
o During 1998, we increased oil and gas production by 49% over 1997,
to 21.0 Bcfe. We also completed 89 of 90 wells drilled during 1998,
for an overall 99% success rate. See "Risk Factors - Risks
2
<PAGE>
Associated with Exploration and Development" for more information
about the increased risks associated with our recent expanded
exploration efforts.
What is our business strategy?
To increase our reserves, production, cash flow and earnings through a
program of (i) exploiting and developing acquired properties, (ii)strategically
acquiring proved reserves and (iii) selectively exploring additional fields. The
following are key elements of our strategy:
o Exploitation and Development of Existing Properties. We have a
substantial inventory of exploitation projects, including
development drilling, workovers and recompletions. We seek to
maximize the value of our properties through development activities,
including in-fill drilling, waterflooding and other enhanced
recovery techniques.
o Management of Operating Costs. We emphasize strict cost controls in
all aspects of our business and seek to operate our own properties
whenever possible. By operating approximately 70% of our properties,
we are generally ableto control direct operating and drilling costs.
This also allows us to manage the timing of our development and
exploration activities.
o Property Acquisitions. Although we have an extensive inventory of
exploitation and development opportunities, we continue to pursue
strategic acquisitions that fit our objective of having proved
reserves with development potential and operating control.
o Expansion of Gas Gathering, Processing and Marketing Operations. We
have implemented several programs to expand and increase the
efficiency of our gas gathering systems. We own over 85% of the gas
that moves through our gas gathering systems. We also market,
directly and indirectly, approximately 95% of the gas that moves
through our gas gathering systems. As a result, we benefit from any
cost and productivity improvements. In December 1997 we acquired a
30% interest in NGTS, LLC, a natural gas marketing company that
markets approximately 350 MMcf of gas per day as of December 31,
1998. NGTS markets substantially all of our natural gas. We are also
considering opportunities to acquire or develop additional gas
gathering and processing facilities that are interrelated to our
current production.
o Exploration. We have significantly increased our exploration efforts
through our purchase of interests in certain offshore Louisiana
lease blocks from Tana Oil and Gas Corporation. In addition, we
continue to otherwise systematically increase our exploration
efforts, focusing on established geological trends where we can
employ our geological, geophysical and engineering expertise. We are
actively generating and evaluating prospects for the application of
3-D seismic and advanced drilling technologies.
What are some of our other recent activities?
o In April 1999 we signed an agreement with Vastar Resources Inc. for
our purchase of oil and gas reserves and related assets located in
Texas, Oklahoma and Arkansas. The acquisition includes Vastar's
interest in 476 wells, a gas processing plant and two gas gathering
systems. The total purchase price is approximately $4.9 million,
before purchase price adjustments, with a closing scheduled on or
before June 8, 1999, utilizing an effective date of April 1, 1999.
We are in the process of completing our due diligence review of the
properties to be purchased. At the closing, our subsidiary, Gruy
Petroleum Management Co., will become the operator of all of the
wells and related assets.
3
<PAGE>
Where are we located?
Our corporate headquarters are located at:
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75309
(972) 401-0752
We also maintain field production offices in Midland and Abilene, Texas;
Hobbs, New Mexico; and Oklahoma City, Oklahoma.
Where can I find additional information?
Additional information concerning us is included in our reports and other
documents incorporated by reference in this prospectus. See "If You Would Like
Additional Information."
4
<PAGE>
Questions and Answers About the Warrants Offering
Who will receive warrants in this offering?
We will distribute warrants to our common stockholders and our preferred
stockholders. We currently have two classes of preferred stock outstanding that
will receive warrants in this offering based on the number of shares of common
stock into which the preferred stock is convertible. Because of differences in
the method and ratio of conversion for each class of preferred stock, the
holders of our common and each different class of preferred stock will receive
different quantities of warrants for each share they own.
The two classes of preferred stock participating in this warrants offering
are as follows:
o 1996 Series A Convertible Preferred Stock, $10 liquidation value per
share: issued December 23, 1996, in a private placement to Trust
Company of the West and certain of its affiliates. The 1,000,000
outstanding shares of 1996 Series A Convertible Preferred Stock are
convertible into an aggregate of 1,904,762 shares of common stock.
o 1999 Series A 8% Convertible Preferred Stock, liquidation value
$1,000 per share: issued February 3, 1999, in a private placement to
ONEOK Resources Company. The 50,000 outstanding shares of 1999
Series A 8% Convertible Preferred Stock are convertible into an
aggregate of 9,523,809 shares of common stock.
We will distribute to our common stockholders, at no charge, one warrant
for every three shares of our common stock that they own on May 31, 1999.
We will distribute to holders of our 1996 Series A Convertible Preferred
Stock, at no charge, .63492 warrants for every share of such preferred stock
that they own on May 31, 1999.
We will distribute to holders of our 1999 Series A 8% Convertible
Preferred Stock, at no charge, 63.492 warrants for every share of such preferred
stock that they own on May 31, 1999.
What is a warrant?
Each warrant entitles you to purchase one share of our common stock for
$6.50. Each warrant will expire on July 1, 2002. When you "exercise" a
warrant, that means that you choose to purchase the common stock that the
warrant entitles you to purchase. You may exercise any number of your warrants,
or you may choose not to exercise any warrants. We will not distribute any
fractional warrants.
What is a warrants offering?
A warrants offering is an opportunity for you to purchase shares of our
common stock at a fixed price and in an amount proportional to your existing
interest in our common stock or, if you own our preferred stock, in an amount
proportional to the number of shares of common stock into which the preferred
stock is convertible. This enables our common stockholders to maintain their
current percentage ownership in our Company stock if all stockholders exercise
their warrants acquired in this warrants offering. This also enables our
preferred stockholders to maintain their relative interest in Magnum Hunter. If
relatively few stockholders exercise their warrants, the warrants offering gives
you an opportunity to increase your percentage ownership in our common stock.
Why are we engaging in a warrants offering?
Our management believes that our common stock may be under-valued. We also
desire to reward our stockholders who have maintained their ownership position
with us. We hope that the issuance of the warrants will enable our common and
preferred stockholders to benefit upon the exercise of such warrants if in the
future the price of our common stock exceeds $6.50 per share. Additionally,
recipients of warrants may instead be able to
5
<PAGE>
benefit through the sale of their warrants. Finally, purchases of common
stock directly from us will also provide us with additional capital to assist us
in our growth plans.
How much money will the Company receive from the warrants offering?
Our gross proceeds from the warrants offering depend on the number of
warrants that are exercised. If our stockholders exercise all the warrants, we
will receive proceeds of approximately $68 million. Because it would not make
sense to exercise a warrant until the price of our common stock exceeds $6.50,
we do not know when or if we will receive any proceeds from this warrants
offering or the amount of any such proceeds.
How will we use the proceeds from the warrants offering?
To the extent we do receive proceeds from the sale of common stock issued
upon exercise of the warrants, we anticipate that any net proceeds will be used
for general corporate purposes, which may include, but are not limited to:
o payments on or refinancings of indebtedness
o working capital
o capital expenditures
o acquisitions
o repurchases or redemptions of Magnum Hunter's preferred stock
See "Use of Proceeds" for additional information on our use of the proceeds
from this offering.
How did we arrive at the $6.50 per share exercise price?
We arbitrarily determined the exercise price of the warrants and it does
not necessarily bear any relation to the actual value of our company, our
operating results, our financial condition or other established criteria of
value. In connection with our desire to reward our stockholders for maintaining
their ownership position in Magnum Hunter, we wanted the exercise price of the
warrants to be higher than the $6.00 per share offering price of our last public
offering of common stock in November 1997. The exercise price does not
necessarily indicate any future market price of our common stock. We cannot
guarantee that the market price of our common stock will exceed the exercise
price of the warrants at any time during or after the warrants exercise period.
How do I exercise my warrants?
To exercise warrants you own, you must properly complete the attached
warrant certificate and forward it to our transfer agent, Securities Transfer
Corporation, on or before July 1, 2002. The address for Securities Transfer
Corporation is on page 21. Your warrant certificate must be accompanied by
proper payment for each share that you wish to purchase. If you are a beneficial
owner of shares of common stock on May 31, 1999, and such shares are registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee, you will need to contact such nominee to exercise your warrants. See
"The Warrants Offering - Exercise of Warrants" and "Method of Payment" for more
information on how to exercise your warrants.
When will my warrants expire?
The warrants will expire at 5:00 p.m., New York City time, on July 1,
2002, unless we decide to extend the warrants offering.
6
<PAGE>
After I exercise my warrants, can I change my mind?
No. Once you send in your warrant certificate and payment, you cannot
revoke the exercise of your warrants.
Is exercising my warrants risky?
The exercise of your warrants involves a degree of risk. You should
carefully consider the "Risk Factors" described in this prospectus, beginning on
page 9.
What happens if I choose not to exercise my warrants?
You will retain your current number of shares of common or preferred stock
even if you do not exercise your warrants. If you are a common stockholder and
do not exercise your warrants, your current percentage ownership in Magnum
Hunter and your voting rights could be diluted if other stockholders decide to
exercise their warrants. If you are a preferred stockholder and do not exercise
your warrants, your current relative ownership interest in Magnum Hunter (based
on the number of shares of common stock into which your preferred stock is
convertible) could be diluted if other stockholders decide to exercise their
warrants. See "Risk Factors - Risks Related to the Warrants Offering" for more
information regarding the dilution of your interest if you do not exercise your
warrants.
Can I sell my warrants?
Yes, the warrants are transferable, but there is currently no active
trading market for the warrants. We intend to apply for a listing or quotation
for the warrants on the American Stock Exchange. However, we cannot assure you
that you will be able to sell your warrants at all or at a price that is
satisfactory to you. See "Risk Factors Risks Related to the Warrants Offering"
for more information on your ability to transfer the warrants without exercising
them for common stock.
Can Magnum Hunter buy back my warrants?
Yes, we can redeem the warrants at a redemption price of $0.01 per
warrant, upon 30 days written notice. However, you may exercise your warrants at
any time prior to the expiration of the 30-day redemption notice period.
What are the federal income tax consequences of exercising my warrants?
The receipt and exercise of warrants are intended to be nontaxable to our
common stockholders. Special rules will apply to the receipt of warrants by our
preferred stockholders as described in this prospectus. Stockholders who sell
their warrants may be taxed on all or a portion of the proceeds from that sale.
You should seek specific tax advice from your personal tax advisor. See "Federal
Income Tax Considerations" for more information regarding the taxation of your
ownership and exercise of the warrants and ownership of the underlying common
stock.
When will I receive my new shares?
If you purchase shares of common stock through the warrants offering, we
will send you certificates representing those shares as soon as practicable
after you exercise your warrants.
How many shares will be outstanding after the warrants offering?
The number of shares of common stock outstanding after the warrants
offering will depend on the number of shares that are purchased before the
expiration of the warrants. If our stockholders exercise all of their warrants,
we will issue a total of 10,512,149 new shares of common stock. We will then
have approximately 30,620,026 shares of common stock issued and outstanding
after the warrants offering (assuming no other issuances).
7
<PAGE>
Are there differences between exercising the warrants in this warrants offering
and buying shares of our common stock in the open market?
Yes. Some of the differences are:
o Price -- It will cost you $6.50 per share of common stock purchased in
the warrants offering. The price per share of common stock purchased on the open
market may be higher or lower than the $6.50 per share price. On May 20, 1999,
the last reported sales price of our common stock on the American Stock Exchange
was $4.13 per share. See "Price Range of Common Stock" for more information on
historical prices of our common stock.
o Limit on number of shares -- The warrants you initially receive under
this warrants offering only entitle you to purchase one additional share for
every three shares of common stock you owned on May 31, 1999, or one additional
share for every three shares of common stock into which the shares of preferred
stock you owned on May 31, 1999 are convertible. If you want to significantly
increase your ownership interest in Magnum Hunter, you may be able to acquire
more shares of common stock at a lower price on the open market.
o Dilutive effect -- A purchase on the open market will increase your
ownership interest in Magnum Hunter slightly more than exercising the same
number of warrants because of the dilution that results from issuances of
additional shares by Magnum Hunter.
Who can I talk to if I have more questions?
If you have more questions about the warrants offering, please contact:
Morgan F. Johnston
Vice President, General Counsel and Secretary
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
(972) 401-0752
If you have general questions about Magnum Hunter, please contact:
Michael McInerney
Vice President Corporate Development & Investor Relations
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
(972) 401-0752
8
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking" statements within the meaning
of Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical facts
included in this prospectus, including statements regarding our financial
position, business strategy, prospects, plans and objectives of our management
for future operations, and industry conditions, are forward- looking statements.
Although we believe that the expectations reflected in these forward-looking
statements are reasonable, we can give you no assurance that these expectations
will prove to be correct. Actual results could differ materially from these
forward-looking statements as a result of the factors described in "Risk
Factors" and important factors described elsewhere in this prospectus.
RISK FACTORS
In deciding whether to exercise or sell your warrants, and when you
evaluate our performance and the forward-looking statements in this prospectus,
you should carefully consider the following risk factors, as well as the other
information contained in this prospectus.
RISKS RELATED TO SUBSTANTIAL LEVERAGE
We have a significant amount of debt
We are highly leveraged, with outstanding long-term debt of approximately
$187.0 million compared to stockholders' equity of $59.69 million as of March
31, 1999. Our level of indebtedness affects our future operations. Because we
must dedicate a substantial portion of our cash flow from operations to the
payment of interest on our debt, the cash flow is not available for other
purposes. The covenants contained in our credit facilities require us to meet
certain financial tests and limit our ability to borrow additional funds or to
acquire or dispose of assets. Also, our ability to obtain additional financing
in the future may be impaired by our substantial leverage. Additionally, the
senior (as opposed to subordinated) status of our 10% Senior Notes due 2007, our
high debt to equity ratio, and the pledge of substantially all of our assets as
collateral for our primary credit facility will, for the foreseeable future,
make it difficult for us to obtain financing on an unsecured basis or to obtain
secured financing other than certain "purchase money" indebtedness
collateralized by the acquired assets.
To service our indebtedness, we will require a significant amount of cash
We reported an operating loss for fiscal 1998, and, at March 31, 1999, we
had an accumulated deficit of $60.68 million. Our ability to meet our financial
covenants and to make scheduled payments of principal and interest to repay our
indebtedness depends upon our operating results and our ability to obtain
financing. However, we cannot be certain that our business will generate
sufficient cash flow from operations or that future bank credit will be
available in an amount sufficient to enable us to service our indebtedness or
make necessary capital expenditures. In such event, we would need to obtain such
financing from the sale of equity securities or other debt financing. We cannot
predict whether any such financing will be available on terms acceptable to us.
If we are not able to secure such financing, we may not be able to continue to
implement our business strategy.
Despite our current indebtedness levels, we still may be able to incur more debt
Our primary credit facility limits our borrowings to a borrowing base
amount determined by the lenders, in their sole discretion, based upon a variety
of factors, including the amount of indebtedness that our oil and gas reserves
and other assets can adequately support. As of March 31, 1999, we had $44
million of borrowing available under the borrowing base for our current credit
facility. Our subsidiary Bluebird Energy, Inc. has a non-recourse term loan in
the original principal amount of $26 million that is due on May 31, 1999. A
further decline in oil or gas prices below their current levels could materially
adversely affect the availability of funds under our credit facility.
We must maintain certain financial ratios
Our primary credit facility also requires us to satisfy certain financial
ratios in the future. One covenant requires that we maintain a ratio of funded
indebtedness divided by the sum of funded indebtedness plus equity (the
9
<PAGE>
"Debt to Capitalization Ratio") of not more than 0.80 to 1.0. At March 31, 1999,
we had a Debt to Capitalization Ratio of 0.73 to 1.0. Another covenant requires
us to maintain a ratio of Consolidated EBITDA to Interest Expense (as defined in
our primary credit facility agreements) of not less than
o 1.25 to 1.0 for the calendar quarters ending December 31, 1998
through June 30, 1999;
o 1.50 to 1.0 for the calendar quarters ending September 30, 1999
through December 31, 2000;
o 1.75 to 1.0 for the calendar quarters ending March 31, 2000
through June 30, 2000; and
o 2.00 to 1.0 for the calendar quarters ending September 30, 2000
and thereafter.
We had a ratio of Consolidated EBITDA to Interest Expense of 1.25 to 1.0 as
of March 31, 1999. The Company was in compliance with all debt covenants as of
March 31, 1999. The Consolidated EBITDA to Interest Expense ratio is very
sensitive to oil and gas price levels, and a continuation of low product prices
in the future might jeopardize our compliance with this ratio. We are
considering several alternatives to reduce this risk, including the acquisition
or drilling of higher cash flow producing properties (shorter reserve life) to
somewhat offset our long-lived reserve base or monetizing certain of our
non-strategic assets.
If we fail to satisfy these covenants or any of the other covenants in our
credit facilities, that failure 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 applicable credit facility and demand
immediate repayment thereof.
OUR BUSINESS IS DEPENDENT ON CONDITIONS IN THE OIL AND GAS INDUSTRY
Our revenues, profitability and the carrying value of our oil and gas
properties depend substantially upon prevailing prices of, and demand for, oil
and gas and the costs of acquiring, finding, developing and producing reserves.
Oil and gas prices also substantially affect our ability to maintain or increase
our borrowing capacity, to repay current or future indebtedness, and to obtain
additional capital on attractive terms. Historically, the markets for oil and
gas have been volatile and are likely to continue to be volatile in the future.
Prices for oil and gas fluctuate widely in response to:
o relatively minor changes in the supply of, and demand for, oil and gas;
o market uncertainty; and
o a variety of additional factors, all of which are beyond our control.
These factors include domestic and foreign political conditions, the price and
availability of domestic and imported oil and 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. Our
production is predominantly weighted toward gas, making our earnings and cash
flow more sensitive to gas price fluctuations. Also, our ability to market our
production depends in part upon the availability, proximity and capacity of
gathering systems, pipelines and processing facilities. Volatility in oil and
gas prices could affect our ability to market our production through such
systems, pipelines or facilities. Currently, we sell substantially all our gas
production 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. An affiliate of ONEOK Inc. has
the right to market the undedicated natural gas we sell in Oklahoma until
February 2004 or such earlier date as ONEOK affiliates cease to own a specified
percentage of our stock. ONEOK is not, however, presently marketing any gas for
us.
Under the full cost accounting method, we are required to take a non-cash
charge against earnings if capitalized costs of acquisition, exploration and
development (net of depletion, depreciation and amortization), less deferred
income taxes, exceed the present value of our proved reserves and the lower of
cost or fair value of unproved properties after income tax effects. As a result
of the severe decline in oil and gas prices in 1998, we recognized a non-cash
impairment of oil and gas properties of $42.7 million at December 31, 1998
pursuant to such "ceiling" test in the full cost method of accounting. Certain
subsequent improvements in pricing reduced the amount of such charge. Without
the benefit of these pricing improvements, we would have incurred an impairment
of $81.2 million. Once incurred, a write-down of oil and gas properties is not
reversible at a later date even if oil and gas prices increase.
10
<PAGE>
YOU SHOULD NOT PLACE UNDUE RELIANCE ON OUR RESERVE DATA BECAUSE THEY ARE
ESTIMATES
This prospectus contains estimates of our oil and gas reserves and the
future net cash flows from those reserves that were prepared or audited by
independent petroleum consultants. There are numerous uncertainties inherent in
estimating quantities of proved reserves of oil and gas and in projecting future
rates of production and the timing of development expenditures, including many
factors beyond our control. The estimates in this prospectus rely on various
assumptions, including, for example, constant oil and 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 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. Additionally, we
may have to revise our reserves based upon actual production performance,
results of future development and exploration, prevailing oil and gas prices and
other factors, many of which are beyond our control.
You should not construe the present value of proved reserves referred to in
this prospectus as the current market value of the estimated proved reserves of
oil and gas attributable to our properties. In accordance with Securities and
Exchange Commission requirements, we have based the estimated discounted future
net cash flows from proved reserves on prices and costs as of the date of the
estimate, whereas actual future prices and costs may vary significantly. The
following factors may also affect actual future net cash flows:
o the timing of both production and related expenses;
o changes in consumption levels; and
o 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 Securities and Exchange Commission
is not necessarily the most appropriate discount rate based on interest rates in
effect from time to time and risks associated with our reserves or the oil and
gas industry in general. Furthermore, we may need to revise our reserves
downward or upward based upon actual production, results of future development,
supply and demand for oil and gas, prevailing oil and gas prices and other
factors.
MAINTAINING RESERVES AND REVENUES IN THE FUTURE DEPENDS ON SUCCESSFUL
EXPLORATION AND DEVELOPMENT
Our future success depends upon our ability to find or acquire additional
oil and gas reserves that are economically recoverable. Unless we successfully
explore or develop or acquire properties containing proved reserves, our proved
reserves will generally decline as we produce them. The decline rate varies
depending upon reservoir characteristics and other factors. Our future oil and
gas reserves and production, and, therefore, cash flow and income, depend
greatly upon our success in exploiting our current reserves and acquiring or
finding additional reserves. We cannot assure that our planned development
projects and acquisition activities will result in significant additional
reserves or that we will successfully drill productive wells at economic returns
to replace our current and future production.
OUR ACQUISITIONS INVOLVE CERTAIN RISKS
We have grown primarily through acquisitions and intend to continue
acquiring oil and gas properties. Although we review and analyze the properties
that we acquire, such reviews are subject to uncertainties. It generally is not
possible to review in detail every individual property involved in an
acquisition. Ordinarily, we focus our review on the higher-valued properties.
However, even a detailed review of all properties and records may not reveal
existing or potential problems. We cannot economically become sufficiently
familiar with all the properties to assess fully their deficiencies and
capabilities. We do not always conduct inspections on every well. Even when we
do inspect a specific well, we cannot always detect potential problems, such as
mechanical integrity of equipment and environmental conditions that may require
significant remedial expenditures.
We have begun to focus our acquisition efforts on larger packages of oil
and gas properties. Acquisitions of larger oil and gas properties may involve
substantially higher costs and may pose additional issues regarding
11
<PAGE>
operations and management. We cannot assure that we will be able to successfully
integrate all of the oil and gas properties that we acquire into our operations
or will achieve desired profitability objectives.
RISKS ASSOCIATED WITH EXPLORATION AND DEVELOPMENT
Our operations are subject to delays and cost overruns, and our activities
may not be profitable
We intend to increase our exploration activities and to continue our
development activities. Exploratory drilling and, to a lesser extent,
developmental drilling of oil and gas reserves involve a high degree of risk. We
have recently expanded, and plan to increase our capital expenditures on, our
exploration efforts, which involve a higher degree of risk than our development
activities. It is possible that we will not obtain any commercial production or
that drilling and completion costs will exceed the value of production. The cost
of drilling, completing and operating wells is often uncertain. Numerous
factors, including title problems, weather conditions, compliance with
governmental requirements and shortages or delays in the delivery of equipment,
may curtail, delay or cancel drilling operations. Furthermore, completion of a
well does not assure a profit on the investment or a recovery of drilling,
completion and operating costs.
We conduct waterflood projects and other secondary recovery operations
Secondary recovery operations involve certain risks, especially the use of
waterflooding techniques, and drilling activities in general. Our inventory of
development prospects includes waterflood projects. With respect to our
properties located in the Permian Basin, we have identified significant
potential expenditures related to further developing an existing waterflood.
Waterflooding involves significant capital expenditures and uncertainty as to
the total amount of recoverable secondary reserves. In waterflood operations,
there is generally a delay between the initiation of water injection into a
formation containing hydrocarbons and any increase in production. 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. Costs are also higher during the later stages of the life of the
project 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.
WE ARE SUBJECT TO CASUALTY RISKS IN OUR ONSHORE AND OFFSHORE ACTIVITIES
Our oil and gas business involves a variety of operating risks, including
unexpected formations or pressures, uncontrollable flows of oil, gas, brine or
well fluids into the environment (including groundwater contamination),
blowouts, fires, explosions, pollution, marine hazards and other risks, any of
which could cause personal injuries, loss of life, damage to properties and
substantial losses. Although we carry insurance at levels that we believe are
reasonable, we are not fully insured against all risks. We do not carry business
interruption insurance. Losses and liabilities arising from uninsured or
under-insured events could materially affect our financial condition and
operations.
WE HEDGE OUR OIL AND GAS PRODUCTION
As of March 31, 1999, we had hedged approximately (i) 50% of our gas
production through October 1999, and (ii) 75% of our oil production through
December 1999. These hedges have in the past involved fixed price arrangements
and other price arrangements at a variety of prices, floors and caps. We have in
the past and may in the future enter into oil and gas futures contracts, options
and swaps. Our hedging activities, while intended to reduce our sensitivity to
changes in market prices of oil and gas, are subject to a number of risks
including instances in which we or the counterparties to our futures contracts
could fail to purchase the contracted quantities of oil or gas. Additionally,
the fixed price sales and hedging contracts limit the benefits we will realize
if actual prices rise above the contract prices.
OUR OPERATIONS ARE SUBJECT TO MANY LAWS AND REGULATIONS
The oil and gas industry is heavily regulated. Extensive federal, state,
local and foreign laws and regulations relating to the exploration for and
development, production, gathering and marketing of oil and gas affect our
operations. Some of the regulations set forth standards for discharge permits
for drilling operations, drilling and
12
<PAGE>
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 gas wells below actual production capacity to conserve supplies of oil
and gas.
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 impact and
influence our operations. If we fail to comply with environmental laws regarding
the discharge of oil, gas, or other materials into the air, soil or water we may
be subject to liabilities to the government and third parties, including civil
and criminal penalties. These regulations may require us 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, potentially resulting in
liability for environmental damage regardless of negligence or fault. From time
to time, we have agreed to indemnify sellers of producing properties against
certain liabilities for environmental claims associated with such properties. We
cannot assure 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 adversely affect our oil and gas
operations and financial condition. Material indemnity claims may also arise
with respect to properties acquired by or from us. While we do not anticipate
incurring material costs in connection with environmental compliance and
remediation, we cannot guarantee that we will not incur material costs.
WE ARE SUBJECT TO SUBSTANTIAL COMPETITION
We encounter substantial competition in acquiring properties, marketing oil
and gas, securing trained personnel and operating our properties. Many
competitors have financial and other resources that substantially exceed our
resources. Our competitors in acquisitions, development, exploration and
production include major oil companies, numerous independents, individual
proprietors and others. Our competitors may be able to pay more for desirable
leases and may be able to evaluate, bid for and purchase a greater number of
properties or prospects than our financial or personnel resources will permit.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE LOSE OUR KEY PERSONNEL
We depend greatly upon three key individuals within our management: Gary C.
Evans, Matthew C. Lutz and Richard R. Frazier. The loss of the services of any
one of these individuals could materially impact our operations.
SHARES ELIGIBLE FOR FUTURE SALE; ABSENCE OF DIVIDENDS
The market price of our common stock could be adversely affected by sales
of substantial amounts of common stock in the public market or the perception
that such sales could occur
We are authorized to issue up to 50,000,000 shares of common stock. Our
board of directors has approved an amendment to our Articles of Incorporation
that would increase the number of authorized shares of common stock to
100,000,000 and directed that the amendment be submitted to the stockholders for
adoption. As of May 15, 1999, 20,107,877 shares were issued and outstanding, and
14,160,622 shares were reserved for issuance upon the conversion of shares of
our preferred stock and upon the exercise of certain outstanding warrants and
options. We will also reserve 10,512,149 shares for issuance upon exercise of
the warrants issued under this prospectus. Issuing additional shares of common
stock pursuant to such conversion rights, outstanding warrants, options and
warrants would reduce the proportionate ownership and voting rights of the
common stock then outstanding. Our existing management and their affiliates own
3,889,600 shares of common stock that may in the future be sold in compliance
with Rule 144 adopted under the Securities Act of 1933. In addition, our primary
credit facility contains a debt to capitalization ratio covenant requiring us to
maintain a ratio of .80 to 1.0. 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 our ability to
raise capital through the sale of equity securities in the future.
13
<PAGE>
We have never paid cash dividends
We have not previously paid any cash dividends on the common stock and do
not anticipate paying dividends on the common stock in the foreseeable future.
We intend to reinvest all available funds for the development of our business.
In addition, we cannot pay any dividends on the common stock unless and until we
pay all dividend rights on outstanding preferred stock. Our primary credit
facility and the indenture governing our 10% Senior Notes due 2007 also restrict
the payment of cash dividends.
PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS
We have outstanding preferred stock and have the ability to issue more
Our common stock is subordinate to all outstanding classes of preferred
stock in the payment of dividends and other distributions made with respect to
the stock, including distributions upon liquidation or dissolution of Magnum
Hunter. Our Board of Directors is authorized to issue up to 10,000,000 shares of
preferred stock without first obtaining shareholder approval, except in limited
circumstances. We have previously issued several series of preferred stock,
although only the 1996 Series A Convertible Preferred Stock and the 1999 Series
A 8% Convertible Preferred Stock, are currently outstanding. The holders of the
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 our Board. The holders of the 1999 Series A 8% Convertible
Preferred Stock currently have the right to nominate two members of our Board,
and, subject to the rights of the 1996 Series A Convertible Preferred Stock
holders, upon certain circumstances have the right to nominate additional
directors. If we designate or issue other series of preferred stock, it will
create additional securities that will have dividend and liquidation preferences
over the common stock. If we issue convertible preferred stock, a subsequent
conversion may dilute the current shareholders' interest.
Certain anti-takeover provisions may affect your rights as a stockholder
Our Articles of Incorporation and Bylaws include certain provisions that
may encourage persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with our 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. In addition, on January 9, 1998, we adopted a shareholder rights plan.
Under the shareholder rights plan, the rights initially represent the right to
purchase one one-hundredth of a share of 1998 Series A Junior Participating
Preferred Stock for $35.00 per one one-hundredth of a share. The rights become
exercisable only if a person or a group acquires or commences a tender offer for
15% or more of our common stock. Until they become exercisable, these rights
attach to and trade with our common stock. The rights issued under the
shareholder rights plan expire January 20, 2008. Issuing preferred stock may
delay or prevent a change in control of Magnum Hunter 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.
In addition, a change of control would entitle the holders of our 10% Senior
Notes due 2007 to put those notes to Magnum Hunter under the indenture governing
such notes and the lenders to accelerate payment of outstanding indebtedness
under our credit facility. Both of these events could discourage takeover
attempts by making such attempts more expensive.
GENERAL BUSINESS RISKS
The Year 2000 problem may significantly affect our operations
Year 2000 issues relate to the ability of computer programs or equipment to
accurately calculate, store or use dates after December 31, 1999. Various
systems handle or interpret the Year 2000 in a number of different ways, but the
most common errors are for the system to contain a two digit year which may
cause the system to interpret the year 2000 as 1900 or 1980, and the system will
not recognize the year 2000 as a leap year. Errors such as these can result in
system failures, miscalculations and the disruption of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. In response to the Year 2000
issues, we have developed a strategic plan divided into the following phases:
inventory,
14
<PAGE>
product compliance based on vendor representations and in-house testing, third
party integration and development of a contingency plan.
Third party systems handle all of our processing needs. None of the third
party systems have been substantially modified. However, all of the systems have
been purchased or upgraded within the last few years. Therefore, our initial
review of our in-house systems with regard to Year 2000 issues required an
inventory of our systems and a review of our vendor's representations. We have
completed this initial review of our information systems. We have also reviewed
various types of equipment and non-information technology. Our vendors have
represented that they are either compliant, will be compliant with the next
forthcoming software release or that they utilize our systems that are not date
specific.
Our non-information technology consists primarily of various oil and gas
exploration and production equipment. The initial review has established that
the primary non-information technology systems functions are either not date
sensitive or are Year 2000 compliant based on vendor representations, and are
therefore predicted to operate in customary manners when faced with Year 2000
issues. However, we have determined that, in the event such systems are unable
to address the Year 2000, employees can manually perform most, if not all,
functions.
In anticipation of Year 2000 issues, we are also evaluating the Year 2000
readiness status of our third party service providers and our customers. In
addition to reviewing Year 2000 readiness statements issued by the third parties
handling our processing needs, we have received and are relying upon Year 2000
readiness reports periodically issued by our financial services and electrical
service providers, vendors and purchasers of our oil and natural gas products.
We are continuing to review the Year 2000 readiness of third party service
suppliers and, based on their representations, do not currently foresee material
disruptions in our business as a result of Year 2000 issues. However, we cannot
guaranty that such disruptions will not occur. Unanticipated prolonged losses of
certain services, such as electrical power, could cause material disruptions for
which we have not developed economically feasible contingency plans.
We are continuing to conduct in-house testing of our core systems and
non-information technology. To date, either all systems tested have adequately
addressed possible Year 2000 scenarios or we have a plan in place to remedy the
deficiency. We expect to complete testing during the second quarter of 1999.
After completing our Year 2000 review and testing, we will further develop a
contingency plan as required, including replacing or upgrading by December 31,
1999 any system incapable of addressing the Year 2000 correctly.
Our core business consists primarily of oil and gas acquisitions,
development and exploration activities. The equipment that is deemed "mission
critical" to our activities requires external power sources such as electricity
supplied by third parties. Although we maintain limited on-site secondary power
sources such as generators, it is not economically feasible to maintain
secondary power supplies for any major component of our "mission critical"
equipment. Therefore, our most reasonably likely worst case Year 2000 scenario
would involve a disruption of third party supplied electrical power, which would
cause a substantial decrease in our oil production. Such an event could cause a
business interruption that could materially affect our operations, liquidity and
capital resources.
RISKS RELATING TO THE WARRANTS OFFERING
If you do not exercise your warrants, your ownership interest may be diluted
If you do not exercise all of your warrants, you may experience dilution of
your percentage ownership in and the book value of our common stock relative to
stockholders who exercise their warrants. The sale of the warrants may not
compensate you for all or any part of any reduction in the market value of your
common stock resulting from the warrants offering. Stockholders who do not
exercise or sell their warrants will relinquish any value inherent in the
warrants.
Because no prior market for the warrants exists, you may be unable to sell the
warrants
You are permitted to sell or transfer your warrants, but we cannot assure
you that such a sale will be practicable or profitable. If you choose to sell
your warrants, you will not receive the benefit of exercising your warrants if
our common stock price exceeds $6.50 per share prior to the expiration of the
warrants. There is currently no active trading market for the warrants. We
intend to apply for a listing or quotation for the warrants on
15
<PAGE>
the American Stock Exchange. However, we cannot assure you that you will be
able to sell your warrants at all or at a satisfactory price.
The sale of a substantial amount of common stock may affect the market price
If substantial amounts of common stock are sold in the public market
following the warrants offering, the market price of the common stock could be
adversely affected. If all the warrants issued in this offering are exercised,
we will have approximately 30,620,026 shares of common stock outstanding. We
cannot predict the effect that the issuance of the warrants or the availability
and future sales of common stock could have on the market price.
The exercise price of the warrants was determined arbitrarily
The exercise price of the warrants does not necessarily bear any relation
to the actual value of our company, our operating results, our financial
condition or other established criteria of value. The exercise price does not
necessarily indicate any future market price of our common stock.
Our ability to lower the exercise price of the warrants could adversely affect
you if you previously sold or exercised your warrants
We have the right, at any time, voluntarily to reduce the exercise price of
the warrants for such period or periods of time as we determine. If you sell a
warrant, and we thereafter reduce the exercise price, you probably would have
received a lower price for your warrant than the price you would have received
if the sale were made after the market became aware of the reduction in exercise
price. Correspondingly, you would be disadvantaged if you exercised a warrant
and pay the full exercise price (initially, $6.50 per share) and we thereafter
lowered the exercise price. You will not be able to recoup amounts you would
have otherwise made but for a sale or exercise of a warrant prior to any such
reduction in exercise price.
The price of our common stock and the value of the warrants may fluctuate
significantly
A variety of events, including quarter-to-quarter variations in operating
results, news announcements, general conditions in the oil and gas industry and
overall market conditions, could result in significant fluctuations in the
market price of our common stock. Such fluctuations could result in
corresponding fluctuations in the market price of the warrants. We cannot
guarantee that the market price of our common stock will exceed the exercise
price of the warrants at any time during or after the warrants exercise period.
Your ability to exercise depends on certain securities laws compliance
You will have the right to exercise the warrants only if a current
registration statement relating to the common stock underlying the warrants is
then effective, and only if the issuance of such common stock has been
registered or qualified or complies with an exemption from such requirements
under the securities laws of the states and jurisdictions in which the various
warrant holders reside. We intend to keep the registration statement effective,
and we intend to maintain a current prospectus until the expiration date of the
warrants, unless in our reasonable judgment the discrepancy between the market
price of our common stock and the exercise price of the warrants makes it
extremely unlikely that the warrants will be exercised. However, we can not
guarantee that we will be able to do so. The warrants may be deprived of any
value if a current registration statement covering the underlying common stock
is not kept effective or if the issuance of such common stock is not registered
or qualified under or otherwise complies with applicable state securities laws.
Holders of our 1999 Series A 8% Convertible Preferred Stock are contractually
prohibited from certain exercises of the warrants
Our 1999 Series A 8% Convertible Preferred Stock was issued in February
1999 in a private placement to ONEOK Resources Company. In connection with that
private placement ONEOK Resources Company and ONEOK Inc. agreed with the us that
they and their affiliates would not purchase our common stock except as is
necessary to maintain their proportionate ownership. They also agreed that they
and their affiliates will not own in the aggregate more than 40% of our
outstanding common stock unless approved by the holders of at least two-thirds
of our outstanding voting securities. Their ability to exercise their warrants
will be subject to those agreements.
16
<PAGE>
THE WARRANTS OFFERING
The warrants
We are distributing transferable warrants to holders of our common and
preferred stock on June 30, 1999, at no cost to the stockholders. We currently
have two classes of preferred stock outstanding that will receive warrants in
this offering based on the number of shares of common stock into which the
preferred stock is convertible. Because of differences in the method and ratio
of conversion for each class of preferred stock, the holders of our common stock
and each class of our preferred stock will receive different quantities of
warrants.
We will distribute to our common stockholders, at no charge, one warrant
for every three shares of our common stock that they own on May 31, 1999. We
will distribute to holders of our 1996 Series A Convertible Preferred Stock, at
no charge, .63492 warrants for every share of our preferred stock that they own
on May 31, 1999. We will distribute to holders of our Series A 8% Convertible
Preferred Stock, at no charge, 63.492 warrants for every share of our preferred
stock that they own on May 31, 1999. We will not issue any fractional warrants.
We will round the number of warrants down to the nearest whole number.
Purchase warrant
Each warrant will entitle you to receive, upon payment of $6.50 to us, one
share of common stock. We will send to you certificates representing the shares
that you purchase pursuant to your warrants as soon as practicable after you
exercise your warrants.
The warrants will be issued pursuant to the terms and conditions of a
warrant agreement between us and Securities Transfer Corporation, as warrants
agent. The description of the warrants in this prospectus is not complete, and
you should refer to the warrant agreement for further information. The warrant
agreement is an exhibit to the registration statement which contains this
prospectus.
Magnum Hunter and the warrants agent may make such modifications to the
warrants and the warrant agreement as they deem necessary and desirable that do
not adversely affect the interests of the warrant holders in any material
respect.
Expiration date
The warrants will expire at 5:00 p.m., New York City time, on July 1,
2002, unless we decide to extend the warrants offering. We currently do not
intend to extend the warrants offering. If you do not exercise your warrants
prior to July 1, 2002, your warrants will be null and void. We will not be
required to issue shares of common stock to you if our warrants agent receives
your warrant certificate or your payment after that date, regardless of when you
sent the warrant certificate and payment.
Magnum Hunter's right to redeem the warrants
We can redeem all, but not less than all, of the outstanding warrants at a
redemption price of $0.01 per warrant, upon 30 days written notice. However, you
may exercise the warrant at any time prior to the expiration of the 30-day
redemption notice period.
Determination of exercise price
Our Board of Directors arbitrarily determined the exercise price of the
warrants and it does not necessarily bear any relation to the actual value of
our company, our operating results, our financial condition or other established
criteria of value. In connection with our desire to reward our stockholders for
maintaining their ownership position in Magnum Hunter, we wanted the exercise
price of the warrants to be higher than the $6.00 per share offering price of
our last public offering of common stock in November 1997. The exercise price of
the warrants is substantially higher than the price at which our common stock is
trading on the date of this prospectus or has traded in the recent past on the
American Stock Exchange. The exercise price is not necessarily indicative of any
future market price of our common stock, and we cannot guarantee that the market
price of our common stock will equal or exceed the exercise price of the
warrants at any time during or after the warrant exercise period.
17
<PAGE>
The exercise price for the warrants and the number of shares of common
stock issuable on exercise of the warrants are subject to adjustment in certain
circumstances. These circumstances include the occurrence of a stock dividend,
stock split, reverse stock split, recapitalization, reorganization, or a merger
or consolidation. Under the warrant agreement, we will have the right
voluntarily to reduce the exercise price of the warrants.
Transferability of warrants
You may transfer the warrants evidenced by a single warrant certificate in
whole by endorsing the warrant certificate for transfer in accordance with the
accompanying instructions. You may transfer a portion of the warrants evidenced
by a single warrant certificate (but not fractional warrants) by delivering to
the warrants agent a warrant certificate properly endorsed for transfer, with
instructions to register a portion of the warrants evidenced by the warrant
certificate in the name of the transferee and to issue a new warrant certificate
to the transferee evidencing the transferred warrants. In such event, a new
warrant certificate evidencing the balance of the warrants will be issued to
you, or, if you so instruct, to an additional transferee.
We cannot assure you that selling your warrants will be practicable or
profitable. There is currently no active trading market for the warrants. We
intend to apply for a listing for the warrants on the American Stock Exchange.
However, we cannot assure you that you will be able to sell your warrants at all
or at a satisfactory price.
If you wish to transfer all or a portion of your warrants (but not
fractional warrants), you should allow a sufficient amount of time prior to July
1, 2002, for:
o the transfer instructions to be received and processed by the
warrants agent;
o a new warrant certificate to be issued and transmitted to the
transferee or transferees with respect to the transferred warrants,
and to you with respect to retained warrants; and
o the warrants evidenced by the new warrant certificates to be
exercised by the recipients.
Neither we nor the warrants agent will be liable to a transferee or
transferor of warrants if warrant certificates are not received in time for
exercise prior to July 1, 2002.
Except for the fees charged by the warrants agent (which we will pay, as
described below), you will be responsible for paying any commissions, fees and
other expenses (including brokerage commissions and transfer taxes) incurred in
connection with the purchase, exercise or transfer of the warrants. Neither we
nor the warrants agent will pay any such commissions, fees or expenses.
Exercise of warrants
You may exercise your warrants by delivering to the warrants agent on or
prior to July 1, 2002:
o A properly completed and duly executed warrant certificate;
o Any required signature guarantees; and
o Payment in full of $6.50 per share of common stock to be purchased
through the exercise of warrants.
You should deliver your warrant certificate and payment to the address set
forth below under "-- Warrants Agent."
You may not exercise your warrants unless at the time of exercise there is
a current prospectus covering the issuance of shares of our common stock upon
the exercise of such warrants under an effective registration statement filed
with the Securities and Exchange Commission and such shares of common stock have
been qualified for sale or are exempt from qualification under the securities
laws of the state of residence of the holder of such warrants. We intend to have
all shares of common stock so qualified for sale in those states where the
warrants are being offered. We also intend to maintain a current prospectus
until the expiration date of the warrants, unless in our reasonable judgment the
discrepancy between the market price of our common stock and the exercise price
of the warrants makes it extremely unlikely that the warrants will be exercised.
However, we cannot guarantee that we
18
<PAGE>
will keep the prospectus current and the registration statement effective or
that we will be able to obtain all necessary state qualifications or exemptions.
Method of payment
Payment for the shares must be made by:
o cashier's check or bank draft drawn upon a United States bank or a
postal, telegraphic or express money order payable to "Securities
Transfer Corporation, as Warrants Agent"; or
o wire transfer of funds to the account maintained by the warrants
agent for such purpose at:
-------------------------------
ABA Number:
A/C Number:
Reference:
o uncertified personal check drawn upon a United States Bank (may take
at least five business days to clear).
If you are purchasing an aggregate number of shares of common stock
totaling $500,000 or more, we may agree to an alternative payment method. If you
use an alternative payment method, the warrants agent must receive the full
amount of your payment in currently available funds within one American Stock
Exchange trading day prior to July 1, 2002.
Payment will be deemed to have been received by the warrants agent only
upon:
o clearance of any uncertified check;
o receipt by the warrants agent of any certified check or bank draft
drawn upon a U.S. bank or of any postal, telegraphic or express
money order; or
o receipt of funds by the warrants agent through an alternative
payment method.
Please note that funds paid by uncertified personal check may take at least
five business days to clear. Accordingly, if you wish to pay by means of an
uncertified personal check, we urge you to make payment sufficiently in advance
of July 1, 2002, to ensure that the payment is received and clears before that
date. We also urge you to consider payment by means of certified or cashier's
check, money order or wire transfer of funds.
Signature guarantees
Signatures on the warrant certificate must be guaranteed by an eligible
guarantor institution, as defined in Rule 17Ad-15 of the Securities Exchange Act
of 1934, subject to the standards and procedures adopted by the warrants agent.
Eligible guarantor institutions include banks, brokers, dealers, credit unions,
national securities exchanges and savings associations.
Signatures on the warrant certificate do not need to be guaranteed if:
o the warrant certificate provides that the shares of common stock to
be purchased are to be delivered directly to you, the record owner
of such warrants; or
o the warrant certificate is submitted for the account of a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the
United States.
19
<PAGE>
Shares held for others
If you hold shares of common stock for the account of others, such as a
broker, a trustee or a depository for securities, you should notify the
respective beneficial owners of such shares as soon as possible to obtain
instructions with respect to the warrants beneficially owned by them.
If you are a beneficial owner of common stock held by a holder of record,
such as a broker, trustee or a depository for securities, you should contact the
holder and ask him to effect transactions in accordance with your instructions.
Foreign stockholders
If your address is outside of the United States or is an APO or FPO
address, we will not mail your warrants to you, but the warrants agent will hold
the warrants for your account. To exercise your warrants you must notify the
warrants agent by completing an international warrants form, which will be
mailed to you instead of a warrant certificate. You should mail or telecopy the
international warrants form to the warrants agent's address and telecopy number,
set forth on page 21.
Ambiguities in exercise of the warrants
If you do not specify the number of warrants being exercised on your
warrant certificate, or if your payment is not sufficient to pay the total
purchase price for all of the shares that you indicated you wished to purchase,
you will be deemed to have exercised the maximum number of warrants that could
be exercised for the amount of the payment that the warrants agent receives from
you.
If your payment exceeds the total purchase price for all of the warrants
shown on your warrant certificate, your payment will be applied, until depleted,
to subscribe for shares of common stock in the following order:
(1) to subscribe for the number of shares, if any, that you indicated on
the warrant certificate(s) that you wished to purchase through your
warrants;
(2) to subscribe for shares of common stock until your warrants have
been fully exercised.
Any excess payment remaining after the foregoing allocation will be
returned to you as soon as practicable by mail, without interest or deduction.
Please carefully read the instructions accompanying the warrant
certificate and follow those instructions in detail.
Do not send warrant certificates to us.
You are responsible for choosing the payment and delivery method for your
warrant certificates, and you bear the risks associated with such delivery. If
you choose to deliver your warrant certificate and payment by mail, we recommend
that you use registered mail, properly insured, with return receipt requested.
We also recommend that you allow a sufficient number of days to ensure delivery
to the warrants agent and clearance of payment prior to July 1, 2002. Because
uncertified personal checks may take at least five business days to clear, we
strongly urge you to pay, or arrange for payment, by means of certified or
cashier's check, money order or wire transfer of funds.
Our decision binding
All questions concerning the timeliness, validity, form and eligibility of
any exercise of warrants will be determined by us and our determinations will be
final and binding. We may waive any defect or irregularity, or permit a defect
or irregularity to be corrected within an amount of time as we may determine, or
reject the purported exercise of any warrant by reason of any defect or
irregularity in the exercise. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as we determine in our sole discretion. Neither we nor the warrants
agent will be under any duty to give notification of any defect or irregularity
in connection with the submission of warrant certificates or incur any liability
for failure to give such notification.
20
<PAGE>
No revocation
After you have exercised your warrants, you may not revoke that exercise.
Fees and expenses
We will pay all fees charged by the warrants agent. You are responsible for
paying any other commissions, fees, taxes or other expenses incurred in
connection with the exercise or transfer of the warrants. Neither we nor the
warrants agent will pay such expenses.
Warrants agent
We have appointed Securities Transfer Corporation as warrants agent for the
warrants offering. The warrants agent's address for packages sent my mail is:
P.O. Box 701629
Dallas, Texas 75370
or if sent by courier or overnight delivery:
16910 Dallas Parkway
Suite 100
Dallas, Texas 75248
The warrants agent's telephone number is (972) 447-9890.
You should deliver your warrant certificate and payment of the exercise
price to the warrants agent.
We will pay the fees and expenses of the warrants agent, which we estimate
will total $6,000. We have also agreed to indemnify the warrants agent from any
liability which it may incur in connection with the warrants offering.
If you have questions
If you have questions or need assistance concerning the procedure for
exercising warrants, or if you would like additional copies of this prospectus,
you should contact:
Morgan F. Johnston
Vice President, General Counsel and Secretary
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
(972) 401-0752
USE OF PROCEEDS
We will receive proceeds of $6.50 for each warrant that is exercised. We
would receive total proceeds of approximately $68 million if every warrant were
exercised. Because it would not make sense to exercise a warrant until the price
of our common stock exceeds $6.50, we do not know when or if we will receive any
proceeds from this warrants offering or the amount of any such proceeds. To the
extent we do receive proceeds from this warrants offering, we anticipate that
any net proceeds from the sale of common stock issued upon exercise of the
warrants will be used for general corporate purposes, which may include, but are
not limited to, payments on or refinancings of indebtedness, working capital,
capital expenditures, acquisitions and repurchases or redemptions of our
preferred stock.
21
<PAGE>
PLAN OF DISTRIBUTION
Promptly following the effective date of the registration statement that
contains this prospectus, we will distribute the warrants and copies of this
prospectus to individuals who own shares of common or preferred stock on May 31,
1999. If you wish to exercise your warrants and purchase shares of common stock,
you should complete the warrant certificate and return it, with payment for the
shares, to the warrants agent, Securities Transfer Corporation, at the address
on page 21. See "The Warrants Offering - Exercise of Warrants" for more
information concerning the exercise of your warrants.
If you have any questions, you should contact Morgan F. Johnston of Magnum
Hunter at the telephone number and address on page 21.
FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the material United States federal income tax
considerations of the warrants offering to you. This summary is based on current
law, which is subject to change at any time, possibly with retroactive effect.
This summary is not a complete discussion of all federal income tax consequences
of the warrants offering, and, in particular, may not address federal income tax
consequences applicable to our stockholders subject to special treatment under
federal income tax law. In addition, this summary does not address the tax
consequences of the warrants offering under applicable state, local or foreign
tax laws. This discussion assumes that your shares of common and preferred stock
and the warrants and shares issued to you during the warrants offering
constitute capital assets.
The receipt of warrants by our preferred stockholders is not expected to
qualify for nontaxable treatment under Section 305(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). Generally, the receipt of a warrant that
does not qualify for such nontaxable treatment is treated as a distribution
under Section 301 of the Code in an amount equal to the fair market value of
such warrant. Such a distribution is taxable as a dividend to the extent of the
distributing corporation's current and accumulated earnings and profits. To the
extent that the amount of a distribution exceeds the current and accumulated
earnings and profits of the corporation, it will be treated first as a tax-free
return of capital to the extent of the stockholder's basis in the stock upon
which the distribution is made and thereafter as capital gain from the sale or
exchange of such stock. Magnum Hunter believes that it has no accumulated
earnings and profits and does not expect to have current earnings and profits
for fiscal year 1999. In such a case, no portion of the warrants will be treated
as a dividend to the preferred stockholders. Rather, the distribution will be
treated as a tax-free return of capital to the extent of the stockholder's basis
in the preferred stock in the manner described above.
Receipt and exercise of the warrants distributed pursuant to the warrants
offering is intended to be nontaxable to our common stockholders, and the
following summary assumes they will qualify for such nontaxable treatment. If,
however, the warrants offering does not qualify as a nontaxable distribution,
you would be treated as receiving a distribution under Section 301 of the Code
in the manner described above for preferred stockholders.
This discussion is included for your general information only. You should
consult your tax advisor to determine the tax consequences to you of the
warrants offering in light of your particular circumstances, including any
state, local and foreign tax consequences.
TAXATION OF U.S. STOCKHOLDERS
The following summary is a general discussion of certain United States
federal income tax consequences applicable under current law to the warrants
offering to U.S. stockholders. For purposes of this offering, the term "U.S.
stockholder" means a stockholder who for United States federal income tax
purposes is:
(a) a citizen or resident of the United States;
(b) a corporation or other entity created or organized under the laws of
the United States or of any political subdivision thereof;
22
<PAGE>
(c) an estate, the income of which is subject to United States federal
income taxation regardless of its source;
(d) a trust whose administration is subject to the primary supervision
of a United States court and that has one or more United States
persons who have the authority to control all substantial decisions
of the trust; or
(e) a person whose worldwide income or gain is otherwise subject to
United States federal income tax regardless of source or that is
otherwise subject to United States federal income taxation on a net
income basis.
Receipt of a warrant
Common stockholders will not recognize any gain or other income upon
receipt of a warrant. Preferred stockholders will be treated as receiving a
distribution under Section 301 of the Code in the manner described above.
Tax basis and holding period of warrants
For common stockholders, your tax basis in each warrant will depend on
whether you exercise the warrant, transfer the warrant, or allow the warrant to
expire. If you exercise or transfer a warrant, your tax basis in the warrant
generally will be determined by allocating the tax basis of your common stock on
which the warrant is distributed between the common stock and the warrant, in
proportion to their relative fair market values on the date of distribution of
the warrant. However, if the fair market value of your warrants is less than 15
percent of the fair market value of your existing shares of common stock, then
the tax basis of each warrant will be deemed to be zero, unless you elect to
allocate tax basis to your warrants by attaching an election statement to your
federal income tax return for 1999. If you allow a warrant to expire, it will be
treated as having no tax basis. Your holding period for a warrant will include
your holding period for the share of common stock upon which the warrant is
issued.
For preferred stockholders, your tax basis in each warrant will equal the
fair market value of such warrant on the date of the distribution, and your
holding period for such warrant will begin on the day following the
distribution.
Expiration of warrants
Common stockholders will not recognize any gain or loss upon the expiration
of a warrant. A preferred stockholder whose warrant expires will recognize a
capital loss equal to its adjusted tax basis in the warrant.
Transfer of warrants
If you sell any of your warrants, you will recognize a gain or loss equal
to the difference between the sale proceeds and your basis (if any) in the
warrants sold. If your holding period for the warrants (determined as described
above) is more than one year, such gain or loss generally will be long-term
capital gain or loss.
Exercise of warrants
You generally will not recognize a gain or loss on the exercise of a
warrant. The tax basis of any share of common stock that you purchase through
the warrants offering will be equal to the sum of your tax basis (if any) in the
warrant exercised and the price paid for the share. The holding period of the
shares of common stock purchased through the warrants offering will begin on the
date that you exercise your warrants.
23
<PAGE>
Adjustments
Under Section 305 of the Code, you may be treated as receiving a deemed
distribution of stock if the number of shares of common stock which you may
acquire by exercising your warrant is adjusted or if the exercise price of your
warrants is adjusted and the adjustment increases your proportionate interest in
our earnings and profits or assets. An adjustment made pursuant to a bona fide
formula that has the effect of preventing dilution of the interest of the
warrant holders generally will not result in a deemed distribution. On the other
hand, the warrants have certain provisions allowing for a reduction in the
exercise price of the warrants. Any such reduction is expected to be treated as
a deemed distribution of stock to the warrant holders. Such a distribution may
be treated as a distribution under Section 301 of the Code to the warrant
holders in the manner described above for preferred stock holders. In such a
case, the distribution would be treated as a dividend to the extent of our
current and accumulated earnings and profits in the year of the distribution,
then as a return of capital to the extent of the holder's basis in the warrant
and then as capital gain. Whether or not the distribution is treated as a
distribution under Section 301 of the Code will depend, in part, on the facts
surrounding the distribution, including whether we pay cash dividends or make
other Section 301 distributions within 36 months of the distribution.
Information reporting and backup withholding
In general, information reporting requirements may apply to dividend
payments on common stock received when you exercise your warrants and to
payments on the proceeds of a sale of the warrants or common stock. A 31% backup
withholding tax may apply to these payments unless you (i) are a corporation or
come within certain other exempt categories and, when required, demonstrate your
exemption, or (ii) provide a correct taxpayer identification number, certify as
to no loss of exemption from backup withholding and otherwise comply with the
requirements of the backup withholding rules.
In addition, if shares of the common stock you acquire when you exercise
your warrants are sold to, or through, a "broker," the broker may be required to
withhold 31% of the entire sales price, unless either (i) the broker determines
that you are a corporation or other exempt recipient or (ii) you provide, in the
required manner, certain identifying information. This type of sale must also be
reported by the broker to the Internal Revenue Service, unless the broker
determines that you are an exempt recipient. The term "broker" as defined in
Treasury regulations includes all persons who, in the ordinary course of their
business, stand ready to effect sales made by others.
Any amounts withheld under the backup withholding rules from a payment to
you will be allowed as a credit against your United States federal income tax,
provided that the required information is furnished to the Internal Revenue
Service.
TAXATION OF NON-U.S. STOCKHOLDERS
The following discussion is limited to the United States federal income tax
consequences relevant to a stockholder who is not a U.S. stockholder.
Transfer of warrants or common stock
You generally will not be subject to United States federal income tax or
withholding tax on gain realized on the sale or exchange of the warrants or the
shares of common stock unless:
(a) the gain is effectively connected with the conduct of your United
States trade or business;
(b) if you are an individual, you are present in the United States for a
period or periods aggregating 183 days or more during the taxable
year of the transfer and certain other circumstances are present;
(c) you are subject to tax pursuant to the provisions of the Internal
Revenue Code applicable to certain U.S. expatriates; or
(d) the gain is subject to tax under Section 897 of the Internal Revenue
Code regarding "United States real property interests."
24
<PAGE>
In the case of certain publicly-traded companies, such as the Company, the
rules applicable to U.S. real property interests apply only in the case of a "5%
owner, " that is, a person who, at sometime during the shorter of (a) the period
during which the taxpayer held such interest or (b) the five year period ending
on the date of the disposition of such interest, held or was deemed to hold more
than 5% of such stock. Thus, unless you are a 5% owner, you should not be
subject to United States federal income tax or withholding tax under Section 897
of the Internal Revenue Code on the amount of gain you realize on the sale or
exchange of the warrants or the common stock. If you are subject to United
States federal income tax or withholding tax under another exception, you will
be subject to the rules discussed in the section above entitled "Taxation of
U.S. Stockholders," except for certain rules related to dividends and branch
profits tax discussed below.
Dividends on common stock
Generally, dividends received by you with respect to the common stock you
receive when you exercise your warrants will be subject to United States
withholding tax at a rate of 30% of the gross amount of the dividend. This rate
may be reduced by an applicable income tax treaty and compliance with certain
requirements that you document your entitlement to the benefits of the treaty.
If the dividends are effectively connected with the conduct of a U.S. trade or
business by you, the dividends will be taxed at the graduated rates applicable
to U.S. citizens, resident aliens, and domestic corporations and would not be
subject to United States withholding tax if you give an appropriate statement to
the withholding agent prior to payment of the dividend. Treasury regulations
that will be effective January 1, 2001, provide alternative methods for
establishing exemptions from or reductions of withholding on payments to foreign
persons, including exemptions for payments through certain qualified
intermediaries.
Branch profits tax
If you are a foreign corporation, you may be subject to an additional
branch profits tax at a rate of 30% or lower treaty rate on dividends or capital
gains that are effectively connected to the conduct of a U.S. trade or business.
You should consult applicable income tax treaties, which may include different
rules, subject to compliance with certain requirements that you document your
entitlement to treaty benefits.
Information reporting and backup withholding
Backup withholding, which generally is a withholding tax imposed at the
rate of 31% on payments to persons that fail to furnish certain required
information, and information reporting will not apply to payments of dividends
or payments made of the proceeds from the disposition of warrants or common
stock to or through the U.S. office of any broker if you certify to your
non-U.S. status under penalties of perjury or otherwise establish an exemption.
This of course assumes that the payor does not have actual knowledge that you
are a U.S. person or that the conditions of any other exemption are not, in
fact, satisfied.
We must report annually to the IRS and to each of you any dividends that
are subject to withholding or that are exempt from U.S. withholding tax. Copies
of these information returns may also be made available, under the provisions of
a specific treaty or agreement, to the tax authorities of the country in which
you reside.
Any amounts withheld under the backup withholding rules from a payment to
you generally should be allowed as a refund or a credit against your United
States federal income tax liability, provided that the requisite procedures are
followed.
TAXATION OF MAGNUM HUNTER RESOURCES, INC.
We will not recognize any gain, other income or loss upon the issuance of
the warrants, the lapse of the warrants, or the receipt of payment for shares of
common stock upon exercise of the warrants.
25
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is quoted on the American Stock Exchange. Our common stock
trades under the symbol "MHR." The following table shows the quarterly high and
low closing sales price per share for our common stock as reported on the
American Stock Exchange for the periods indicated.
High Low
1999
First Quarter..................................... $3.19 $2.50
Second Quarter (through May 20, 1999)............. $4.13 $2.81
1998
First Quarter..................................... $5.50 $3.88
Second Quarter.................................... $7.94 $5.13
Third Quarter..................................... $6.88 $3.00
Fourth Quarter.................................... $4.38 $2.75
1997
First Quarter..................................... $6.63 $4.19
Second Quarter.................................... $6.31 $5.00
Third Quarter..................................... $6.44 $5.00
Fourth Quarter.................................... $7.94 $4.88
On May 20, 1999 the last reported sale price of the common stock on the
American Stock Exchange was $4.13 per share. As of May 17, 1999, there were
3,525 record holders of the common stock.
We have never paid cash dividends. Our management intends to retain any
future earnings for payment of our outstanding indebtedness and for the
operation and expansion of our business and does not anticipate paying any cash
dividends in the foreseeable future. In addition, we cannot pay any dividends on
the common stock unless and until we pay all dividend rights on outstanding
preferred stock. Our credit facility and the indenture governing our 10% Senior
Notes due 2007 also restrict the payment of cash dividends.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for us by Thompson & Knight, P.C., Dallas, Texas.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference
and has been incorporated in reliance upon the report of such firm, given upon
their authority as experts in auditing and accounting.
The references to the report of Ryder Scott Company, independent petroleum
consultants, incorporated by reference in this prospectus, have been so
incorporated in reliance on the report of Ryder Scott Company estimating proved
reserves, future net cash flows from such proved reserves and the present value
of such estimated future net cash flows for Magnum Hunter's properties (other
than certain west Texas properties) as of December 31, 1998, and is made in
reliance upon the authority of such firm as experts with respect to such
matters.
26
<PAGE>
The references to the report of Pollard, Gore & Harrison, independent
petroleum consultants, incorporated by reference in this prospectus, have been
so incorporated in reliance on the report of Pollard, Gore & Harrison estimating
proved reserves, future net cash flows from such proved reserves and the present
value of such estimated future net cash flows for certain of Magnum Hunter's
west Texas properties as of December 31, 1998, and is made in reliance upon the
authority of such firm as experts with respect to such matters.
IF YOU WOULD LIKE ADDITIONAL INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the U.S. Securities and Exchange Commission. You may read and
copy this information at the Securities and Exchange Commission's public
reference rooms, which are located at:
450 Fifth Street, NW 7 World Trade Center, Suite 1300
Washington, DC 20549 New York, NY 10048
500 West Madison Street, Suite 1400
Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. This information is also available on-line through the SEC's
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR), located on
the SEC's web site (http://www.sec.gov.).
Also, we will provide you (free of charge) with any of our documents filed
with the SEC. To get your free copies, please call or write:
Michael McInerney
Vice President Corporate Development & Investor Relations
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
(972) 401-0752
We have filed a registration statement with the Securities and Exchange
Commission on Form S-3 with respect to the warrants offering. This prospectus is
a part of the registration statement, but the prospectus does not repeat
important information that you can find in the registration statement, reports
and other documents that we have filed with the Securities and Exchange
Commission. The Securities and Exchange Commission allows us to "incorporate by
reference" other documents filed with the Securities and Exchange Commission,
which means that we can disclose important information to you by referring you
to other documents. The documents that are incorporated by reference are legally
considered to be a part of this prospectus. The documents incorporated by
reference are:
(1) Annual Report on Form 10-K for the year ended December 31, 1998;
(2) Quarterly Report on Form 10-Q for the period ended March 31, 1999;
(3) Definitive Proxy Statement relating to our 1999 annual meeting of
stockholders;
(4) Any filings with the SEC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 between the date of
this prospectus and the expiration of the warrants offering.
As you read the above documents, you may find some inconsistencies in
information from one document to another. If you find inconsistencies between
the documents, or between a document and this prospectus, you should rely on the
statements made in the most recent document.
You should rely only on the information in this prospectus or incorporated
by reference. We have not authorized anyone to provide prospective investors
with information different from that contained in this prospectus. This
prospectus is not an offer to sell nor is it seeking an offer to buy these
securities in any state where the offer or sale is not permitted. This
prospectus is not an offer to sell nor is it seeking an offer to buy securities
other than the shares of common stock to be issued upon the exercise of the
warrants distributed in the warrants
27
<PAGE>
offering. The information contained in this prospectus is correct only as of the
date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable in the jurisdiction.
28
<PAGE>
[LOGO]
Warrants Agent:
Securities Transfer Corporation
P.O. Box 701629
Dallas, Texas 75370
For More Information Regarding the For General Information Regarding
Warrants Offering Contact: Magnum Hunter Contact:
Morgan F. Johnston Michael McInerney
Vice President, General Counsel Vice President Corporate Development
and Secretary & Investor Relations
Magnum Hunter Resources, Inc. Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200 600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039 Irving, Texas 75039
(972) 401-0752 (972) 401-0752
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other expenses of issuance and distribution
The following table sets forth the expenses in connection with this
Registration Statement. We will pay all expenses of the warrants offering. All
such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission and the American Stock Exchange.
Securities and Exchange Commission filing fee.............. $ 18,996
American Stock Exchange listing fee........................ 55,000
Printing fees and expenses................................. 15,000
Legal fees and expenses.................................... 35,000
Blue sky fees and expenses................................. 2,000
Warrants agent fee......................................... 5,000
Miscellaneous.............................................. 5,000
Total................................................ $ 135,996
Item 15. Indemnification of directors and officers
The General Corporation Law of Nevada permits provisions in the articles,
by-laws or resolutions approved by stockholders 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 Magnum Hunter or its stockholders for monetary
damages for the breach of a director's fiduciary duty, and therefore a director
cannot be held liable for damages to Magnum Hunter or its stockholders 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 of 1933 may be permitted to directors, officers, and controlling
persons of Magnum Hunter pursuant to the foregoing provisions or otherwise,
Magnum Hunter 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.
Item 16. Exhibit index
Exhibit No. Description
4.1 Form of Warrant Agreement by and between Magnum Hunter
Resources, Inc. and Securities Transfer Corporation as warrants
agent (including form of warrant certificate)
4.2 Form of warrant certificate
5 Opinion of Thompson & Knight, P.C.
23.1 Consent of Thompson & Knight, P.C. (included in Exhibit 5)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Ryder Scott Company
23.4 Consent of Pollard, Gore & Harrison
24 Power of Attorney (included on signature page)
99.1 Form of Letter to Stockholders
99.2 Form of Letter to Brokers
II - 1
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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 Item 15, 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.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it is declared effective.
(2) That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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 the
initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on 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 and State of Texas, on May 21, 1999.
MAGNUM HUNTER RESOURCES, INC.
By: /s/ Gary C. Evans
------------------
Gary C. Evans
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 21, 1999. Each of the undersigned officers and
directors of the registrant hereby constitutes Gary C. Evans and Morgan F.
Johnston and each of them, his true and lawful attorneys-in-fact with full power
to sign for him and in his name in the capacities indicated below and to file
any and all amendments to the registration statement filed herewith (including
post-effective amendments), making such changes in the registration statement as
the registrant deems appropriate, and to sign and file any other registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and generally to do all such
things in his name and behalf in his capacity as an officer and director to
enable the registrant to comply with the provisions of the Securities Act of
1933 and all requirements of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/Gary C. Evans President, Chief Executive Officer May 21, 1999
- -------------------------------------- and Director (Principal Executive
Gary C. Evans Officer)
/s/Matthew C. Lutz Chairman of the Board and May 21, 1999
- -------------------------------------- Executive Vice President of
Matthew C. Lutz Exploration and Business
Development
/s/Chris Tong
- -------------------------------------- Senior Vice President and Chief May 21, 1999
Chris Tong Financial Officer (principal
financial officer)
/s/David S. Krueger
- -------------------------------------- Vice President and Chief May 21, 1999
David S. Krueger Accounting Officer (principal
accounting officer)
/s/Larry W. Brummett
- -------------------------------------- Director May 21, 1999
Larry W. Brummett
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/David L. Kyle
- -------------------------------------- Director May 21, 1999
David L. Kyle
/s/ John H. Trescot, Jr.
- -------------------------------------- Director May 21, 1999
John H. Trescot, Jr.
/s/James E. Upfield
- -------------------------------------- Director May 21, 1999
James E. Upfeld
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
4.1 Form of Warrant Agreement by and between Magnum Hunter
Resources, Inc. and Securities Transfer Corporation as warrants
agent (including form of warrant certificate)
4.2 Form of warrant certificate
5 Opinion of Thompson & Knight, P.C.
23.1 Consent of Thompson & Knight, P.C. (included in Exhibit 5)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Rider Scott Company
23.4 Consent of Pollard, Gore & Harrison
24 Power of Attorney (included on signature page)
99.1 Form of Letter to Stockholders
99.2 Form of Letter to Brokers
II-5
Exhibit 4.1
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Agreement") is dated as of May __,1999,
between Magnum Hunter Resources, Inc., a Nevada corporation (the "Company"), and
Securities Transfer Corporation, a Texas corporation, as Warrant Agent (the
"Warrant Agent").
RECITALS
WHEREAS, the Company proposes to issue Warrants (the "Warrants") entitling
the holders thereof to purchase an aggregate of up to 10,512,149 shares of the
Company's Common Stock, $.002 par value per share (the "Common Stock"); and
WHEREAS, the Warrant Agent, at the request of the Company, has agreed to
act as the agent of the Company in connection with the issuance, registration,
transfer, exchange and exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereto agree as follows:
AGREEMENT
1. Appointment of Warrant Agent. The Company hereby appoints the Warrant
Agent to act as agent for the Company in accordance with the instructions
hereinafter set forth; and the Warrant Agent hereby accepts such appointment,
upon the terms and conditions hereinafter set forth.
2. Amount Issued. Subject to the provisions of this Agreement, the Company
shall issue and distribute to Record Holders (as defined below) transferable
Warrants to purchase an aggregate of 10,512,149 shares of Common Stock. The
Company shall distribute to holders of Common Stock, its 1996 Series A
Convertible Preferred Stock and its 1999 Series A 8% Convertible Preferred Stock
(collectively, "Record Holders") as of May 31, 1999 (the "Record Date") one (1)
Warrant for every three (3) shares of Common Stock held of record on the Record
Date; 0.63492 Warrant for every one (1) share of 1996 Series A Convertible
Preferred Stock held of record on the Record Date; and 63.402 Warrants for every
one (1) share of 1999 Series A 8% Convertible Preferred Stock held of record on
the Record Date. No fractional warrants or cash in lieu thereof will be issued
or paid. The number of Warrants distributed to each Record Holder will be
rounded down to the nearest whole number. Each Warrant shall entitle the holder
thereof to purchase one share of Common Stock at a price of $6.50 per share upon
exercise of the Warrant as herein provided.
3. Form of Warrant Certificates. The Warrants shall be evidenced by
certificates (the "Warrant Certificates") to be delivered pursuant to this
Agreement in registered form only. The Warrant Certificates and the forms of
election to purchase shares of Common Stock and of assignment to be printed on
the reverse thereof shall be in substantially the form set forth in Exhibit A
hereto together with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Agreement, and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with any law or with
any rules made pursuant thereto or with any rules of any securities exchange,
any
-1-
<PAGE>
agreement between the Company and any holder of a Warrant (a "Warrantholder"),
or as may, consistently herewith, be determined by the officers executing such
Warrant Certificates, as evidenced by their execution of such Warrant
Certificates.
4. Execution of Warrant Certificates. Warrant Certificates shall be signed
on behalf of the Company by its President or any Vice President, and by its
Treasurer, Secretary or Assistant Secretary by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be such officer of the Company before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be such officer of the Company.
5. Registration. The Warrant Certificates shall be numbered and shall be
registered in a register (the "Warrants Register") to be maintained by the
Warrant Agent. The Company and the Warrant Agent may deem and treat the
registered holder of a Warrant Certificate as the absolute owner thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for the purpose of any exercise thereof or any distribution to the
holder thereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
6. Registration of Transfers and Exchanges. Until the Close of Business on
the Expiration Date (as hereinafter defined), the Warrant Agent shall from time
to time register the transfer of any outstanding Warrant Certificates in the
Warrants Register, upon surrender of such Warrant Certificates, duly endorsed,
and, if not surrendered by or on behalf of an original holder of Warrant
Certificates or a transferee thereof, accompanied by a written instrument or
instruments of transfer in form satisfactory to the Warrant Agent, duly signed
by the registered holder or holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney, such signature to be
guaranteed by (a) a bank or trust company, (b) a broker or dealer that is a
member of the National Association of Securities Dealers, Inc. (the "NASD"), (c)
a member of a national securities exchange or (d) an "eligible guarantor
institution" as defined under Rule 17Ad-15 promulgated under the Securities
Exchange Act of 1934, as amended. Upon any such registration of transfer, a new
Warrant Certificate shall be issued to the transferee.
Warrant Certificates may be exchanged at the option of the holder or
holders thereof, when surrendered to the Warrant Agent at its offices or agency
maintained in Dallas, Texas (or at such other offices or agencies as may be
designated by the Agent) for the purpose of exchanging, transferring and
exercising the Warrants (a "Warrant Agent Office,") or at the offices of any
successor Warrant Agent as provided in Section 18 hereof, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants.
The Company shall not be required to issue any Warrant Certificate
evidencing a fraction of a Warrant or to issue fractions of shares of securities
on the exercise of the Warrants, and any fractional interest in a Warrant alone
shall be of no value whatsoever. By accepting a Warrant Certificate, the holder
thereof expressly waives any right to receive a Warrant Certificate evidencing
-2-
<PAGE>
any fraction of a Warrant, to receive any fractional share of securities upon
exercise of a Warrant, or to receive any value whatsoever upon exercise of a
fractional interest in a Warrant.
7. Duration and Exercise of Warrants; Exercise Price.
(a) Unless the Warrants are redeemed in accordance with Section 14, the
Warrants shall expire at (i) 5:00 p.m. New York City time (the "Close of
Business") on July 1, 2002, subject to extension, in the sole discretion of the
Company, in a written statement to the Warrant Agent and with at least thirty
(30) days' prior notice to registered Warrantholders in the manner provided for
in Section 15 (such date of expiration being hereinafter referred to as the
"Expiration Date"). At such time as the Warrants become exercisable, and
thereafter until the Close of Business on the Expiration Date, the Warrants may
be exercised on any business day. After the Close of Business on the Expiration
Date, the Warrants will become void and of no value.
(b) Subject to the provisions of this Agreement, each Warrant shall entitle
the holder thereof to purchase from the Company (and the Company shall issue and
sell to such holder of a Warrant) one fully paid and nonassessable share of
Common Stock at the price of $6.50 per share (the "Exercise Price").
(c) A Warrantholder shall exercise such Holder's right to purchase shares
of Common Stock by depositing with the Warrant Agent at a Warrant Agent Office,
the Warrant Certificate evidencing such Warrant with the form of election to
purchase on the reverse thereof duly completed and signed by the registered
holder or holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney, such signature (if not signed by or on behalf
of an original holder of Warrants) to be guaranteed in the manner described in
Section 6 hereof, and paying to the Warrant Agent an amount equal to the
Exercise Price multiplied by the number of shares of Common Stock in respect of
which the Warrants are being exercised. Payment shall be in lawful money of the
United States of America in cash or by official bank, certified check or
personal check made payable to the Warrant Agent for the account of the Company;
provided, however, if payment is made by personal check, sufficient time must be
allowed fro the check to clear prior to the Expiration Date. Once a
Warrantholder exercises a Warrant, that exercise may not be revoked.
Unless a Warrant Certificate (i) provides that the shares of Common Stock
to be issued pursuant to the exercise of Warrants represented thereby are to be
delivered directly to the holder of such Warrants or (ii) is submitted for the
account of an Eligible Institution, signatures on such Warrant Certificate must
be guaranteed by an Eligible Institution.
(e) Subject to Section 8, upon such surrender of a Warrant Certificate and
payment of the Exercise Price, and as soon as practicable thereafter, the
Warrant Agent, in its capacity as the Company's transfer agent (the "Transfer
Agent"), shall requisition for issuance and delivery to or upon the written
order of the registered holder of such Warrant Certificate and in such name or
names as such registered holder may designate, a certificate or certificates for
the share or shares of Common Stock issuable upon the exercise of the Warrants.
Such certificate or certificates shall be deemed to have been issued and any
person
-3-
<PAGE>
so designated to be named therein shall be deemed to have become the holder
of record of such share or shares of Common Stock upon the date of issuance
thereof.
The Exercise Price will be deemed to have been received by the Warrant
Agent only upon (i) clearance of any uncertified check, or (ii) receipt by the
Warrant Agent of any certified check or bank draft drawn upon a U.S. bank.
(f) The Warrants evidenced by a Warrant Certificate shall be exercisable,
at the election of the registered holder thereof, either as an entirety or from
time to time for a portion of the number of Warrants specified in the Warrant
Certificate. If less than all of the Warrants evidenced by a Warrant Certificate
surrendered upon the exercise of Warrants are exercised at any time prior to the
Expiration Date, a new Warrant Certificate or Certificates shall be issued for
the number of Warrants evidenced by the Warrant Certificate so surrendered that
have not been exercised.
(g) The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay or deliver to the Company all moneys and
other consideration received by it upon the purchase of shares of Common Stock
through the exercise of Warrants.
(h) If either the number of Warrants being exercised is not specified on a
Warrant Certificate, or the payment delivered is not sufficient to pay the full
aggregate Exercise Price for all shares of Common Stock stated to be subscribed
for, the Warrantholder will be deemed to have exercised the maximum number of
Warrants that could be exercised for the amount of the payment delivered by such
Warrantholder. If the payment delivered by the Warrantholder exceeds the
aggregate Exercise Price for the number of Warrants evidenced by the Warrant
Certificate(s) delivered by such Warrantholder, the payment will be applied,
until the Warrant is depleted, to subscribe for shares of Common Stock. Any
excess payment remaining after the foregoing allocation will be returned to such
Warrantholder.
(i) No issuance of shares of Common Stock upon exercise of Warrants shall
be made unless there is a current prospectus covering such shares of Common
Stock under an effective registration statement under the Securities Act (or an
exemption therefrom), and registration or qualification of such shares of Common
Stock (or an exemption therefrom) has been obtained from the state or other
regulatory authorities in the jurisdiction in which such shares of Common Stock
are sold. The Company will provide to the Warrant Agent written confirmation of
such registration or qualification, or an exemption therefrom, when requested by
the Warrant Agent, and the determination of the Company shall be final and
binding on the Warrant Agent and each Warrantholder.
(j) Notwithstanding any other provision of this Agreement to the contrary,
no issuance of shares of Common Stock shall be made, and the Company is
authorized to refuse to honor the exercise of any Warrant, if the exercise of
any Warrant would result, in the opinion of the Company's Board of Directors
upon advice of counsel, in the violation of law.
8. Cancellation of Warrants. If the Company shall purchase or otherwise
acquire Warrants, the Warrant Certificates representing such Warrants shall
thereupon be delivered to the
-4-
<PAGE>
Warrant Agent and be canceled by it and retired. The Warrant Agent shall cancel
all Warrant Certificates surrendered for exchange, substitution, transfer or
exercise in whole or in part.
9. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the initial issuance of Warrants and of shares of Common Stock
upon the exercise of Warrants; provided, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer involved
in the issue of any Warrant Certificates or any certificates for shares of
Common Stock in a name other than the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid or adequate provision has been made for the payment
thereof.
10. Mutilated or Missing Warrant Certificates. If any of the Warrant
Certificates shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, and the Warrant Agent shall deliver, in exchange and
substitution for and upon cancellation of the mutilated Warrant Certificate, or
in lieu of and substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant Certificate and indemnity or bond, if requested, also satisfactory to
them. Applicants for such substitute Warrant Certificates shall also comply with
such other reasonable regulations and pay such other reasonable charges as the
Company or the Warrant Agent may prescribe.
11. Reservation of Shares of Common Stock. For the purpose of enabling it
to satisfy any obligation to issue shares of Common Stock upon exercise of
Warrants, the Company will at all times through the Close of Business on the
Expiration Date, reserve and keep available, free from preemptive rights and out
of its aggregate authorized but unissued shares of Common Stock, the number of
shares of Common Stock deliverable upon the exercise of all outstanding Warrants
and the Transfer Agent is hereby irrevocably authorized and directed at all
times to reserve such number of authorized and unissued shares of Common Stock
as shall be required for such purpose. The Warrant Agent, in its capacity as
Transfer Agent, is hereby irrevocably authorized to requisition from time to
time stock certificates issuable upon exercise of outstanding Warrants.
Before taking any action that would cause an adjustment pursuant to Section
13(b) reducing the Exercise Price below the then par value (if any) of the
shares of Common Stock issuable upon exercise of the Warrants, the Company will
take any corporate action that may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at the Exercise Price as so adjusted.
The Company covenants that all shares of Common Stock issued upon exercise
of the Warrants will, upon issuance in accordance with the terms of this
Agreement, be fully paid and nonassessable and free from all liens, charges and
security interests created by or imposed upon the Company with respect to the
issuance thereof.
12. Registration of Warrants and Shares of Common Stock. The Company has
filed with the SEC a registration statement on Form S-3 (the "Registration
Statement") which has been or will
-5-
<PAGE>
be declared effective. Except as set forth in the last sentence of this Section
12, the Company will use its best efforts to keep the Registration Statement
continuously effective from the date hereof through the Expiration Date and to
keep such registration statement and prospectus included therein current while
any of the Warrants are outstanding. So long as any unexpired Warrants remain
outstanding, the Company will in good faith and as expeditiously as possible
endeavor to obtain and keep effective any and all permits, consents and
approvals of government agencies and authorities and to make filings under
federal and state securities acts and laws, which may be or become necessary in
connection with the issuance, sale, transfer and delivery of the Warrant
Certificates, the exercise of the Warrants and the issuance, sale, transfer and
delivery of the shares of Common Stock issued upon exercise of Warrants.
However, Warrants may not be exercised or sold by, nor may shares of Common
Stock or other securities be issued to, any registered Warrantholder in any
state or jurisdiction in which such exercise or sale would be unlawful.
Notwithstanding anything to the contrary in this Section 12, the Company shall
not be required to keep the Registration Statement, or any other registration
statement covering the shares of Common Stock issuable upon exercise of the
Warrants, or any related prospectus current if in the reasonable judgment of the
Company the discrepancy between the market price of the Common Stock and the
Exercise Price makes it extremely unlikely that the Warrants will be exercised.
13. Adjustment of Exercise Price and Number of Shares of Common Stock
Purchasable or Number of Warrants.
(a) Except as provided in subsection (b) or (d) below, the Exercise Price
and the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall not be adjusted prior to the Expiration Date or upon exercise of
any Warrant or Warrants.
(b) If the Company shall (i) pay a dividend on its shares of Common Stock
in shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) reclassify the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), the number of shares of Common Stock
purchasable upon exercise of each Warrant immediately prior thereto and the
Exercise Price payable therefor shall be adjusted so that the holder of each
Warrant shall be entitled upon exercise to receive, for the same aggregate
consideration, the kind and number of shares of Common Stock or other securities
of the Company which such holder would have owned or have been entitled to
receive after the happening of any of the events described above, had such
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this
subparagraph (b) shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event. In addition,
in the event of any reclassification of the Common Stock, references in this
Agreement to Common Stock shall thereafter be deemed to refer to the securities
into which the Common Stock shall have been reclassified.
(c) In case of any consolidation of the Company with or merger of the
Company into another corporation or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety or the Company is a party to a merger or binding share exchange which
reclassifies or changes its outstanding
-6-
<PAGE>
shares of Common Stock, the Company or such successor or purchasing
corporation, as the case may be, shall execute with the Warrant Agent an
agreement, in form and substance substantially equivalent to this Agreement,
that each holder of a Warrant Certificate shall have the right thereafter,
subject to terms and conditions substantially equivalent to those contained in
this Agreement, upon payment of the Exercise Price in effect immediately prior
to such action to purchase upon exercise of each Warrant the kind and amount of
shares and other securities and property which such holder would have owned or
have been entitled to receive after the happening of such consolidation, merger,
sale or conveyance had such Warrant been exercised immediately prior to such
action. The Company shall mail by first-class mail, postage prepaid, to each
registered holder of a Warrant, notice of the execution of any such agreement.
Such agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
13. The provisions of this subparagraph (c) shall similarly apply to successive
consolidations, mergers, sales or conveyances. The Warrant Agent shall be under
no duty or responsibility to determine the correctness of any provisions
contained in any such agreement relating either to the kind or amount of shares
of stock or other securities or property receivable upon exercise of Warrants or
with respect to the method employed and provided therein for any adjustments and
shall be entitled to rely upon the provisions contained in any such agreement.
(d) The Company shall have the right, at any time, voluntarily to reduce
the then current Exercise Price to such amount (the "Reduced Exercise Price")
and for such period or periods of time which may be through the Close of
Business on the Expiration Date (the "Reduced Exercise Price Period") as may be
deemed appropriate by the Board of Directors of the Company. Notice of any such
Reduced Exercise Price and Reduced Exercise Price Period shall be given to the
registered Warrantholders in the manner provided in Section 15 and to the
Warrant Agent in the manner provided in Section 21. After the termination of the
Reduced Exercise Price Period, the Exercise Price shall be such Exercise Price
which would have been in effect, as adjusted pursuant to subsection (b) above,
had there been no reduction in the Exercise Price pursuant to the provisions of
this subsection (d). Any adjustment in the Exercise Price pursuant to subsection
(b) above during the Reduced Exercise Price Period shall also be made in the
Reduced Exercise Price in the manner specified in subsection (b) above.
14. Redemption.
(a) At any time the Company may, at its option, redeem the Warrants in
whole, but not in part, for a redemption price of $0.01 per Warrant (subject to
equitable adjustment to reflect stock splits, stock dividends, stock
combinations, recapitalizations and like occurrences), on at least thirty (30)
days' prior written notice to the registered Warrantholders. In the event the
Company exercises its right to redeem the Warrants, the Expiration Date shall be
deemed to be, and the Warrants will be exercisable until the close of business
on, the date fixed for redemption in such notice. If any Warrant called for
redemption is not exercised by such time, it will cease to be exercisable and
the registered holder thereof will be entitled only to the redemption price of
$0.01 per Warrant.
(b) In case the Company shall exercise its right to redeem all of the
Warrants, it
-7-
<PAGE>
shall give or cause to be given notice to the registered Warrantholders, by
mailing to such registered Warrantholders a notice of redemption, first class,
postage prepaid, at their last address as shall appear on the records of the
Warrant Agent. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given, whether or not the registered
Warrantholder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price, (ii)
the date fixed for redemption, which shall in no event be less than thirty (30)
days after the date of mailing of such notice, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price shall be paid, and (iv)
that the right to exercise the Warrant shall terminate at 5:00 p.m. New York
City time on the business day fixed for redemption. The date fixed for the
redemption of the Warrants shall be the "Redemption Date" for purposes of this
Agreement. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a holder (A) to whom notice was not mailed or (B) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. New York
City time on the Redemption Date. The redemption price payable to the registered
Warrantholders shall be mailed to such persons at their addresses of record.
15. Notices to Warrantholders.
If:
(a) the Company shall declare any dividend payable in any securities upon
its shares of Common Stock or make any distribution (other than a cash dividend
declared in the ordinary course) to the holders of its shares of Common Stock,
or
(b) the Company shall offer to the holders of its shares of Common Stock
any additional shares of Common Stock or securities convertible or exchangeable
into shares of Common Stock or any right to subscribe for or purchase Common
Stock, or
(c) there shall be a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger or sale of all or
substantially all of its property, assets and business as an entirety), or
(d) the Company fixes a Reduced Exercise Price and Reduced Exercise Price
Period,
then the Company shall cause written notice of such event to be filed with
the Warrant Agent and shall cause written notice of such event to be given to
each of the registered holders of the Warrant Certificates at such holder's
address appearing on the Warrants Register, by first-class mail, postage
prepaid, such giving of notice to be completed (i) except in the case of clause
(d) above, at least ten (10) calendar days (or twenty (20) calendar days in any
case
-8-
<PAGE>
specified in clause (c) above) prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the stockholders
entitled to such dividend, distribution or subscription rights, or for the
determination of stockholders entitled to vote on such proposed dissolution,
liquidation or winding up and (2) in the case of clause (d) above, as soon as
practicable after such event. Such notice shall, as and if applicable, specify
such record date or the date of closing the transfer books, as the case may be.
The failure to give the notice required by this Section 15 or any defect therein
shall not affect the legality or validity of any dividend, distribution, right,
option, warrant, dissolution, liquidation or winding up or the vote upon or any
other action taken in connection therewith.
16. Merger, Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the shareholder services business of the Warrant
Agent, shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Warrant Agent under the provisions of Section 18.
17. Warrant Agent. The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Warrant Certificates, by their acceptance
thereof, shall be bound:
(a) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company nor shall it at any
time be under any duty or responsibility to any holder of a Warrant to make or
cause to be made any adjustment in the Exercise Price or in the number of shares
of Common Stock issuable upon exercise of any Warrants (except as instructed by
the Company);
(b) The Company agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, liabilities and expenses, including judgments, costs
and reasonable counsel fees and expenses, for anything done or omitted by the
Warrant Agent arising out of or in connection with this Agreement except as a
result of its gross negligence or bad faith;
(c) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Warrant Agent for the carrying out or performing of the provisions of
this Agreement; and
(d) The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chief Executive Officer, Executive Vice President, the Treasurer or an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
shall not be liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer or in good faith
reliance upon any statement signed by any one of such officers of the Company
with respect to any fact or matter (unless other evidence in respect thereof is
herein specifically
-9-
<PAGE>
prescribed) which may be deemed to be conclusively proved and established
by such signed statement.
18. Change of Warrant Agent. If the Warrant Agent shall resign (such
resignation to become effective not earlier than sixty (60) days after the
giving of written notice thereof to the Company and the registered holders of
Warrant Certificates) or shall become incapable of acting as Warrant Agent or if
the Board of Directors of the Company shall by resolution remove the Warrant
Agent (such removal to become effective not earlier than thirty (30) days after
the filing of a certified copy of such resolution with the Warrant Agent and the
giving of written notice of such removal to the registered holders of Warrant
Certificates), the Company shall appoint a successor to the Warrant Agent. If
the Company shall fail to make such appointment within a period of thirty (30)
days after such removal or after it has been so notified in writing of such
resignation or incapacity by the Warrant Agent or by the registered holder of a
Warrant Certificate (in the case of incapacity), then the registered holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by such a court, the
duties of the Warrant Agent shall be carried out by the Company. Any successor
Warrant Agent, whether appointed by the Company or by such a court, shall be a
bank or trust company, in good standing, incorporated under the laws of any
state or of the United States of America. As soon as practicable after
appointment of the successor Warrant Agent, the Company shall cause written
notice of the change in the Warrant Agent to be given to each of the registered
holders of the Warrant Certificates at such holder's address appearing on the
Warrants Register. After appointment, the successor Warrant Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed. The former
Warrant Agent shall deliver and transfer to the successor Warrant Agent, the
Warrants Register and any other property at the time held by it hereunder and
execute and deliver, at the expense of the Company, any further assurance,
conveyance, act or deed necessary for that purpose. Failure to give any notice
provided for in this Section 18 or any defect therein, shall not affect the
legality or validity of the removal of the Warrant Agent or the appointment of a
successor Warrant Agent, as the case may be.
19. Warrantholder Not Deemed a Stockholder. Nothing contained in this
Agreement or in any of the Warrant Certificates shall be construed as conferring
upon the holders thereof the right to vote or to receive dividends or to consent
or to receive notice as stockholders in respect of the meetings of stockholders
or for the election of directors of the Company or any other matter, or any
rights whatsoever as stockholders of the Company.
20. Delivery of Prospectus. Subject to Section 12, if the Company is
required under applicable federal or state securities laws to deliver a
prospectus upon exercise of Warrants, the Company will furnish to the Warrant
Agent sufficient copies of a prospectus, and the Warrant Agent agrees that upon
the exercise of any Warrant Certificate by the holder thereof, the Warrant Agent
will deliver to such holder, prior to or concurrently with the delivery of the
certificate or certificates for the shares of Common Stock issued upon such
exercise, a copy of the prospectus.
21. Notices to Company and Warrant Agent. Any notice or demand authorized
by this Agreement to be given or made by the Warrant Agent or by any registered
holder of any Warrant Certificate to or on the Company shall be sufficiently
given or made if sent by mail, first-class or registered, postage prepaid,
addressed (until another address is filed in writing by the Company with the
Warrant Agent), as follows:
-10-
<PAGE>
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
Attention: General Counsel
If the Company shall fail to maintain such office or agency or shall fail
to give such notice of any change in the location thereof, presentation may be
made and notices and demands may be served at the principal office of the
Warrant Agent.
Any notice pursuant to this Agreement to be given by the Company or by any
registered holder of any Warrant Certificate to the Warrant Agent shall be
sufficiently given if sent by first-class mail, postage prepaid, addressed
(until another address is filed in writing by the Warrant Agent with the
Company), as follows:
Securities Transfer Corporation
P.O. Box 70701629
Dallas, Texas 75370
Attention: Mr. George Johnson
22. Supplements and Amendments. The Company and the Warrant Agent may from
time to time supplement or amend this Agreement without the approval of any
holders of Warrant Certificates in order to cure any ambiguity, manifest error
or other mistake in this Agreement, or to correct or supplement any provision
contained herein that may be defective or inconsistent with any other provision
herein, or to make any other provisions in regard to matters or questions
arising hereunder that the Company and the Warrant Agent may deem necessary or
desirable and that shall not adversely affect, alter or change the interests of
the holders of the Warrants in any material respect.
Any supplement or amendment of this Agreement which may not be made by the
Company and the Warrant Agent without the approval of holders of Warrant
Certificates pursuant to the preceding paragraph shall require the approval of
the Company, the Warrant Agent and the holders of Warrant Certificates entitled
to purchase upon exercise thereof a majority of the shares of Common Stock which
may be purchased upon the exercise of all outstanding Warrant Certificates at
the time that such amendment or supplement is to be made. Notwithstanding the
foregoing, any amendment or supplement to this Agreement which would provide for
an adjustment to either (i) the number of shares of Common Stock purchasable
upon exercise of a Warrant or (ii) the exercise price for which shares of Common
Stock are purchasable upon exercise of a Warrant, in either case, in a manner
not provided for in this Agreement and in a manner that would have a substantial
negative impact on the holders of Warrant Certificates, shall require the
consent of the holders of Warrant Certificates entitled to purchase upon
exercise thereof seventy-five percent (75%) of the shares of Common Stock which
may be purchased upon the exercise of all outstanding Warrant Certificates at
the time such amendment or supplement is to be made.
23. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
-11-
<PAGE>
24. Termination. This Agreement shall terminate at the Close of Business on
the Expiration Date or such earlier date upon which all Warrants have been
exercised, except that the Warrant Agent shall account to the Company for cash
held by it and the provisions of Section 17 shall survive such termination. Upon
termination of the Agreement, the Warrant Agent shall retain all canceled
Warrant Certificates and related documentation as required by applicable law.
25. Governing Law. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Texas and for all purposes shall be construed in accordance with the internal
laws of the State of Texas without regard to principles of conflict of law or
choice of laws of the State of Texas or any other jurisdiction which would cause
the application of any laws other than of the State of Texas.
26. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant Certificates any legal
or equitable right, remedy or claim under this Agreement, and this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrant Certificates.
27. Counterparts. This Agreement may be executed in a number of
counterparts and each of such counterparts shall all for purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
28. Headings. The headings of sections of this Agreement have been inserted
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms or provisions hereof.
-12-
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Warrants Agreement
to be executed and delivered as of the day and year first above written.
MAGNUM HUNTER RESOURCES, INC.
By:
Name:
Title:
Attest:
By:
Name:
Title:
SECURITIES TRANSFER CORPORATION
By:
Name:
Title:
Attest:
By:
Name:
Title:
-13-
<PAGE>
EXHIBIT A
NO. W- WARRANTS
COMMON STOCK PURCHASE WARRANT CERTIFICATE
MAGNUM HUNTER RESOURCES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
VOID (UNLESS EXTENDED) AFTER 5:00 P.M., NEW YORK CITY TIME,
ON JULY 1, 2002
THIS CERTIFIES THAT, for value received, or registered assigns (the
"Registered Holder"), is the owner of the number of Common Stock Purchase
Warrants (the "Warrants") set forth above. Each Warrant entitles the Registered
Holder to purchase, subject to the terms and conditions set forth in this
Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of Common Stock, par value $.002 per share
(the "Common Stock"), of Magnum Hunter Resources, Inc., a Nevada corporation
(the "Company"), at any time prior to at 5:00 p.m., New York City time, on July
1, 2002 (the "Expiration Date"), upon the presentation and surrender of this
Warrant Certificate with the Election to Purchase Form on the reverse hereof
duly executed, at the corporate office of Securities Transfer Corporation as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$6.50 per Warrant, subject to adjustment (the "Warrant Price"), and any and all
applicable taxes due in connection with the exercise of the Warrant, in lawful
money of the United States of America in cash or by official bank, certified
check or personal check made payable to the Warrant Agent for the account of the
Company; provided, however, if payment is made by personal check, sufficient
time must be allowed fro the check to clear prior to the Expiration Date.
THIS WARRANT CERTIFICATE AND EACH WARRANT REPRESENTED HEREBY ARE ISSUED
PURSUANT TO AND ARE SUBJECT IN ALL RESPECTS TO THE TERMS AND CONDITIONS SET
FORTH IN THE WARRANT AGREEMENT (THE "WARRANT AGREEMENT"), DATED AS OF MAY __,
1999, BY AND BETWEEN THE COMPANY AND THE WARRANT AGENT. REFERENCE IS HEREBY MADE
TO THE WARRANT AGREEMENT FOR A MORE COMPLETE STATEMENT OF THE RIGHTS AND
LIMITATIONS OF RIGHTS OF THE REGISTERED HOLDERS HEREOF, THE RIGHTS AND DUTIES OF
THE WARRANT AGENT AND THE RIGHTS AND OBLIGATIONS OF THE COMPANY THEREUNDER.
COPIES OF THE WARRANT AGREEMENT ARE ON FILE AT THE OFFICE OF THE WARRANT AGENT.
In the event of certain contingencies provided for in the Warrant
Agreement, the Warrant Price and the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment. The Company also has the right voluntarily to lower
the Warrant Price, as set forth in the Warrant Agreement.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent in Dallas, Texas,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment together with any tax
or other charge imposed in connection therewith, for registration of transfer of
this Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
<PAGE>
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Common Stock or other securities
purchasable upon the exercise of this Warrant Certificate are closed for any
purpose, the Warrant Agent shall not be required to make delivery of
certificates for the securities purchasable upon such exercise until the date of
the reopening of such transfer books.
No issuance of shares of Common Stock upon exercise of Warrants shall be
made unless there is a current prospectus covering such shares of Common Stock
under an effective registration statement under the Securities Act of 1933, as
amended (or an exemption therefrom), and registration or qualification of such
shares of Common Stock (or an exemption therefrom) has been obtained from the
state or other regulatory authorities in the jurisdiction in which such shares
of Common Stock are sold. The Company will provide to the Warrant Agent written
confirmation of such registration or qualification, or an exemption therefrom,
when requested by the Warrant Agent, and the determination of the Company shall
be final and binding on the Warrant Agent and each Registered Holder. No Warrant
represented hereby shall be exercised or sold by a Registered Holder in any
state or other jurisdiction where such exercise would be unlawful.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole or in part, at a redemption
price of $.01 per Warrant, at any time, and notice of redemption (the "Notice of
Redemption") shall be given not less than 30 days before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
this Warrant except to receive the $.01 per Warrant upon surrender of this
Warrant Certificate.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer of this Warrant
Certificate, the Company and the Warrant Agent may deem and treat the Registered
Holder as the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent), for
all purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Texas, without giving effect to conflicts of laws
principles.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized, and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________________, 1999
MAGNUM HUNTER RESOURCES, INC.
By:
Gary C. Evans, President
and Chief Executive Officer
ATTEST:
By:
Morgan F. Johnston, Secretary
COUNTERSIGNED:
SECURITIES TRANSFER CORPORATION
as Warrant Agent
By:
Authorized Officer
<PAGE>
MAGNUM HUNTER RESOURCES, INC.
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT.Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of Under Uniform Gifts to Minors Act
survivorship and not as tenants in
common ___________________________
(State)
Additional abbreviations may also be used though not in the above list.
ELECTION TO PURCHASE FORM
(To be Executed by the Holder In Order to Exercise
Warrants Represented by the Within Warrant Certificate)
To: MAGNUM HUNTER RESOURCES, INC.
The undersigned Registered Holder hereby irrevocably elects to exercise
_____________ Warrants, represented by the within Warrant Certificate, and to
purchase the securities issuable upon exercise of such Warrants, and requests
that certificates for such securities be issued in the name of:
(Please Print or Type, Name, Address and Social Security
or Federal Tax Identification Number)
and, if such number of Warrants shall not be all the Warrants represented
by the within Warrant Certificate, that a new Warrant Certificate for the
balance of such Warrants be registered in the name of, and delivered to the
Registered Holder at the address stated below. The understands and agrees that
the Company may require Registered Holders to establish their exemptions from
backup withholding or to arrange for payment of backup withholding.
Dated: ,
Name of holder of this Warrant Certificate:
(Please Print or Type)
Address:
Signature:
NOTICE: The above signature must correspond with the name as written
upon the face of the within Warrant Certificate in every
particular, without alternation or enlargement or any change
whatsoever, or if signed by any other person the Form of
Assignment hereon must be duly executed and if the certificate
representing the shares or any Warrant Certificate
representing Warrants not exercised is to be registered in a
name other than that in which the within Warrant Certificate
is registered, the signature of the holder hereto must be
guaranteed.
<PAGE>
Signature Guaranteed:
ASSIGNMENT
(To Be Executed by the Registered Holder In Order to
Assign Warrants Evidenced by the Within Warrant Certificate)
For value received, the undersigned hereby sells, assigns and transfers
unto
(Name and Address of Assignee)(Print or Type)
(Social Security or Federal Tax Identification
Number of Assignee)
the within Warrants, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint attorney, to transfer said
Warrants on the books of the within-named Company, with full power of
substitution in the premises.
Dated: , _____
Signature of Registered Holder:
NOTICE: The above signature must correspond with the name as written upon
the face of the within Warrant Certificate in every particular, without
alternation or enlargement or any change whatsoever.
Signature Guaranteed:
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A
MEMBER FIRM OF THE NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, AMERICAN
STOCK EXCHANGE, CHICAGO STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
NO. W- WARRANTS
COMMON STOCK PURCHASE WARRANT CERTIFICATE
MAGNUM HUNTER RESOURCES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
VOID (UNLESS EXTENDED) AFTER 5:00 P.M., NEW YORK CITY TIME,
ON JULY 1, 2002
THIS CERTIFIES THAT, for value received, or registered assigns (the
"Registered Holder"), is the owner of the number of Common Stock Purchase
Warrants (the "Warrants") set forth above. Each Warrant entitles the Registered
Holder to purchase, subject to the terms and conditions set forth in this
Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of Common Stock, par value $.002 per share
(the "Common Stock"), of Magnum Hunter Resources, Inc., a Nevada corporation
(the "Company"), at any time prior to at 5:00 p.m., New York City time, on July
1, 2002 (the "Expiration Date"), upon the presentation and surrender of this
Warrant Certificate with the Election to Purchase Form on the reverse hereof
duly executed, at the corporate office of Securities Transfer Corporation as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$6.50 per Warrant, subject to adjustment (the "Warrant Price"), and any and all
applicable taxes due in connection with the exercise of the Warrant, in lawful
money of the United States of America in cash or by official bank, certified
check or personal check made payable to the Warrant Agent for the account of the
Company; provided, however, if payment is made by personal check, sufficient
time must be allowed fro the check to clear prior to the Expiration Date.
THIS WARRANT CERTIFICATE AND EACH WARRANT REPRESENTED HEREBY ARE ISSUED
PURSUANT TO AND ARE SUBJECT IN ALL RESPECTS TO THE TERMS AND CONDITIONS SET
FORTH IN THE WARRANT AGREEMENT (THE "WARRANT AGREEMENT"), DATED AS OF MAY __,
1999, BY AND BETWEEN THE COMPANY AND THE WARRANT AGENT. REFERENCE IS HEREBY MADE
TO THE WARRANT AGREEMENT FOR A MORE COMPLETE STATEMENT OF THE RIGHTS AND
LIMITATIONS OF RIGHTS OF THE REGISTERED HOLDERS HEREOF, THE RIGHTS AND DUTIES OF
THE WARRANT AGENT AND THE RIGHTS AND OBLIGATIONS OF THE COMPANY THEREUNDER.
COPIES OF THE WARRANT AGREEMENT ARE ON FILE AT THE OFFICE OF THE WARRANT AGENT.
In the event of certain contingencies provided for in the Warrant
Agreement, the Warrant Price and the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment. The Company also has the right voluntarily to lower
the Warrant Price, as set forth in the Warrant Agreement.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent in Dallas, Texas,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment together with any tax
or other charge imposed in connection therewith, for registration of transfer of
this Warrant Certificate at such office, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
<PAGE>
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Common Stock or other securities
purchasable upon the exercise of this Warrant Certificate are closed for any
purpose, the Warrant Agent shall not be required to make delivery of
certificates for the securities purchasable upon such exercise until the date of
the reopening of such transfer books.
No issuance of shares of Common Stock upon exercise of Warrants shall be
made unless there is a current prospectus covering such shares of Common Stock
under an effective registration statement under the Securities Act of 1933, as
amended (or an exemption therefrom), and registration or qualification of such
shares of Common Stock (or an exemption therefrom) has been obtained from the
state or other regulatory authorities in the jurisdiction in which such shares
of Common Stock are sold. The Company will provide to the Warrant Agent written
confirmation of such registration or qualification, or an exemption therefrom,
when requested by the Warrant Agent, and the determination of the Company shall
be final and binding on the Warrant Agent and each Registered Holder. No Warrant
represented hereby shall be exercised or sold by a Registered Holder in any
state or other jurisdiction where such exercise would be unlawful.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole or in part, at a redemption
price of $.01 per Warrant, at any time, and notice of redemption (the "Notice of
Redemption") shall be given not less than 30 days before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
this Warrant except to receive the $.01 per Warrant upon surrender of this
Warrant Certificate.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer of this Warrant
Certificate, the Company and the Warrant Agent may deem and treat the Registered
Holder as the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent), for
all purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Texas, without giving effect to conflicts of laws
principles.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized, and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________________, 1999
MAGNUM HUNTER RESOURCES, INC.
By:
Gary C. Evans, President
and Chief Executive Officer
ATTEST:
By:
Morgan F. Johnston, Secretary
COUNTERSIGNED:
SECURITIES TRANSFER CORPORATION
as Warrant Agent
By:
Authorized Officer
<PAGE>
MAGNUM HUNTER RESOURCES, INC.
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT.Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of Under Uniform Gifts to Minors Act
survivorship and not as tenants in
common ___________________________
(State)
Additional abbreviations may also be used though not in the above list.
ELECTION TO PURCHASE FORM
(To be Executed by the Holder In Order to Exercise
Warrants Represented by the Within Warrant Certificate)
To: MAGNUM HUNTER RESOURCES, INC.
The undersigned Registered Holder hereby irrevocably elects to exercise
_____________ Warrants, represented by the within Warrant Certificate, and to
purchase the securities issuable upon exercise of such Warrants, and requests
that certificates for such securities be issued in the name of:
(Please Print or Type, Name, Address and Social Security
or Federal Tax Identification Number)
and, if such number of Warrants shall not be all the Warrants represented
by the within Warrant Certificate, that a new Warrant Certificate for the
balance of such Warrants be registered in the name of, and delivered to the
Registered Holder at the address stated below. The understands and agrees that
the Company may require Registered Holders to establish their exemptions from
backup withholding or to arrange for payment of backup withholding.
Dated: ,
Name of holder of this Warrant Certificate:
(Please Print or Type)
Address:
Signature:
NOTICE: The above signature must correspond with the name as written
upon the face of the within Warrant Certificate in every
particular, without alternation or enlargement or any change
whatsoever, or if signed by any other person the Form of
Assignment hereon must be duly executed and if the certificate
representing the shares or any Warrant Certificate
representing Warrants not exercised is to be registered in a
name other than that in which the within Warrant Certificate
is registered, the signature of the holder hereto must be
guaranteed.
<PAGE>
Signature Guaranteed:
ASSIGNMENT
(To Be Executed by the Registered Holder In Order to
Assign Warrants Evidenced by the Within Warrant Certificate)
For value received, the undersigned hereby sells, assigns and transfers
unto
(Name and Address of Assignee)(Print or Type)
(Social Security or Federal Tax Identification
Number of Assignee)
the within Warrants, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint attorney, to transfer said
Warrants on the books of the within-named Company, with full power of
substitution in the premises.
Dated: , _____
Signature of Registered Holder:
NOTICE: The above signature must correspond with the name as written upon
the face of the within Warrant Certificate in every particular, without
alternation or enlargement or any change whatsoever.
Signature Guaranteed:
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A
MEMBER FIRM OF THE NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, AMERICAN
STOCK EXCHANGE, CHICAGO STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
Exhibit 5
[Thompson & Knight, P.C. Letterhead]
(214) 969-1700
May 19, 1999
Magnum Hunter Resources, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
Re: Registration Statement on Form S-3
Gentlemen:
We have acted as counsel for Magnum Hunter Resources, Inc. (the "Company")
in connection with its Registration Statement on Form S-3, filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), as such Registration Statement may
be amended from time to time (the "Registration Statement"). The Registration
Statement covers the registration of 10,512,149 shares ( the "Shares") of the
Company's common stock, par value $.002 per share, and of 10,512,149
transferable warrants (the "Warrants") which are exercisable for the Shares. The
Company proposes to issue the Shares upon the exercise of the Warrants, as
described in the Registration Statement. In connection with the filing of the
Registration Statement, you have requested our opinion concerning certain
corporate matters.
In connection with rendering the opinion expressed below, we have examined
the originals or copies, certified or otherwise authenticated to our
satisfaction, of such corporate records of the Company, certificates of public
officials and other instruments and documents as we have deemed necessary to
require as a basis for the opinions hereafter expressed. As to questions of fact
material to such opinions, we have, where relevant facts were not independently
established, relied upon statements of officers of the Company.
Based upon the foregoing and the further qualifications stated below and
subject to the effectiveness of the Registration Statement, we are of the
opinion that:
1. Upon distribution of the Warrants as described in the Registration
Statement and the prospectus constituting a part of the Registration Statement
(the "Prospectus"), such Warrants will be legally issued and will be binding
obligations of the Company.
2. Upon issuance and sale against payment therefor as described in the
Registration Statement and the Prospectus, the Shares will be legally issued,
fully-paid and non-assessable.
<PAGE>
May 19, 1999
Page 2
As used in this opinion, the terms "Shares" and "Warrants" shall be deemed
to include such number of additional Shares and Warrants as may be added to the
Registration Statement by amendment in order to take into account any changes in
the number of issued and outstanding shares of the Company's common stock or
convertible preferred stock prior to the Record Date (as defined in the
Prospectus).
This opinion is subject to the qualification that we are members of the
State Bar of Texas and do not purport to be experts on the laws of any state or
jurisdiction other than the State of Texas and the United States. Insofar as
this opinion relates to matters governed by Nevada law, we have relied solely
upon a reading of the General Corporation Law of the State of Nevada and have
not made any investigation of judicial or administrative decisions or
interpretations which may affect such matters.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement and to the reference to us in the
Prospectus under the caption "Legal Matters." In giving this consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act or within the rules or
regulations of the Commission thereunder.
Very truly yours,
THOMPSON & KNIGHT,
A Professional Corporation
By: /s/ David E. Morrison
David E. Morrison, Attorney
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
of Magnum Hunter Resources, Inc. on Form S-3 of our report dated April 6, 1999
appearing in the Annual Report on Form 10-K of Magnum Hunter Resources, Inc. for
the year ended December 31, 1998 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Dallas, Texas
May 21, 1999
[Ryder Scott Company Petroleum Engineers Letterhead]
CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS
We hereby consent to the incorporation by reference in the prospectus
constituting part of this Registration Statement on Form S-3 of references to
our firm and our report and of our estimates of reserves in Magnum Hunter
Resources, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the reference to us under the heading "Experts" in such
prospectus.
/s/ Ryder Scott Company Petroleum Engineers
Ryder Scott Company Petroleum Engineers
Houston, Texas
May 18, 1999
[Pollard, Gore & Harrison Letterhead]
CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS
We hereby consent to the incorporation by reference in the prospectus
constituting part of this Registration Statement on Form S-3 of references to
our firm and our report and of our estimates of reserves in Magnum Hunter
Resources, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the reference to us under the heading "Experts" in such
prospectus.
/s/ Pollard, Gore & Harrison
Pollard, Gore & Harrison
May 18, 1999
Exhibit 99.1
MAGNUM HUNTER RESOURCES, INC.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
June__, 1999
Dear Stockholder:
Enclosed are the Prospectus and other materials relating to the warrants
offering by Magnum Hunter Resources, Inc. ("Magnum Hunter").
Please carefully review the Prospectus, which describes how you can
participate in the warrants offering. You will find answers to some frequently
asked questions about the warrants offering beginning on page 4 of the
Prospectus.
Summary of Terms of the Offering
o If you own our common stock, you will receive one transferable warrant
for every three shares of Magnum Hunter common stock you owned on May
31, 1999. If you own shares of our 1996 Series A Convertible Preferred
Stock, you will receive .6342 warrant for every share of such preferred
stock you owned on May 31, 1999. If you own shares of our 1999 Series A
8% Convertible Preferred Stock, you will receive 63.402 warrants for
every share of such preferred stock you owned on May 31, 1999.
o You may purchase one share of common stock for each warrant you receive
at the exercise price of $6.50 per share.
o The warrants will expire at 5:00 p.m., New York City time, on July 1,
2002. If you do not exercise or sell your warrants before that date,
they will expire and will have no monetary value.
If your shares are held in your name, a Warrant Certificate is enclosed. If
your shares are held in the name of your bank or broker, you must contact your
bank or broker if you wish to participate in this offering.
There is currently no active trading market for the warrants. We intend to
apply for a listing or quotation of the warrants on the American Stock Exchange.
However, we cannot assure you that you will be able to sell your warrants at all
or at a price that is satisfactory to you.
If you do not exercise your warrants, your ownership in Magnum Hunter may
be diluted. Please see page 8 of the Prospectus for a discussion of dilution and
other risk factors.
Gary C. Evans
[SIGNATURE APPEARS HERE]
President and Chief Executive Officer
If you have any questions concerning the warrants offering, please feel
free to contact Morgan F. Johnston of Magnum Hunter at (972) 401-0752.
Exhibit 99.2
MAGNUM HUNTER RESOURCES, INC.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas 75039
June __, 1999
To: Securities Dealers, Commercial Banks, Trust Companies, and Other Nominees
This letter is being distributed to securities dealers, commercial banks,
trust companies and other nominees in connection with the distribution by Magnum
Hunter Resources, Inc. ("the Company") of warrants to purchase an aggregate of
10,512,149 shares of Common Stock, par value $.002 per share ("Common Stock") of
the Company, at an exercise price of $6.50 per share of Common Stock ("Exercise
Price"). The warrants are initially being distributed to all holders of record
of shares of the Company's Common Stock and two classes of preferred stock as of
the close of business on May 31, 1999 (the "Record Date"). The warrants are
described in the enclosed Prospectus and evidenced by a Warrant Certificate
registered in your name or in the name of your nominee.
Each beneficial owner of shares of Common Stock registered in your name or
the name of your nominee is entitled to one warrant for every three shares of
Common Stock owned by such beneficial owner. Holders of record will not receive
fractional rights, but instead rights will be rounded down to the nearest full
warrant.
We are asking you to contact your clients for whom you hold shares of
Common Stock registered in your name or in the name of your nominee to obtain
instructions with respect to the warrants.
Enclosed are copies of the following documents:
1. Prospectus; and
2. A letter from Magnum Hunter to record and beneficial stockholders.
Your prompt action is requested. The warrants will expire at 5:00 P.M., New
York City time, on July 1 , 2002, unless extended by Magnum Hunter (as it may
be extended, the "Expiration Date").
To exercise warrants, properly completed and executed Warrant Certificates
and payment in full of the Exercise Price for all warrants exercised must be
delivered to the Warrant Agent as indicated in the Prospectus prior to the
Expiration Date.
Additional copies of the enclosed materials may be obtained by contacting
Morgan F. Johnston of the Company at (972) 401-0752.
Sincerely,
MAGNUM HUNTER RESOURCES, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF MAGNUM HUNTER RESOURCES, INC., THE WARRANT AGENT OR ANY OTHER
PERSON MAKING OR DEEMED TO BE MAKING OFFERS OF THE WARRANTS OR THE COMMON STOCK
ISSUABLE UPON VALID EXERCISE OF THE WARRANTS, OR AUTHORIZE YOU OR ANY OTHER
PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE
OFFERING EXCEPT FOR STATEMENTS MADE IN THE PROSPECTUS.
