<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION,
Washington, D.C. 20549
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
(Amendment No.__________)
SEABOARD OIL CO.
(Name of the Issuer)
SEABOARD OIL CO., SEABOARD ACQUISITION PARTNERS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK $.01 PAR VALUE
(Title of Class of Securities)
811603109
(CUSIP Number of Class of Securities)
GARY B. GILLIAM
3100 N. "A", BLDG. B, SUITE 200, MIDLAND, TEXAS 79705, (915) 684-7005
(Name, address and telephone number of person authorized to receive notices and
communications on behalf of person(s) filing statement)
This statement is filed in connection with (check the appropriate
box):
a. [x] The filing of solicitation materials or an information
statement subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation
14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [Section 240.13e-3(c)]
under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act
of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in check box (a) are preliminary copies: [x]
CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
Transaction valuation (1) Amount of filing fee
- --------------------------------------------------------------------------------
$4,698,375 $3,132
================================================================================
(1) Based upon the acquisition of 415,686 shares of Common Stock of Issuer, and
the cancellation of options and other plan benefits, for a purchase price of
$9.75 per share (less the exercise price for option shares).
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: ________________________________________________________
Form or Registration No.: ______________________________________________________
Filing Party: __________________________________________________________________
Date Filed: ____________________________________________________________________
<PAGE> 2
CROSS REFERENCE SHEET
The information required in answer to the items of this Rule 13e-3
Transaction Statement (this "Statement") is hereby incorporated by reference to
the Proxy Statement of Seaboard Oil Co. (the "Company") with respect to its
1996 Annual Meeting of Stockholders and filed with the Securities and Exchange
Commission concurrently with the filing of this Statement (the "Proxy
Statement"). Pursuant to Instruction F to this Statement, the location of the
information in the Proxy Statement provided in answer to each item of this
Statement is set forth below. This Statement is being filed on behalf of both
the Company and Seaboard Acquisition Partners, Inc. ("SAP"), an affiliate of
the Company.
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING LOCATION OR CAPTION IN PROXY STATEMENT
<S> <C>
Item 1. Issuer and Class of Securities subject Introduction; Stock Prices and Dividends;
to the Transaction Principal Holders of Securities
Item 2. Identity and Background
subparts 2(a)-2(d) and 2(g) Principal Holders of Securities; Election of
subparts 2(e)-2(f) Directors
*
Item 3. Past Contacts, Transactions or Summary; Special Factors; Certain
Negotiations Relationships and Transactions
Item 4. Terms of the Transaction Summary; The Merger Agreement
Item 5. Plans or Proposals of the Issuer or Summary; Special Factors
Affiliate
Item 6. Source and Amount of Funds or Other Summary; Financing of the Merger
Consideration
Item 7. Purpose(s), Alternatives, Reasons and Summary; Special Factors
Effects
Item 8. Fairness of the Transaction Summary; Special Factors
Item 9. Reports, Opinions, Appraisals and Summary; Special Factors
Certain Negotiations
Item 10. Interest in Securities of the Issuer Introduction; Principal Holders of
Securities; Election of Directors
Item 11. Contracts, Arrangements or *
Understandings with Respect to Issuer's
Securities
Item 12. Present Intention and Recommendation Introduction; Summary; Special Factors
of Certain Persons with Regard to the
Transaction
Item 13. Other Provisions of the Transaction Summary; Dissenters' Rights
Item 14. Financial Information Summary; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Consolidated Financial Statements
Item 15. Persons and Assets Employed, Retained Introduction
or Utilized
Item 16. Additional Information Business of the Company; Certain Information
Concerning Seaboard Acquisition Partners and
Seaboard Midland, Inc.; Remuneration of
Management
</TABLE>
- ---------------
*Omitted because item not applicable.
2
<PAGE> 3
SUPPLEMENTAL INFORMATION
The following information is provided in addition to the information
incorporated by reference from the Proxy Statement as reflected above in
response to selected items of this Statement.
ITEM 2. IDENTITY AND BACKGROUND. The following persons are principal
stockholders of SAP for which all or a part of the information required by Item
2 is not contained in the Proxy Statement (no disclosure under Item 2(e) or
2(f) is required with respect to any named person).
(1) (a) L. Austin Weeks
(b) 7350 Southwest 162nd, Miami, Florida 33157
(c) Investor
(d) Principal Stockholder
(g) U.S.
(2) (a) Marta S. Weeks
(b) 7350 Southwest 162nd, Miami, Florida 33157
(c) Investor
(d) Principal Stockholder
(g) U.S.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
99.(b) Report of Principal Financial Securities, Inc. dated as of
June 5, 1996 (attached as Appendix II to Proxy Statement
attached hereto as Exhibit (d)).
99.(d) Proxy Statement of Seaboard Oil Co. with respect to 1996
Annual Meeting of Stockholders.
99.(e) Section 262 of Delaware General Corporation Law (attached as
Appendix IV to Proxy Statement attached hereto as Exhibit
(d)).
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
(Date) July 10, 1996
SEABOARD OIL CO.
By: /s/ Gary B. Gilliam
-----------------------------------
Gary B. Gilliam, President
SEABOARD ACQUISITION PARTNERS, INC.
By: /s/ E.E. Runyan
-----------------------------------
E.E. Runyan, President
3
<PAGE> 4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
99.(b) Report of Principal Financial Securities, Inc. dated as of
June 5, 1996 (attached as Appendix II to Proxy Statement
attached hereto as Exhibit (d)).
99.(d) Proxy Statement of Seaboard Oil Co. with respect to 1996
Annual Meeting of Stockholders.
99.(e) Section 262 of Delaware General Corporation Law (attached as
Appendix IV to Proxy Statement attached hereto as Exhibit (d)).
</TABLE>
<PAGE> 1
SEABOARD OIL CO. PRELIMINARY COPIES
3100 NORTH "A" STREET
BUILDING B
MIDLAND, TEXAS 79705
_______________, 1996
Dear Stockholder:
The Annual Meeting of Stockholders (the "Meeting") of Seaboard
Oil Co. (the "Company") will be held at the offices of the Company, 3100 North
"A" Street, Building B, Midland, Texas on September ____, 1996, commencing at
9:00 a.m., local time.
In addition to the election of Directors, stockholders will be
asked to vote upon an Agreement and Plan of Merger dated as of June 28, 1996
(the "Merger Agreement") which provides for the acquisition of the Company by
Seaboard Acquisition Partners, Inc. ("SAP") through a merger of a wholly owned
subsidiary of SAP with and into the Company (the "Merger"). In the Merger,
each outstanding share (the "Shares") of the Company's Common Stock, par value
$.01 per share (other than Shares held by SAP, held by the Company as treasury
stock or held by persons who choose to exercise their dissenters' rights
described below) will be converted into the right to receive $9.75 in cash (the
"Merger Consideration"). It is anticipated that the Merger will be effective
as soon as possible after the Meeting, and that payment for Shares will be
available immediately thereafter.
SAP owns approximately 72% of the Company's issued and
outstanding Shares and presently intends to vote all such Shares in favor of
the Merger. Since approval of the Merger requires only the approval of a
majority of the Company's outstanding Shares, approval of the Merger is assured
if SAP votes in its favor. Following the Merger, all of the capital stock of
the Company will be held by SAP, and the present holders of the Shares will no
longer have any equity interest in the Company. A special committee of the
Board of Directors has received the opinion of Principal Financial Securities,
Inc. ("PFS"), an investment banking firm, stating that the Merger Consideration
is fair from a financial point of view to the stockholders of the Company other
than SAP or its affiliates (collectively, the "Minority Stockholders"). A copy
of the opinion is attached to the Proxy Statement as Appendix II. Stockholders
are urged to read such opinion in its entirety for a description of the
procedures followed, the factors considered, the assumptions made, and the
scope and limits of PFS's review in rendering the opinion.
Your Board of Directors has approved the Merger described in
the attached material and has determined that it is fair to and in the best
interests of the Company and the Minority Stockholders. After careful
consideration, your Board of Directors recommends a vote in favor of the
Merger. The Directors and Officers of the Company have certain conflicts of
interest with respect to the Merger. See "SPECIAL FACTORS - CONFLICTS OF
INTEREST" in the Proxy Statement accompanying this letter.
Accompanying this letter, you will find a Notice of Annual
Meeting of Stockholders, a Proxy Statement relating to the actions to be taken
by the Company's Stockholders at the Meeting, a Proxy Card, and the Company's
Annual Report. The Proxy Statement more fully describes the Merger and
includes additional information about the Company.
All Stockholders are cordially invited to attend the Meeting
in person. However, whether or not you plan to attend the Meeting, please
complete, sign, date and return your Proxy Card in the enclosed envelope. If
you attend the Meeting, you may vote in person if you wish, even though you
have previously returned your Proxy Card.
Sincerely,
Gary B. Gilliam
President, Chief Financial Officer
and Secretary
<PAGE> 2
SEABOARD OIL CO. PRELIMINARY COPIES
3100 North "A" Street
Building B
Midland, Texas 79705
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held September ___, 1996
To the Stockholders:
The 1996 Annual Meeting of Stockholders (the "Meeting") of Seaboard
Oil Co. (the "Company") will be held on _________, September ___, 1996, at 9:00
a.m., local time, at the Company's offices, 3100 North "A" Street, Building B,
Midland, Texas 79705, for the purpose of considering and taking action upon the
following matters:
1. The Agreement and Plan of Merger (the "Merger Agreement") among
Seaboard Acquisition Partners, Inc. ("SAP"), Seaboard Midland,
Inc. and the Company dated June 28, 1996, pursuant to which a
wholly owned subsidiary of SAP will merge with and into the
Company (the "Merger"), and stockholders of the Company (other
than SAP or persons who perfect their dissenters' rights under
Delaware law) will receive $9.75 in cash for each share of Common
Stock of the Company (the "Shares") all as more fully described
in the accompanying Proxy Statement and in the Merger Agreement,
a copy of which is attached to the Proxy Statement.
2. Election of six (6) Directors to serve until the earlier of:
(a) the consummation of the Merger, or
(b) if the Merger is not consummated, until the next Annual
Meeting or until their successors are elected and have
qualified.
3. Transaction of such other business that may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on _________,
1996 as the record date for the determination of stockholders entitled to vote
at the meeting and any adjournment thereof.
A copy of the Merger Agreement is included as Appendix I to the
accompanying Proxy Statement. If the Merger is consummated, holders of Shares
who do not vote in favor of the Merger Agreement and who perfect their
statutory appraisal rights under Section 262 of the Delaware General
Corporation Law (the "DGCL") will have the right to seek appraisal of their
Shares. See "DISSENTERS' RIGHTS" in the accompanying Proxy Statement for a
statement of the rights of such stockholders and a description of the
procedures required to be followed by stockholders to obtain appraisal of their
Shares. The text of Section 262 of the DGCL is attached as Appendix IV to the
accompanying Proxy Statement.
By Order of the Board of Directors,
Gary B. Gilliam
President, Chief Financial Officer and Secretary
Midland, Texas
__________, 1996
PLEASE RETURN YOUR SIGNED AND DATED PROXY PROMPTLY.
WE REQUEST THAT YOU SIGN AND MAIL THE ENCLOSED PROXY AS SOON AS
POSSIBLE REGARDLESS OF WHETHER YOU INTEND TO BE PRESENT AT THE MEETING. YOU
ARE CORDIALLY INVITED TO ATTEND AND YOUR PROXY WILL NOT BE USED IF YOU ARE
PRESENT AND PREFER TO VOTE IN PERSON.
<PAGE> 3
PRELIMINARY COPIES
PROXY STATEMENT
SEABOARD OIL CO.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER ____, 1996
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
<PAGE> 4
INTRODUCTION
TIME, DATE AND PLACE OF ANNUAL MEETING
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Seaboard Oil Co., a Delaware
corporation (the "Company"), for use at the annual meeting (the "Meeting") of
the Company's stockholders (the "Stockholders") to be held on ______, September
_____, 1996, at 9:00 a.m., local time, at the Company offices, 3100 North "A"
Street, Building B, Midland, Texas 79705 and at any adjournments thereof.
ELECTION OF DIRECTORS; PROPOSED MERGER
In addition to the election of Directors, Stockholders will consider
and vote upon a proposal to adopt an Agreement and Plan of Merger dated June
28, 1996 (the "Merger Agreement") among the Company, Seaboard Acquisition
Partners, Inc. ("SAP") and Seaboard Midland, Inc. ("SMI") .
The Merger Agreement provides, subject to the approval of Stockholders
at the Meeting, for the merger of SMI with and into the Company, with the
Company being the surviving corporation (the "Merger"). Since SAP owns
approximately 72% of the shares of common stock, $.01 par value (the "Common
Stock"), of the Company (the "Shares") and has indicated its intention to vote
in favor of the Merger, adoption of the Merger Agreement is assured if SAP
votes in its favor. Pursuant to the Merger each outstanding Share (other than
Shares held by the Company as treasury stock, Shares held by SAP or Shares held
by Stockholders who do not vote in favor of the Merger Agreement and who
perfect their appraisal rights under Section 262 of the General Corporation
Laws of Delaware (the "DGCL"), will be converted into the right to receive
$9.75 per share in cash (the "Merger Consideration"). A copy of the Merger
Agreement is attached hereto as Appendix I.
RECORD DATE; VOTING
The Board of Directors of the Company has fixed the close of business
on __________, 1996, as the Record Date (herein so called) for determining
Stockholders who will be entitled to notice of and to vote at the Meeting. On
the Record Date, there were _____ Shares outstanding and entitled to vote, held
by approximately _____ holders of record.
Holders of record of Shares are entitled to cast one vote per Share,
either in person or by proxy, on each matter presented to the Stockholders at
the Meeting. Approval and adoption of the Merger Agreement will require the
affirmative vote of the holders of a majority of the outstanding Shares.
Assuming SAP votes its Shares in favor of the Merger Agreement, adoption of the
Merger is assured. Approval of at least a majority of the Stockholders
unaffiliated with SAP is not required for approval of the Merger.
If a quorum is present, the affirmative vote of the holders of the
plurality of the Shares entitled to vote is required to elect Directors. The
Company's Certificate of Incorporation does not authorize cumulative voting for
Directors. All other matters properly coming before the Meeting will be
decided by the affirmative vote of a majority of the Shares represented at the
Meeting, except as otherwise required by law or by the Company's Certificate of
Incorporation or bylaws.
PROXIES
Shares represented by properly executed proxies, unless previously
revoked, will be voted at the Meeting in accordance with the instructions
thereon. A Stockholder may revoke his proxy at any time before such proxy is
voted by giving a later proxy or by giving written notice of such revocation to
the Secretary of the Company at or prior to the Meeting. Attendance at the
Meeting will not of itself constitute the revocation of a proxy.
1
<PAGE> 5
If any proxies are received without any direction as to how Shares are
to be voted, the Shares represented by such proxies will be voted for approval
and adoption of the Merger Agreement, in favor of the nominees for Directors
named herein and in the discretion of the persons named as proxies upon any
other business that may properly come before the meeting or any adjournments
thereof.
The votes will be counted by one or more inspectors appointed by the
Board of Directors, who will determine, among other things, the number of votes
necessary for the Stockholders to take action in accordance with the foregoing
requirements and the votes cast for and against, and votes withheld, with
respect to each matter. With respect to such determinations, abstentions and
broker non-votes will not be considered affirmative votes on a matter.
However, failure to indicate a vote or abstention on a properly executed proxy
will be counted as an affirmative vote for the Merger and for the nominees
named herein.
The Company will bear the costs of solicitation of proxies for the
Meeting. In addition to solicitation by mail, officers and regular employees
of the Company may solicit proxies from Stockholders by telephone, telegram,
or personal interview. Such persons will receive no additional compensation
for such services.
OTHER MATTERS
The executive offices of the Company are located at 3100 North "A"
Street, Building B, Midland, Texas 79705, and its telephone number is (915)
684-7005.
The information contained in this Proxy Statement with respect to SAP
and SMI has been supplied by SAP. All other information, except as otherwise
specified, has been supplied by the Company.
This Proxy Statement and the enclosed proxy are first being mailed to
Stockholders on or about _____________, 1996.
________________________________________
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
2
<PAGE> 6
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement. The following summary is not intended to be a
complete description of the matters covered in this Proxy Statement and is
subject to and qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement including the
Appendices hereto. Stockholders are urged to read carefully the entire Proxy
Statement, including the Appendices.
GENERAL
Time, Place and Date of the Meeting . . The Meeting of Stockholders of the
Company will be held at the
executive offices of the Company at
3100 North "A" Street, Building B,
Midland, Texas, on _____, September
____, 1996 at 9:00 a.m., local time.
Record Date . . . . . . . . . . . . . . Holders of record of Shares at the
close of business on _________, 1996
are entitled to notice of and to
vote at the Meeting. On that date,
there were ____ Shares outstanding,
with each Share entitled to cast one
vote with respect to the Merger at
the Meeting. See "INTRODUCTION -
RECORD DATE; VOTING."
Purpose of the Meeting; Quorum;
Vote Required . . . . . . . . . . . . . At the Meeting, Stockholders will:
(1) vote on the election of six
Directors; and (2) consider and vote
upon a proposal to adopt the Merger
Agreement, a copy of which is
attached as Appendix I to this Proxy
Statement. See "INTRODUCTION -
ELECTION OF DIRECTORS; PROPOSED
MERGER." The presence at the
Meeting, in person or by proxy, of a
majority of the outstanding Shares
is necessary to constitute a quorum
at the Meeting. Directors will be
elected by a plurality of votes of
Shares represented in person or by
proxy. The adoption of the Merger
Agreement requires the affirmative
vote of the holders of a majority of
the outstanding Shares. SAP, which
owns approximately 72% of the
outstanding Shares as of the Record
Date, has indicated that it intends
to vote its Shares in favor of
adoption of the Merger. Unless SAP
should change its intention,
consummation of the Merger will be
assured. Adoption of the Merger
Agreement does not require the
approval of the Stockholders not
affiliated with SAP. See
"INTRODUCTION - RECORD DATE;
VOTING."
3
<PAGE> 7
Structure of the Merger . . . . . . . . Pursuant to the Merger Agreement,
SMI, a wholly owned subsidiary of
SAP, will merge with and into the
Company with the Company being the
surviving corporation as a
wholly-owned subsidiary of SAP.
Each outstanding Share (except
those Shares held by the Company as
treasury Shares or owned by SAP or
by Stockholders who perfect their
dissenters' rights under the DGCL),
will be converted into the right to
receive $9.75 in cash (the "Merger
Consideration"). Each outstanding
Share owned by SAP or held by the
Company as treasury stock will be
canceled without consideration. See
"THE MERGER AGREEMENT -
CONSIDERATION TO BE RECEIVED BY
STOCKHOLDERS OF THE COMPANY."
Plans for the Company After the Merger. . Upon consummation of the Merger, SAP
intends to continue the Company's
existence and business as an
independent oil and gas company.
See "SPECIAL FACTORS - CERTAIN
RESULTS OF MERGER."
Certain Effects of the Merger . . . . . . As a result of the Merger, the
entire equity interest in the
Company will be owned by SAP.
According to the terms of the Merger
Agreement, each Share (except
treasury shares, Shares owned by
SAP, and Shares with respect to
which dissenters' rights have been
perfected) will be converted into
the right to receive the Merger
Consideration. As a result, the
Shares will no longer represent an
equity interest in the Company and
will no longer share in future
earnings or losses of the Company,
the risks associated with such
earnings and losses, or the
potential to realize greater value
in the event that strategic
acquisitions, divestitures or other
corporate opportunities may be
pursued by the Company in the
future. Following the Merger, the
Common Stock will be eligible for
termination of registration under
the Securities Exchange Act of 1934
(the "Exchange Act"), and the
Company will no longer be obligated
to file reports under the Exchange
Act. See "SPECIAL FACTORS - CERTAIN
RESULTS OF MERGER."
4
<PAGE> 8
Recommendation of the Special Committee
and the Board of Directors . . . . . . . The Special Committee (herein so
called), consisting of three
Directors of the Company (Edward E.
Runyan, Robert L. Hollis and Gary B.
Gilliam) who are not officers,
directors or equity owners of SAP,
has unanimously concluded that the
Merger, including the price of $9.75
in cash for each Share, is fair to
and in the best interests of the
Stockholders other than SAP (the
"Minority Stockholders"), and
recommended approval of the Merger
to the Board. The Special
Committee's recommendation is based
upon the following factors, among
others: (i) the opinion of Principal
Financial Securities, Inc., dated
June 5, 1996; (ii) the Committee's
determination that the Merger
Consideration represents a fair
price given the Company's recent
results and future prospects; (iii)
the illiquidity of the Shares; and
(iv) the fact that the Merger
Consideration represents a
significant premium in relation to
the historic price of the Common
Stock. After considering the
recommendation of the Special
Committee, the Board of Directors
unanimously approved the Merger
Agreement and recommends that
Stockholders vote FOR the proposal
to adopt the Merger Agreement.
Although no member of the Special
Committee owns any interest in, or
has any affiliation with, SAP,
Edward E. Runyan and Robert L.
Hollis are the son and
brother-in-law, respectively, of
E.E. Runyan, the president and a
stockholder of SAP, and Gary B.
Gilliam, the President of the
Company, is expected to continue his
employment with the Company
following the Merger. See "SPECIAL
FACTORS - BACKGROUND OF THE MERGER,"
"SPECIAL FACTORS - RECOMMENDATIONS
OF THE SPECIAL COMMITTEE AND THE
BOARD" and SPECIAL FACTORS -
CONFLICTS OF INTEREST."
Opinion of Financial Advisor . . . . . . . Principal Financial Securities, Inc.
("PFS"), an independent investment
banking firm, has delivered its
opinion to the Special Committee
dated June 5, 1996 that the Merger
is fair to the Minority Stockholders
from a financial point of view. A
copy of such opinion is attached
hereto as Appendix II. See "SPECIAL
FACTORS - OPINION OF FINANCIAL
ADVISOR."
5
<PAGE> 9
Interests of Certain Persons in
the Merger . . . . . . . . . . . . . . . Mr. E.E. Runyan (Chairman of the
Board, Chief Executive Officer and a
Director of the Company) is a
stockholder, officer and director of
SAP, and Messrs. Robert L. Marolda
and Edward P. Bliss (Directors of
the Company) are officers and
directors of SAP. It should also be
noted that while the Company's
remaining Directors are not
affiliated with, and own no interest
in SAP, Edward E. Runyan and Robert
L. Hollis are the son and
brother-in-law, respectively, of
E.E. Runyan and Gary B. Gilliam is
employed by the Company and is
expected to be employed by the
Company following the Merger. See
"SPECIAL FACTORS - CONFLICTS OF
INTEREST."
Federal Income Tax Consequences . . . . . .The receipt of cash for Shares in
the Merger (or pursuant to the
exercise of dissenters' rights) will
be a taxable transaction for federal
income tax purposes under the
Internal Revenue Code of 1986, as
amended (the "Code"), and also may
be a taxable transaction under
applicable state, local and other
tax laws. See "SPECIAL FACTORS -
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER."
Financing of the Merger . . . . . . . . . The total amount of funds required
to pay the Merger Consideration to
the Minority Stockholders and the
consideration for cancellation of
options and other employee benefit
plan rights, as well as to pay
related Company fees and expenses in
connection with the Merger, is
expected to be approximately $5.1
million. These funds will be
provided from a credit arrangement
with Texas Commerce Bank pursuant to
the Commitment attached hereto as
Appendix III, and from the Company's
general working capital. See
"FINANCING OF THE MERGER."
THE MERGER AGREEMENT
Effective Time of the Merger . . . . . . .The Merger will become effective
upon the filing of a Certificate of
Merger with the Secretary of State
of Delaware or at such time as is
specified in such Certificate of
Merger (the "Effective Time"). The
filing will occur after all
conditions to the Merger contained
in the Merger Agreement have been
satisfied or waived. The Company,
SAP and SMI anticipate that the
Merger will be consummated as
promptly as practicable following
the Meeting. See "THE MERGER
AGREEMENT - EFFECTIVE TIME OF THE
MERGER."
6
<PAGE> 10
Conditions to Consummation of
the Merger . . . . . . . . . . . . . . . . The respective obligations of the
Company, on the one hand, and SAP
and SMI, on the other hand, to
consummate the Merger are subject to
the satisfaction or waiver at or
prior to the Effective Time of the
following conditions, among others,
(i) adoption of the Merger Agreement
by the holders of a majority of the
outstanding Shares at the Meeting,
(ii) the absence of any injunction
or other order that would prevent
consummation of the Merger, (iii)
the receipt of all other required
authorizations, consents and
approvals of governmental
authorities and third parties, (iv)
the performance of and compliance
with all agreements and obligations
of the parties under the Merger
Agreement and (v) the material truth
and correctness of all
representations and warranties of
the parties to the Merger Agreement.
The obligations of SAP and SMI to
consummate the Merger are further
subject, among other things to (i)
SAP having entered into a credit
arrangement with the Company and
Texas Commerce Bank for a sum
sufficient to pay the Merger
Consideration and other payment
obligations in accordance with the
commitment attached hereto as
Appendix III; (ii) the number of
Shares with respect to which the
holders thereof have exercised their
dissenters' rights not exceeding 10%
of the total number of Shares
outstanding; and (iii) no occurrence
of a material adverse change in the
business, financial condition,
operations or results of operations
of the Company.
The Company's obligation to
consummate the Merger is further
subject, among other things, to the
receipt by the Special Committee, on
the closing date for the Merger (if
requested by the Special Committee
in its sole discretion), of an
opinion (or a confirmation of such
an opinion delivered at an earlier
date) of PFS, dated as of such
closing date, to the effect that the
Merger Consideration is fair, from a
financial point of view, to the
Minority Stockholders. See "THE
MERGER AGREEMENT - CONDITIONS TO
CONSUMMATION OF THE MERGER."
Termination of the Merger Agreement . . . The Merger Agreement may be
terminated and the Merger may be
abandoned at any time before the
Effective Time (notwithstanding
approval of the Merger Agreement by
the Stockholders of the Company) by
mutual written consent of the
Company, SAP and SMI, and by either
the Company or SAP upon the
occurrence of certain events
described under "THE MERGER
AGREEMENT - TERMINATION."
7
<PAGE> 11
Amendments to the Merger Agreement . . . . The Merger Agreement may not be
amended before the Effective Time
except by action of the Company, SAP
and SMI set forth in a written
instrument signed on behalf of each
of the parties. The Board of
Directors may not authorize an
amendment on behalf of the Company
unless it receives the
recommendation of the Special
Committee to do so. After adoption
of the Merger Agreement by the
Stockholders of the Company at the
Meeting and without the further
approval of the Stockholders, no
amendment to the Merger Agreement
may be made that will change (i) the
Merger Consideration, or (ii) any
other terms and conditions of the
Merger Agreement if any of such
changes would adversely affect the
Stockholders of the Company. See
"THE MERGER AGREEMENT - AMENDMENTS."
Dissenters' Rights . . . . . . . . . . . Holders of Shares who follow the
procedures set forth in Section 262
of the DGCL will be entitled to have
their Shares appraised by the
Delaware Chancery Court and to
receive payment in cash of the "fair
value" of such Shares. A holder of
Shares wishing to exercise such
holders' appraisal rights must
strictly comply with the provisions
of Section 262 of the DGCL,
including, but not limited to, (i)
not voting in favor of adoption of
the Merger Agreement, and (ii)
delivering to the Company, before
the vote on the Merger Agreement at
the Meeting, a written demand for
appraisal of such holder's Shares.
Any Stockholder contemplating the
exercise of dissenters' rights
should carefully review Section 262
of the DGCL, particularly the
procedural steps required to perfect
dissenters' rights. See "DISSENTERS'
RIGHTS" and Appendix IV, which
contains the text of Section 262 of
the DGCL.
Exchange of Certificates . . . . . . . . . If the Merger is consummated, the
Company will send instructions to
Stockholders regarding the surrender
of stock certificates. Stockholders
should NOT submit any stock
certificates at the present time.
See "THE MERGER AGREEMENT - EXCHANGE
OF STOCK CERTIFICATES."
8
<PAGE> 12
SUMMARY SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1996 1995 1994
---- ---- ----
STATEMENT OF OPERATIONS DATA: (in thousands, except ratios and per share data)
<S> <C> <C> <C>
Operating revenues $6,048 $4,366 $3,750
Operating income (loss) 1,571 613 161
Net income 1,801 824 207
Net income available
to common shareholders 1,801 824 207
Preferred stock dividends -- -- --
Common stock dividends -- -- --
Earnings per common share
Primary $1.22 $0.68 $0.27
Fully diluted N/A N/A N/A
Ratio of earnings to fixed charges 90.05:1 30.52:1 7.39:1
BALANCE SHEET DATA (AT PERIOD END):
Current assets $ 4,587 $ 4,461 $ 1,579
Total assets 14,919 13,750 8,860
Current liabilities 511 1,030 274
Long-term obligations -- -- --
Total stockholder's equity 14,408 12,720 8,586
Book value per common share $ 9.82 $ 8.55 $11.45
</TABLE>
9
<PAGE> 13
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Company was organized in 1988 (under the name Mid-America
Resources, Inc.) for the purpose of acquiring and consolidating the assets of
Mid-America Petroleum, Inc. and certain of its subsidiaries (collectively
"MAP"), as well as 20 oil and gas partnerships of which MAP served as general
partner (collectively, the "Partnerships"). MAP and the Partnerships were the
subject of a consolidated bankruptcy proceeding in the United States Bankruptcy
Court for the Northern District of Texas. A Reorganization Plan was confirmed
in February 1989. The Company received the Final Decrees closing the
bankruptcy proceeding for MAP and the Partnerships during September 1991 and
April 1992, respectively.
In connection with the Reorganization Plan, Richland Resources
Corporation ("RRC"), the Plan proponent, was issued 100,000 shares of the 8%
cumulative convertible preferred stock (the "Preferred Stock") of the Company.
Although prior to its bankruptcy MAP was a privately held entity, the majority
of the Partnerships were publicly held pursuant to registration statements
which had been filed with the Securities and Exchange Commission in connection
with the sale of limited partnership interests therein. The unsecured
creditors of MAP and the Partnerships and the limited partners of the
Partnerships were issued Common Stock of the Company to complete the Plan,
which resulted in the creation of thousands of "involuntary" stockholders of
the Company. The Common Stock was registered, and the Company became a public
company, under the Exchange Act pursuant to a Form 10 filed in July 1990.
In January 1991, SAP acquired all of the Preferred Stock from RRC.
The Preferred Stock automatically converted into Common Stock in March 1992,
which, together with a tender offer made by SAP, resulted in SAP acquiring
ownership of approximately 45% of the Common Stock then outstanding. Effective
September 15, 1992, the Company's name was changed to its present name.
Since the Company became a public company, the Shares have failed to
attract any active trading market. The Shares have been quoted on the Nasdaq
"small cap" market, and have consistently failed to meet the criteria for
listing on any more recognized exchange. Trading activity in the Shares has
been extremely light, as shown in the following table.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NUMBER OF SHARES TRADED
----------------- -----------------------
<S> <C>
March 31, 1996 62,580
March 31, 1995 154,554
March 31, 1994 131,213
March 31, 1993 84,041
</TABLE>
In addition to the absence of any active trading market, the Shares
have traded in a relatively narrow range of $3.50 to $6.50 over this four year
period. Because of the "involuntary" nature of many of the original
stockholders, several stockholders have been permanently "lost" since mailings
by the Company to such persons have been returned to the Company by the postal
service for several years, and their Shares have already been abandoned to
various state officials pursuant to applicable abandoned property laws.
Currently, the Company's transfer agent indicates that, of approximately 2,137
stockholders of record, an additional 46 (holding about 4,964 Shares) are also
lost. Also, an additional 1,262 Stockholders, representing 3.3% of the
outstanding Shares, are holders of "odd lots" (ownership of less than 100
shares). In 1991, the Company conducted an odd-lot tender offer to provide an
opportunity for the stockholders holding fewer than 100 Shares to dispose of
such Shares when very
10
<PAGE> 14
little public market existed for the Shares and to reduce the Company's costs
associated with stockholder communication. Given the Company's historic stock
trading volume, the Shares owned by the odd lot holders are effectively
illiquid.
The combination of low trading volume and the limited number of market
makers (2) for the Common Stock result in precipitous changes in the price of
the Common Stock. For example, the Wall Street Journal reported that on March
26, 1996 a total of 100 Shares were traded. The 100 Shares traded resulted in a
decrease of the Common Stock's closing price from $6.25 to $5.00, or a decrease
of 20%. Similarly, in May 1996, approximately 2,400 Shares were traded in three
transactions, over a 5 day period, resulting in an aggregate increase in the
closing price for the Common Stock from $5.25 to $8.00, a 52% increase based
upon transactions involving only approximately 0.2% of the outstanding Shares.
The Company believes such extreme percentage fluctuations on insignificant
volume simply provides further evidence that effectively there exists no
meaningful market for the Common Stock which is reflective of the Company's
underlying value.
The Company estimates that it spends approximately $100,000 on an
annual basis on costs solely related to complying with requirements of being a
publicly held entity, including legal, accounting, outside engineering,
printing and mailing costs, without regard to the Company's internal general
and administrative expenditures. Given: (1) SAP's approximate 72% ownership of
the Shares; (2) the limited trading activity in the Shares; (3) the lack of any
foreseeable event that would change the trading pattern for the Shares; and (4)
the cost associated with remaining a publicly held entity, the Board of
Directors authorized the creation of the Special Committee in February 1996 to
explore a "cash merger" pursuant to which: (a) the Minority Stockholders could
receive cash which was more representative of the value of their Shares than
the values consistently reflected by the securities market; and (b) eliminate
Minority Stockholders and the related cost and expense of being publicly held
entity.
The Special Committee considered the factors discussed above and the
potential terms of the Merger. As part of its analysis, the Special Committee
sought the assistance of an investment banking firm in determining the fair
value of the Shares. The Special Committee met with four investment banking
firms from March 14, 1996 to March 21, 1996. Some of the criteria used by the
Special Committee in selecting an investment banker included the valuation
method(s) utilized by each firm, the assumptions made, the firm's
qualifications and the costs and fees charged by the firm. As a result of this
process, the Special Committee selected PFS to provide an opinion as to the
fairness of the Merger, from a financial point of view, to the Minority
Stockholders. The Special Committee entered into an engagement letter with PFS
on May 2, 1996, and PFS delivered an oral report to the Special Committee on
June 5, 1996, and a written opinion dated June 5, 1996. A copy of that opinion
is attached hereto as Appendix II.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD
At a meeting on June 5, 1996, the Special Committee unanimously
concluded that the Merger, including the price of $9.75 in cash for each Share,
is fair to and in the best interests of the Minority Stockholders, and
recommended to the Board of Directors that it approve the Merger Agreement. The
Special Committee based its recommendations upon the following factors:
(i) The opinion of PFS to the effect that the Merger is
fair, from a financial point of view, to the Minority
Stockholders;
(ii) The fact that the Merger Consideration was based, at
least in part, on the opinion of PFS;
(iii) The terms and conditions of the proposed Merger and
the Special Committee's judgment that the transaction is
likely to be consummated.
11
<PAGE> 15
(iv) The fact that the Merger Consideration represents a
significant premium over the Company's historic stock trading
range and is an all-cash transaction which will provide the
Minority Stockholders with immediate liquidity; and
(v) The relative illiquidity of the Shares in the public
market and the costs to the Company of being a public company.
Based on the recommendation of the Special Committee, and upon the
factors outlined above, the Board of Directors unanimously concluded that the
Merger, including the price of $9.75 in cash for each Share, is fair and in the
best interests of the Minority Stockholders. Accordingly, the Board of
Directors recommends that Stockholders vote for the adoption of the Merger
Agreement.
OPINION OF FINANCIAL ADVISOR
PFS is a national investment banking firm providing a wide range of
financial and brokerage services. PFS regularly issues fairness opinions and
is continually engaged in the valuation of companies and their securities in
connection with business reorganizations, private placements, negotiated
underwritings, mergers and acquisitions and for other purposes. In connection
with rendering its opinion, PFS, among other things, reviewed the Merger
Agreement, reviewed the Company's financial and oil and gas reserve
information, reviewed financial and stock market data, reviewed comparable
transactions, had discussions with management of the Company and performed
other analyses which are customary in the industry. No limitations were
imposed by the Company or SAP on PFS with respect to the investigation made or
procedures followed by PFS in rendering its opinion. Based upon the
aforementioned data and analysis of the Company and the Shares, PFS has
delivered its opinion that the Merger is fair, from a financial point of view,
to the Minority Stockholders. A copy of the opinion is attached hereto as
Appendix II. There is, and has been for in excess of two years, no material
relationship between PFS and the Company or its affiliates other than with
respect to the engagement described herein.
CONFLICTS OF INTEREST
Mr. E.E. Runyan (Chairman of the Board, Chief Executive Officer and a
Director of the Company) is a stockholder, officer and director of SAP, and
Messrs. Robert L. Marolda and Edward P. Bliss (Directors of the Company) are
officers and directors of SAP. As the parent of the Company following the
Merger, SAP will benefit from the cost savings associated with the Company no
longer being publicly held, and will benefit from any future growth in the
profits and properties of the Company. Accordingly, these persons may be
deemed to have a direct conflict of interest with respect to the Merger.
In addition, although no member of the Special Committee is an
officer, director or equity owner of SAP, Edward E. Runyan and Robert L. Hollis
are the son and brother-in-law, respectively, of E.E. Runyan. Gary B. Gilliam,
the final member of the Special Committee, is the President of the Company and
is expected to continue his employment with the Company following the Merger.
Accordingly, each member of the Special Committee may be deemed to have at
least an indirect conflict of interest with respect to the Merger.
CERTAIN RESULTS OF MERGER
As a result of the Merger, SAP will own all of the outstanding equity
interests of the Company, so that SAP's interest in the Company, including
its future net earnings, will increase from approximately 72%. According
to the terms of the Merger Agreement, each Share (except treasury shares,
Shares owned by SAP, and Shares for which dissenters' rights have been
perfected) will be converted into the right to receive the Merger
Consideration. As a result, the Shares will no longer represent an equity
interest in the Company and will no longer share in future earnings or losses
of the Company, the risks associated with such earnings and losses, or the
12
<PAGE> 16
potential to realize greater value in the event that strategic acquisitions,
divestitures or other corporate opportunities may be pursued by the Company in
the future. Following the Merger, it is anticipated that the registration of
the Common Stock under the Exchange Act will be terminated and that the Company
will no longer file reports under the Exchange Act. SAP intends to continue
the Company's existence and its business as an independent oil and gas company
after the Merger. SAP also intends to retain the current management of the
Company following the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash for Shares pursuant to the Merger (or pursuant to
the perfected exercise of dissenters' rights) will be a taxable transaction for
federal income tax purposes under the Code, and also may be a taxable
transaction under applicable state, local and other tax laws.
In general, a stockholder will recognize gain or loss equal to the
difference between the tax basis for the Shares held by such stockholder and
the amount of cash received in exchange therefor. Such gain or loss will be
capital gain or loss if the Shares are capital assets in the hands of the
stockholder and will be long term gain or loss if the holding period for the
Shares is more than one year prior to the Effective Date. If the holding
period is less than one year then the gain or loss will be short term gain or
loss.
Long-term capital gains recognized in 1996 by stockholders who are
individuals are taxable at a maximum rate of 28% (as compared with a maximum
rate of 39.6% on ordinary income). Corporations generally are subject to tax
at a maximum rate of 35% on both capital gains and ordinary income. The
distinction between capital gain and ordinary income may be relevant for
certain other purposes, including the taxpayer's ability to utilize capital
loss carryovers to offset any gain recognized.
However, any capital gain or loss resulting from the receipt of cash
pursuant to the Merger will be combined with all other capital gains and losses
recognized by the stockholder during the taxable year. If a stockholder has
both long-term and short-term capital transactions during the year, a two-step
netting process occurs. First, gains and losses from each type of transaction
are netted separately. The long-term capital gains, if any, are offset by net
short-term capital losses, if any, and short-term capital gains, if any, are
offset by long-term capital losses, if any.
If the result of combining all of the stockholder's capital gains and
losses during the taxable year is a net capital gain, the full amount of such
gain will be included in the stockholder's gross income. In general, if the
result of combining all such capital gains and losses recognized during the
taxable year is a net capital loss, a stockholder that is a corporation may not
deduct any portion of such loss, and a stockholder that is not a corporation
(such as an individual) may deduct such loss only to the extent that it does
not exceed $3,000 ($1,500 in the case of a married individual filing a separate
return), with the remainder available for carryover into future taxable years.
The foregoing discussion may not be applicable to stockholders who
acquired their Shares pursuant to the exercise of options or other compensation
arrangements or who are not citizens or residents of the United States or who
are otherwise subject to special tax treatment under the Code.
13
<PAGE> 17
THE MERGER AGREEMENT
The following discussion of the Merger Agreement is qualified in its
entirety by referenced to the complete text of the Merger Agreement, which is
included in this Proxy Statement as Appendix I and is incorporated herein by
reference.
GENERAL
The Merger Agreement provides for the merger of SMI with and into the
Company. The Company will be the surviving corporation in the Merger and, as a
result of the Merger, SAP will own all of the Company's Common Stock. In the
Merger, the Stockholders of the Company, other than SAP and Stockholders who
exercise their dissenters' rights under Delaware law, will receive the Merger
Consideration described below. See "-CONSIDERATION TO BE RECEIVED BY
STOCKHOLDERS OF THE COMPANY."
EFFECTIVE TIME OF THE MERGER
The Effective Time of the Merger will occur upon the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware as
required by the DGCL or at such later time as is specified in such Certificate
of Merger. It is anticipated that the Certificate of Merger will be filed as
promptly as practicable after adoption of the Merger Agreement by the
Stockholders of the Company at the Meeting. Such filing will be made, however,
only upon satisfaction or waiver of all conditions to the Merger contained in
the Merger Agreement.
CONSIDERATION TO BE RECEIVED BY STOCKHOLDERS OF THE COMPANY
As a result of the Merger, each outstanding Share (except Shares held
by the Company as treasury stock, Shares owned by SAP, and by Stockholders who
perfect their dissenters' rights under the DGCL), will be converted into the
right to receive the Merger Consideration of $9.75 per share in cash. Each
Share owned by SAP, or held by the Company as treasury stock, will be canceled
without consideration.
All rights or options to acquire or receive grants of Common Stock
under the Employee Benefit Plans (as defined herein under "REMUNERATION OF
MANAGEMENT - EMPLOYEE BENEFIT PLANS") will be canceled at the Effective Time,
and each holder of such right or option will receive, in cancellation and
settlement of such right or option, a cash amount for each Share to which the
right or option applies equal to the Merger Consideration less the exercise
price, if any. As of the Effective Time, holders of such rights or options will
not be entitled to any shares of Common Stock, but will only be entitled to the
cash consideration in cancellation and settlement thereof. The Merger
Agreement prohibits the Company from amending the Employee Benefit Plans or
granting any options thereunder.
EXCHANGE OF STOCK CERTIFICATES
Upon consummation of the Merger, subject to the provisions described
below, each Share outstanding at the Effective Time (except treasury shares,
Shares owned by SAP and Shares with respect to which dissenters' rights have
been exercised) will be converted into the right to receive the Merger
Consideration. If the Merger is consummated, instructions with regard to the
surrender of stock certificates formerly representing Shares together with a
letter of transmittal to be used for that purpose, will be mailed to
Stockholders as soon as practicable after the Effective Time. The Company, as
soon as practicable following receipt from a Stockholder of a duly executed
letter of transmittal, together with stock certificates formerly representing
Shares and any other items required by the letter of transmittal, shall pay the
Merger Consideration to such Stockholder. If payment is to be made to a person
other than the person in whose name the certificate so surrendered is
registered, it will be a condition of payment that the certificate so
surrendered to be properly endorsed or otherwise in proper form for transfer
and that
14
<PAGE> 18
the person requesting such payment pay to the Company any transfer or other
taxes required by reason of such payment or establish to the satisfaction of
the Company that such taxes have been paid or are not applicable.
Stockholders should NOT submit any stock certificates at the present
time.
After the Effective Time, a holder of a certificate formerly
representing Shares shall cease to have any rights as a stockholder of the
Company, and such holder's sole right will be to receive the Merger
Consideration to which such holder is entitled. Stockholders will not be
entitled to receive any interest on the Merger Consideration to be distributed
to them in connection with the Merger. Neither SAP nor the Company shall be
liable to any holder of Shares for any amount paid to a public official
pursuant to applicable abandoned property laws. After the Effective Time, the
stock ledger of the Company will be closed and any transfer of Shares not
registered on such ledger prior to the Effective Time will not be made on the
stock transfer books of the Company after the Effective Time.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties
of the Company, SAP and SMI relating to, among other things, the following
matters (which representations and warranties are subject in certain cases, to
specified exceptions): (i) due incorporation, corporate existence, good
standing and power of, and similar corporate matters with respect to, each of
the Company, SAP and SMI; (ii) corporate power and authority to enter into, and
the valid and binding execution and delivery of, the Merger Agreement by each
such party; (iii) the absence of any governmental authorization, consent, or
approval required to consummate the Merger, except as disclosed; (iv) that the
Merger Agreement and the Merger do not conflict with the certificate of
incorporation or bylaws or violate any law, rule, regulation, judgment, order
or decree relating to the Company and its subsidiaries, SAP or SMI; and (v) the
absence of any investment banking, brokerage, finder's or other similar fee or
commission due in connection with the Merger (except for fees payable to PFS,
as described under "SPECIAL FACTORS - OPINION OF FINANCIAL ADVISOR").
In the Merger Agreement, the Company has made certain additional
representations and warranties to SAP and SMI relating to the following matters
(which representations and warranties are subject, in certain cases, to
specified exceptions): (i) the capital structure of the Company; (ii) the
absence of any undisclosed litigation or investigations that could have a
material adverse effect on the Company; and (iii) other matters relating to the
Company's business, including liabilities and environmental issues.
SAP and SMI have made certain additional representations and
warranties to the Company relating to the financing for payment of the Merger
Consideration and other payment obligations of Parent and SMI under the Merger
Agreement.
COVENANTS
The Company has agreed in the Merger Agreement that until consummation
of the Merger, the Company will conduct its business in the ordinary course
consistent with past practice. Without limiting the foregoing, the Company
will not: (i) adopt any change in its certificate of incorporation or bylaws;
(ii) grant any options, warrants or other rights to purchase or obtain any of
its capital stock, or issue, sell, or otherwise dispose of any of its capital
stock (except upon the exercise of options outstanding on the date of the
Merger Agreement); (iii) declare, set aside, or pay any dividend or
distribution with respect to its capital stock, or redeem, repurchase, or
otherwise acquire any of its capital stock; (iv) issue any note, bond or other
debt security, or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the ordinary course of
business; (v) grant any security interest on any of its assets outside the
ordinary course of business, or transfer, lease, license, sell, mortgage,
pledge, or otherwise dispose of or encumber any assets or incur or modify any
indebtedness or other liability other than in the ordinary course of business;
(vi) make any capital investment in, make any loan to,
15
<PAGE> 19
acquire the securities or assets of, or merge or consolidate with, any other
person outside the ordinary course of business; (vii) make any acquisition of a
material amount of assets or securities or enter into any material contract or
any release or relinquishment of any material contract rights not in the
ordinary course of business; (viii) make any change in employment terms for any
of its directors, officers, or employees outside the ordinary course of
business; (ix) grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or other employee
except pursuant to benefit plants in existence on the date of the Merger
Agreement and in the ordinary course of business; (x) establish, adopt, enter
into, or (except as required by law) amend any benefit plans or make any new
grants or awards under any benefit plants other than in the ordinary course of
business; or (xi) commit to do any of the foregoing.
The Company has agreed to give SAP and its authorized representatives
full access to the offices, properties, books and records of the Company and
its subsidiaries and will furnish to SAP and its authorized representatives
such financial and operating data and other information as SAP and its
authorized representatives may reasonably request. SAP and the Company have
each agreed to use its best efforts to take all actions and to do all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated by the Merger Agreement. The Company has agreed not
to solicit or initiate (other than by means of a press release announcing the
proposed Merger) discussions with any third parties that might be interested in
acquiring the Company, nor to respond to or negotiate with such parties unless
the Special Committee has been advised that the failure to do so would subject
the Directors to a substantial risk of a breach of their fiduciary duties to
the Stockholders.
SAP and the Company have agreed to use reasonable best efforts to take
such action as necessary or appropriate with respect to any action by or filing
with any governmental authority as may be required, or any actions, consents,
approvals, or waivers which are required to be obtained from parties to any
material contracts in connection with the Merger and the transactions
contemplated by the Merger Agreement.
Except for a press release announcing the proposed Merger, neither the
Company, SAP nor SMI may issue any press release or make any public
announcement relating to the Merger without the prior approval of the other
parties. However, any of such parties may make any public disclosure it
believes in good faith is required by applicable law, in which case the
disclosing party must use all commercial and reasonable efforts to advise the
other parties prior to making any such disclosure.
OTHER POTENTIAL BIDDERS
The Merger Agreement generally provides that the Company shall not,
and shall not authorize or permit any of its subsidiaries, officers, directors,
employees, or advisors to, (i) solicit, initiate, or encourage any merger, sale
of assets (except in the ordinary course of business), offers to purchase
shares of capital stock or similar transaction involving the Company and any
third party not affiliated with SAP (any such transaction being referred to
herein as a "Competing Transaction"), (ii) negotiate with any third party with
respect to any Competing Transaction, (iii) endorse or recommend any Competing
Transaction, or (iv) enter into any contract with any third party with the
intent to effect any Competing Transaction. However, the Merger Agreement
provides that the Company may furnish information and access to any third
party, in response to credible requests therefor received before or after the
date of the Merger Agreement, and may participate in discussions and negotiate
with any such third party concerning a Competing Transaction if the Special
Committee determines in good faith that the failure to provide such information
or to participate in such discussions or negotiations would cause the directors
of the Company to be subject to a substantial risk of a breach of their
fiduciary duties under applicable law. The Company may also enter into a
contract for Competing Transaction if the Special Committee determines in good
faith that the Competing Transaction is more favorable to the Stockholders of
the Company than the Merger.
The Merger Agreement requires the Company to reimburse SAP for its
expenses under certain circumstances if the Merger is not consummated. See
"-EXPENSE REIMBURSEMENT." Such a provision generally
16
<PAGE> 20
may have the effect of discouraging other potential bidders from making an
offer to acquire the Company, but the Company does not believe that the
reimbursable expenses of SAP relating to the Merger will be large enough to
have such an effect.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of the Company, on the one hand, and SAP
and SMI, on the other hand, to consummate the Merger are subject to the
satisfaction or waiver, at or prior to the Effective Time, of the following
conditions, among others: (i) adoption of the Merger Agreement by the holders
of a majority of the outstanding Shares at the Meeting; (ii) the absence of any
injunction or other order (whether preliminary or permanent) that would prevent
the consummation of the Merger; (iii) the receipt of all other required
authorizations, consents, and approvals of governmental authorities; (iv) the
performance of and compliance with, in all material respects, all agreements
and obligations contained in the Merger Agreement and required to be performed
or complied with at or prior to the Effective Time by the respective parties to
the Merger Agreement; and (v) the material truth and correctness of all
representations and warranties of the parties to the Merger Agreement.
The obligation of the Company to consummate the Merger may be further
subject to the receipt by the Special Committee (if requested by the Special
Committee in its sole discretion), on the closing date for the Merger, of an
opinion (or a confirmation of such an opinion delivered at an earlier date) of
PFS, dated as of such closing date in form and substance reasonably
satisfactory to the Special Committee, to the effect that the Merger
Consideration is fair, from a financial point of view, to the Minority
Stockholders.
The obligations of SAP and SMI to consummate the Merger are further
subject to the satisfaction or waiver of the following conditions, among
others: (i) SAP and the Company having entered into a credit arrangement with
Texas Commerce Bank (see "FINANCING OF THE MERGER"), which will provide
available funds for the transactions contemplated by the Merger Agreement; (ii)
the number of Shares with respect to which the holders thereof shall have
exercised their dissenters' rights shall not exceed 10% of the total number of
Shares outstanding; and (iii) there shall not have occurred any material
adverse change in the business, financial condition, operations, or results of
operations of the Company except changes contemplated by the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, notwithstanding adoption of the Merger
Agreement by the Stockholders of the Company: (i) by mutual written consent of
the Company, SAP and SMI; (ii) by SAP and SMI if the Merger has not been
consummated by December 31, 1996, due to the failure of any condition precedent
to the obligations of SAP or SMI (unless the failure results primarily from
either of SAP or SMI breaching any material representation, warranty or
covenant); (iii) by the Company if the Merger has not been consummated on or
before December 31, 1996 due to the failure of any condition precedent to the
Company's obligations (unless the failure results primarily from the Company
breaching any representation, warrant or covenant); (iv) by the Company at any
time prior to the Effective Time if Stockholder approval is not obtained at the
Meeting, other than by reason of the occurrence of a Triggering Event (as
defined below); (v) by the Company if SAP or SMI has breached the Merger
Agreement in any material respect and the Company is not then in breach,
provided that the Company has notified the breaching party of the breach, and
the breach has continued without cure for a period of ten days after the notice
of breach; (vi) by SAP or SMI if the Company has breached the Merger Agreement
in any material respect and SAP and SMI are not then in breach, provided that
SAP or SMI has notified the Company of the breach, and the breach has continued
without cure for a period of ten days after the notice of breach; (vii) by the
Company if it receives a bona fide offer to effect a Competing Transaction that
the Special Committee determines in good faith is more favorable to the
Company's Stockholders than the Merger, provided that the Special Committee
shall have recommended to the Board of Directors approval of such Competing
Transaction and the Board of Directors shall have approved such Competing
Transaction; or (viii) by SAP or SMI at any time prior to the Effective Time if
any of the following events (a
17
<PAGE> 21
"Triggering Event") shall have occurred; (a) the Company's Board of Directors
shall have failed to recommend, or shall have withdrawn or have modified, in a
manner adverse to either SAP or SMI, its recommendation of adoption of the
Merger Agreement, (b) the Company's Board of Directors shall have approved,
endorsed or recommended any Competing Transaction, (c) the Company shall have
entered into any contract to consummate any Competing Transaction, or (d) any
person or group other than SAP shall have become the beneficial owner of 10% or
more of the outstanding shares of any class of capital stock of the Company.
EXPENSE REIMBURSEMENT
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such cost or expense, except that SAP is
entitled to reimbursement from the Company for all of its actual, documented,
customary and reasonable fees and expenses incurred in connection with the
Merger if the Merger Agreement is terminated by SAP or SMI as a result of the
occurrence of a Triggering Event.
AMENDMENT
The parties may amend the Merger Agreement prior to the Effective Time
with the prior authorization of the boards of directors of SAP and SMI, and the
Board of Directors of the Company; provided, however, that the Board of
Directors of the Company may not authorize an amendment until it receives the
recommendation of the Special Committee to do so. After approval of the Merger
Agreement by the Stockholders of the Company and without the further approval
of such Stockholders, no amendment to the Merger Agreement may be made that
will change the Merger Consideration or any of the other terms if such change
would adversely affect the Stockholders of the Company.
DISSENTERS' RIGHTS
Holders of record of Shares who comply with the applicable procedures
summarized herein will be entitled to appraisal rights under Section 262 of the
DGCL. A person having a beneficial interest in Shares held of record in the
name of another person, such as a broker or nominee, must act promptly to cause
the record holder to follow the steps summarized below properly and in a timely
manner to perfect appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY
BY THE FULL TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX
IV TO THIS PROXY STATEMENT. ALL REFERENCES IN SECTION 262 AND IN THIS SUMMARY
TO A "STOCKHOLDER" ARE TO THE RECORD HOLDER OF SHARES AS TO WHICH APPRAISAL
RIGHTS ARE ASSERTED. VOTING AGAINST, ABSTAINING FROM VOTING, OR FAILING TO
VOTE ON APPROVAL AND ADOPTION OF THE MERGER AGREEMENT WILL NOT CONSTITUTE A
DEMAND FOR APPRAISAL WITHIN THE MEANING OF SECTION 262 OF THE DGCL.
Under the DGCL, holders of Shares who follow the procedures set forth
in Section 262 will be entitled to have their Shares appraised by the Delaware
Chancery Court and to receive payment in cash of the "fair value" of Shares,
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, as
determined by such court.
Under Section 262, where a proposed merger is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, must notify each of its stockholders who was a
stockholder on the record date for such meeting with respect to shares for
which appraisal rights are available, that appraisal rights are so available,
and must include in such notice a copy of Section 262.
18
<PAGE> 22
The Proxy Statement constitutes such notice to the holders of Shares
and the applicable statutory provisions of the DGCL are attached to this Proxy
Statement as Appendix IV. Any Stockholder who wishes to exercise such
appraisal rights or who wishes to preserve his right to do so should review the
following discussion and Appendix IV carefully, because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights under the DGCL.
A holder of Shares wishing to exercise such holder's appraisal rights
(i) must not vote in favor of adoption of the Merger Agreement, and (ii) must
deliver to the Company prior to the vote on the Merger Agreement at the Meeting
to be held on September ____, 1996, a written demand for appraisal of such
holder's Shares. A holder of shares wishing to exercise such holder's
appraisal rights must be the record holder of such Shares on the date the
written demand for appraisal is made and must continue to hold such Shares of
record until the Effective Time of the Merger. Accordingly, a holder of shares
who is the record holder of Shares on the date the written demand for appraisal
is made, but who thereafter transfers such Shares prior to the Effective Time
of the Merger will lose any right to appraisal in respect of such Shares.
Only a holder of record of Shares is entitled to assert appraisal
rights for the Shares registered in that holder's name. A demand for appraisal
should be executed by or on behalf of the holder of record fully and correctly,
as such holder's name appears on such holder's stock certificate. If the
Shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity,
and if the Shares are owned of record by more than one person as in a joint
tenancy or tenancy in common, the demand should be executed by or on behalf of
all joint owners. An authorized agent, including an agent for two or more
joint owners, may executed a demand for appraisal on behalf of a holder of
records; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder such as a broker who holds Shares as
nominee for several beneficial owners may exercise appraisal rights with
respect to Shares held for one or more beneficial owners while not exercising
such rights with respect to the Shares held for other beneficial owners; in
such case, the written demand should set forth the identity of the Stockholder,
the Stockholder's intention to demand an appraisal of his or her Shares, and
the number of Shares as to which appraisal is sought. Where no number of
Shares is expressly mentioned, the demand will be presumed to cover all Shares
held in the name of the record owner. Stockholders who hold their Shares in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedures for the making of a demand for appraisal by such nominee.
All written demands for appraisal should be sent or delivered to the
Company at 3100 North "A" Street, Building B, Midland, Texas 79705, Attention:
Gary B. Gilliam.
The Company shall, within 10 days after the Effective Time of the
Merger, notify each Stockholder who has complied with the statutory
requirements summarized above and fully set forth in Section 262 that the
Merger has become effective and the date that it became effective. Within 120
days after the Effective Time of the Merger, but not thereafter, the Company or
any Stockholder who has complied with the statutory requirements summarized
above may file a petition in the Chancery Court demanding a determination of
the value of the Shares. The Company is under no obligation to and has no
present intention to file a petition with respect to the appraisal of the fair
value of the Shares. Accordingly, it will be the obligation of the individual
Stockholders to initiate all necessary action to perfect their appraisal rights
and initiate any such action within the time prescribed in Section 262.
Within 120 days of the Effective Time of the Merger, any Stockholder
who has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Company a statement setting
forth the aggregate number of Shares not voted in favor of adoption of the
Merger Agreement and with respect to which demands for appraisal have been
received and the aggregate number of holders of such Shares. Such statements
must be mailed within 10 days after a written request therefor has been
received by the Company or within 10 days after the expiration of the period
for appraisal demands, whichever is later.
19
<PAGE> 23
If a petition for an appraisal is timely filed, after a hearing on
such petition, the Chancery Court will determine the Stockholders entitled to
appraisal rights and will appraise the "fair value" of their Shares, exclusive
of any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. Stockholders considering seeking
appraisal should be aware that the fair value of their Shares as determined
under Section 262 could be more than, the same as, or less than the
consideration they would receive pursuant to the Merger Agreement if they did
not seek appraisal of their Shares, and that investment banking opinion(s) as
to fairness from a financial point of view referred to herein are not
necessarily opinions as to fair value under Section 262. Generally, value may
be proven by any techniques or methods that are generally considered acceptable
in the financial community.
The Chancery Court will determine the amount of interest, if any, to
be paid upon the amounts to be received by persons whose Shares have been
appraised. The costs of the action may be determined by the Chancery Court
and taxed upon the parties as the Chancery Court deems equitable. Upon
application of a Stockholder, the Chancery Court may also order that all or a
portion of the expenses incurred by any Stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the Shares entitled to appraisal.
Any holder of Shares who has duly demanded an appraisal in compliance
with Section 262 will not, after the Effective Time of the Merger, be entitled
to vote the Shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those Shares (except dividends
or other distributions payable to holders of record of Shares as of a record
date prior to the Effective Time of the Merger).
If any Stockholder who properly demands appraisal of such
Stockholder's Shares under Section 262 fails to perfect, or effectively
withdraws or loses, such Stockholder's rights to appraisal as provided in the
DGCL, the Shares of such Stockholder will be converted in the right to receive
the Merger Consideration. A Stockholder will fail to perfect, or effectively
lose or withdraw, a right to appraisal if, among other things, no petition for
appraisal is filed within 120 days after the Effective Time of the Merger, or
if the Stockholder delivers to the Company a written withdrawal of such
Stockholder's demand for appraisal and acceptance of the Merger. Any such
attempt to withdraw an appraisal demand more than 60 days after the Effective
Time of the Merger will require the written approval of the Company.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights (in which
event a Stockholder will be entitled to receiver the Merger Consideration with
respect to such Shares in accordance with the Merger Agreement).
20
<PAGE> 24
FINANCING OF THE MERGER
The funds to finance the Merger and pay the Merger Consideration and
other consideration to be paid in connection with the Merger will be made
available pursuant to a credit arrangement among SAP, the Company and Texas
Commerce Bank. Such credit arrangement will be on the terms set forth in the
commitment attached hereto as Appendix III, and will close simultaneously with
the closing of the Merger. The funds to be made available under the credit
arrangement will be sufficient to make the payments required by the Merger
Agreement. As more fully set forth in the commitment, the loan will be funded
upon closing and will be secured by assets pledged by the Company. Such pledge
of assets will occur only upon consummation of the Merger and the Company
becoming a wholly-owned subsidiary of SAP. The loan will be repaid from the
Company's cash on hand and revenues after the Merger.
The costs of the Merger to the Company, such as legal fees, printing
costs, mailing and other costs and fees, are not expected to exceed $120,132
and will be paid from the Company's general working capital. Such costs and
fees are generally estimated and summarized as follows:
<TABLE>
<S> <C>
Filing Fees $ 3,132
Legal Fees 35,000
Accounting Fees 10,000
Fairness Opinion 50,000
Printing Costs 20,000
Miscellaneous Expenses 2,000
--------
TOTAL: $120,132
========
</TABLE>
STOCK PRICES AND DIVIDENDS
As discussed under "SPECIAL FACTORS - BACKGROUND OF THE MERGER", the
Common Stock trades infrequently and within a relatively narrow price range,
but with dramatic changes in price due to small and infrequent trades.
The Company's Common Stock trades on the over-the-counter market
through listing on the Nasdaq Small-Cap Market under the symbol SBRD. Market
price ranges for the Common Stock during the fiscal years ended March 31, 1995
and 1996 as reported by Nasdaq were:
<TABLE>
<CAPTION>
1996 1995
Bid Bid
-------------------- ----------------------
High Low High Low
<S> <C> <C> <C>
1st Quarter 4.75 4.50 $5.50 $5.00
2nd Quarter 5.25 4.75 $6.00 $4.75
3rd Quarter 5.00 5.00 $6.50 $4.50
4th Quarter 6.25 5.00 $5.50 $4.50
</TABLE>
On ______, 1996, the closing bid price of the Common Stock was $____
and the Company had approximately _____ Stockholders of record. All prices set
forth above represent inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions in the Common Stock.
21
<PAGE> 25
The Company has not declared any cash dividends with respect to the
Common Stock since becoming publicly held in 1989. The Company's Board of
Directors presently intends to retain funds for financing the oil and gas
development and acquisition activities, as opposing to using such funds to
declare and pay cash dividends.
BUSINESS OF THE COMPANY
The Company and its subsidiaries are primarily engaged in the business
of domestic oil and gas exploration, development and production. The Company
was organized in June 1988 as a Delaware corporation and began operations in
March 1989. The Company has concentrated its efforts in the Permian Basin area
of Texas with minor operations in New Mexico, Louisiana, Oklahoma, Arkansas,
North Dakota, Colorado and Wyoming. The Company's principal operations have
been in the enhancement and further development of its operated oil and gas
properties, purchases of additional working interests in producing properties,
and the installation and monitoring of a secondary recovery waterflood project.
The principal executive offices of the Company are located at 3100
North "A" Street, Building B, Midland, Texas 79705, and its telephone number at
such offices is (915) 684-7005.
Additional information regarding the business of the Company is set
forth in the Company's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1996, a copy of which accompanies this Proxy Statement.
CERTAIN INFORMATION CONCERNING SEABOARD
ACQUISITION PARTNERS, INC. AND SEABOARD MIDLAND, INC.
SAP is a Delaware corporation whose principal asset is its ownership
of 1,055,683 Shares. SAP conducts no business other than owning Shares. SMI,
a Delaware corporation, is a wholly owned subsidiary of SAP and was formed for
the purpose of the Merger. SMI has not conducted any business except in
connection with the Merger, and has no material assets other than its rights
under the Merger Agreement. SMI will cease to exist following the Merger.
The current officers and directors of SAP are Messrs. E.E. Runyan,
Robert L. Marolda and Edward P. Bliss, all of whom are Directors of the
Company. Mr. E.E. Runyan is an officer and the sole director of SMI. See
"ELECTION OF DIRECTORS" for additional information regarding these individuals.
22
<PAGE> 26
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA: (in thousands, except ratios and per share data)
<S> <C> <C> <C> <C> <C>
Operating revenues $6,048 $4,366 3,750 $3,890 $3,062
Operating income (loss) 1,571 613 161 201 (209)
Net income 1,801 824 207 565 20
Net income (loss) available
to common shareholders 1,801 824 207 565 (55)
Preferred stock dividends -- -- -- -- 75
Common stock dividends -- -- -- -- --
Earnings (loss) per common share
Primary $1.22 $0.68 $0.27 $0.73 $(0.10)
Fully diluted N/A N/A N/A N/A N/A
Ratio of earnings to fixed charges 90.05:1 30.52:1 7.39:1 18.83:1 .80:1
BALANCE SHEET DATA (AS PERIOD END):
Current assets $ 4,587 $ 4,461 $ 1,579 $ 3,075 $ 3,385
Total assets 14,919 13,750 8,860 8,890 8,552
Current liabilities 511 1,030 274 473 546
Long-term obligations -- -- -- -- --
Total stockholder's equity 14,408 12,720 8,586 8,417 8,006
Book value per common share $ 9.82 $ 8.55 $11.45 $ 11.13 $ 10.20
</TABLE>
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At the end of the fiscal year ended March 31, 1996, the Company had
working capital of $4,076,000 and a current ratio of 9.0 to 1.0. The primary
investing activity during the 1996 fiscal year was approximately $3,466,000 in
capital expenditures which includes the cash outlay to drill six development
oil wells in the North Robertson Unit and adjacent acreage, four development
oil wells in the Quito West Unit and nearby acreage, and one development oil
well in Louisiana. Expenditures were also made for undeveloped acreage and an
office building.
During fiscal years ended March 31, 1996 and March 31, 1995, the
Company generated cash from operations of $3,554,000 and $2,152,000,
respectively. Such cash provided from operations plus the Company's cash
balances, has been and is expected to be sufficient to satisfy all of the
Company's working capital requirements. In addition to its working capital
requirements, the Company expects that its capital expenditure requirements for
fiscal year 1997 could total approximately $3,200,000 depending on drilling
results of new prospects generated by the Company.
Approximately 50% of the Company's capital expenditure budget for
fiscal 1997 is projected to be on new prospects not associated with the
Company's North Robertson and Quito West Units. Development drilling will
continue in the Quito West Unit if warranted by waterflood response and in the
North Robertson Unit depending on regulatory approval and certain economic
conditions.
To fund such capital expenditures, the Company expects that its cash
provided by operations and cash balances plus borrowing under its line of
credit described below will be adequate not only to fund fiscal 1997 capital
expenditures but provide the Company the financial flexibility needed to
respond to investment opportunities for the acquisition of oil and gas
properties.
On August 17, 1994, the Company established a two year revolving line
of credit of up to $5,000,000 with a bank. The current borrowing base on the
line of credit is $1,800,000 and is determined by the lender's valuation of
certain of the Company's proved developed producing oil and gas properties.
The interest rate is the bank's prime rate and a commitment fee of 1/2 of 1%
per annum is payable on the unused portion of the credit line. The line of
credit is secured by a significant portion of the Company's oil and gas
properties and is subject to the terms of an agreement which restricts the
incurrence of additional indebtedness and limits the amount of lease payments.
At March 31, 1996 the Company had not utilized any portion of its credit line.
At March 31, 1996, stockholders' equity represented 96.6% of total
assets. The Company purchased 20,081 shares of Common Stock during the year
ended March 31, 1996 for an aggregate purchase price of $113,000 (an average
price per share of $5.63), and 12,638 shares during the year ended March 31,
1995 for an aggregate purchase price of $70,000 (an average price per share of
$5.54), all of which shares are being held by the Company as treasury stock.
RESULTS OF OPERATIONS
The Company's results of operations have been prepared on a BOE
(equivalent barrels of oil, using a ratio of six Mcf of gas to one barrel of
crude oil) basis for the two years ended March 31, 1996 and 1995.
24
<PAGE> 28
<TABLE>
<CAPTION>
Years ended
March 31,
-----------------------
1996 1995
-------- --------
Production and prices
<S> <C> <C>
Oil (Bbls) 311,000 226,000
Natural gas (Mcf) 331,000 332,000
Average oil price (per Bbl) $17.53 $16.73
Average gas price (per Mcf) $ 1.81 $ 1.78
Ratio of average oil to
average gas price 9.69/1 9.40/1
Equivalent barrels
of oil (BOE) 366,000 281,000
------- -------
Increase in production
volumes over prior year 30.25% 7.25%
Results of operations per BOE
Oil and gas sales $16.52 $15.54
----- -----
Costs and expenses
Lease operating expenses 5.16 5.78
Dryhole and abandonment .05 1.01
Depreciation and depletion 4.83 3.91
General and administrative 2.15 2.66
Geological and geophysical .05 -
----- -----
12.24 13.36
----- -----
Operating income 4.28 2.18
----- -----
Other income
Interest income .46 .51
Gains on sales of property and equipment .19 -
Other income .01 .24
----- -----
.66 .75
----- -----
Net income per BOE $ 4.94 $ 2.93
===== =====
</TABLE>
25
<PAGE> 29
YEAR ENDED MARCH 31, 1996 VS. MARCH 31, 1995
Revenues for the fiscal year ended March 31, 1996 increased 39% in
total or 6% on an equivalent barrel basis when compared to the fiscal year
ended March 31, 1995, primarily due to the combination of a 5% increase in the
average oil price received and a 38% increase in oil production. Such increase
in oil production resulted from the drilling and other production activities
described elsewhere herein.
Lease operating expenses decreased 11% per equivalent barrel
reflecting management's efforts to control operating expenses. General and
administrative expense increased slightly by 5% in total, but decreased by 19%
on an equivalent barrel basis. Depreciation and depletion increased in total
by $666,000 or on an equivalent barrel basis it increased 24%. This increase
is the direct result of the 30% increase in production.
The Company's total other income increased $26,000 due primarily to an
increase in interest income.
The Company's gross deferred tax assets consist primarily of the tax
effect of net operating loss carryforwards for Federal income tax purposes
totalling $9,070,000. Management believes that it is more likely than not that
the Company will be unable to utilize the entirety of the net operating loss
carryforwards during the application carryforward period. Management
considered the following factors in reaching this conclusion and in estimating
the appropriate amount of valuation allowance needed to offset the gross
deferred tax assets:
1. The Company has not generated significant taxable income in
prior years and is unable to determine when taxable income of
a magnitude sufficient to utilize net operating loss
carryforwards will be generated.
2. The effects of alternative minimum tax limit the usefulness of
net operating loss carryforwards.
3. The expectation that reversal of existing temporary difference
in book and tax basis will result in the realization of
existing net operating loss carryforwards to the extent
necessary to offset the regular tax impact of such reversals.
4. If the Merger is consummated, the resulting ownership change
may limit the use of all or a portion of the net operating
loss carry forwards.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 - Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("FAS 121"). FAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995, although earlier adoption is encouraged.
The application of FAS 121 to oil and gas companies utilizing the successful
efforts method (such as the Company) requires periodic determination of whether
the book value of long-lived assets exceeds the future cash flows expected to
result from the use of such assets and, if so, requires a reduction of the
carrying amount of the "impaired" assets to their estimated fair values.
At March 31, 1996, the Company elected early adoption of FAS 121 for
which it was determined that no impairment exists for the year.
26
<PAGE> 30
PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth certain information as of June 1, 1996
with respect to (i) each person who owns beneficially more than five percent of
the outstanding shares of Common Stock; and (ii) the beneficial ownership of
Common Stock by all Officers, Directors and Nominees as a group.
<TABLE>
<CAPTION>
Number of Shares
Relationship of Common Stock Percent
Name and Address to Company Beneficially Owned of Class
---------------- ----------- ------------------ --------
<S> <C> <C> <C>
Seaboard Acquisition Partners, Inc.(1) Principal Stockholder 1,055,683(2) 71.75%
3100 North "A" Street
Bldg. B, Suite 201
Midland, Texas 79705
All Officers, Directors and Nominees
as a Group (see "ELECTION OF DIRECTORS" for 81,892(3) 5.45%(4)
individual ownership information)
</TABLE>
- ----------------------
(1) Mr. E.E. Runyan (Chairman of the Board, Chief Executive Officer and a
Director of the Company) is a stockholder, officer and director of SAP;
and Messrs. Robert L. Marolda and Edward P. Bliss (Directors of the
Company) are officers and directors of SAP.
(2) Includes 701,449 Shares acquired by SAP in the Company's rights offering
in 1994 for a purchase price of $4.61 per share.
(3) Does not include any portion of the 1,055,683 shares owned by SAP.
Includes shares which such persons have the right to acquire within 60
days through presently exercisable options granted to such persons under
the Employer Benefits Plans (as defined herein). See the stock ownership
table on the next page and "REMUNERATION OF MANAGEMENT - EMPLOYEE BENEFIT
PLANS".
(4) For the sole purpose of calculating this percentage, the shares
underlying the options described in (3) above are treated as outstanding
shares.
ELECTION OF DIRECTORS
At the Meeting of Stockholders, six (6) Directors are to be elected. The
present Board of Directors has fixed the number of Directors for the upcoming
fiscal year at six (6). Information with respect to the nominees for Directors
is set forth below. Each Director so elected will hold office until the
earlier of (a) completion of the Merger or (b) the next Meeting of Stockholders
or until his successor is elected and has qualified. The persons named as
proxies in the enclosed proxy have been designated by the Board of Directors
and intend to vote for the nominees named herein in the election of Directors.
If the contingency should occur that any such nominee is unable to serve as a
Director, it is intended that the Shares represented by the proxies will be
voted in the absence of contrary indication for any substitute nominee that the
Board of Directors may designate. Each of the nominees listed has advised the
Company that he is willing to serve as a Director if elected.
The following table sets forth certain information as of June 1, 1996 with
respect to each nominee to the Board of Directors, all of whom currently serve
in the capacity indicated below:
27
<PAGE> 31
<TABLE>
<CAPTION>
Name, (age), Position with Company Served as a Shares of Common Stock Percent
and address Director Since(1) Beneficially Owned of Class(2)
- ------------------------------------------ -------------- ------------------------ --------
<S> <C> <C> <C>
E.E. Runyan (62) January 1991 19,960 (3)(4) 1.35%
Chairman of the Board, Chief
Executive Officer and Director
5114 Polo Club Drive
Midland, TX 79705
Edward E. Runyan (37) January 1991 5,491 (5) *
Director
1708 Coventry
Midland, TX 79705
Robert L. Marolda (45) January 1991 16,225 (4)(5) 1.10%
Director
518 17th Street, Ste. 1010
Denver, CO 80202-4111
Robert L. Hollis (69) January 1991 15,225 (5) 1.03%
Director
2011 Parkview Drive
Okmulgee, OK 74447
Gary B. Gilliam (46) August 1992 10,991 (6) *
President, Chief Financial
Officer, Secretary and Director
4608 Island Drive
Midland, TX 79707
Edward P. Bliss (63) August 1993 14,000 (4)(5) *
Director
38 Bullard St.
Sherborn, MA 01770
</TABLE>
- --------------------
* Less than one percent of the shares outstanding.
(1) The term of office of each of the present Directors is until the 1996
Meeting of Stockholders or until a successor is elected and has
qualified.
(2) For the sole purpose of calculating these percentages, the shares which
the named person has the right to acquire within 60 days, by exercise of
the options described in these footnotes, are deemed outstanding shares
with respect to that person's percentage ownership.
(3) Includes 7,000 shares held in the name of Edward E. Runyan - Defined
Benefit Plan and 7,000 shares which Mr. Runyan has the right to acquire
within 60 days through a presently exercisable option granted to Mr.
Runyan pursuant to the 1994 Employee Incentive Stock Option Plan. See
"-EMPLOYEE BENEFIT PLANS".
28
<PAGE> 32
(4) Does not include 1,055,683 shares owned by SAP, of which Messrs. Runyan,
Marolda and Bliss are officers and directors. See "PRINCIPAL HOLDERS OF
SECURITIES."
(5) Includes 4,000 shares which the named person has the right to acquire
within 60 days through a presently exercisable option granted to the
named person under the Outside Directors Stock Option Plan. See
"-EMPLOYEE BENEFIT PLANS".
(6) Includes 9,000 shares which Mr. Gilliam has the right to acquire within 60
days through a presently exercisable option granted to Mr. Gilliam
pursuant to the 1994 Employee Incentive Stock Option Plan. See "-EMPLOYEE
BENEFIT PLANS".
Presented below is certain biographical information with respect to each
Director and executive officer of the Company (all such persons are United
States citizens).
E.E. Runyan became Chairman of the Board and Chief Executive Officer of the
Company in January 1991. For in excess of the past five years, Mr Runyan has
been an independent oil operator in Midland, Texas, operating through Runyan
Oil Co., Texon Oil Company and Honolulu Oil Co. He is the father of Edward E.
Runyan and the brother-in-law of Robert L. Hollis, both of whom are Directors.
Edward E. Runyan, a Director of the Company since January 1991, is currently
President and a Director of Texon Oil Company and a Director of Merlyn Energy.
Mr. Runyan was formerly employed as a production engineer by Conoco, Inc. from
June 1982 until joining Texon Oil Company in February 1991. He is the son of
E.E. Runyan, Chairman of the Board and Chief Executive Officer of the Company,
and the nephew of Robert L. Hollis, a Director of the Company.
Robert L. Marolda is currently President and a Director of Castlereagh
Investments, Inc., a privately held oil, gas and corporate investment company.
Mr. Marolda previously served as Chairman and President of BMR Corporation from
1986 through its sale in July 1993. He also served as President of Energy
Minerals Corporation, BMR's operating subsidiary, an independent oil and gas
company based in Denver, Colorado from 1984 to July 1993. Mr. Marolda also
serves as a Director of Honolulu Oil Co. He has been a Director of the Company
since 1991.
Robert L. Hollis became a Director of the Company in January 1991. For in
excess of the past five years, Mr. Hollis has served in a variety of positions
at First National Bank & Trust Co. of Okmulgee, Oklahoma, including Chairman of
the Board and Chief Executive Officer, and is currently chairman emeritus of
that institution. In addition, Mr. Hollis serves as President of First
Okmulgee Corporation, Okmulgee, Oklahoma. He is the uncle of Edward E. Runyan,
a Director of the Company, and the brother-in-law of E.E. Runyan, Chairman of
the Board and Chief Executive Officer of the Company.
Gary B. Gilliam became a Director of the Company in August 1992. He has
served as President, Chief Financial Officer and Secretary of the Company since
July 1991.
Edward P. Bliss is and has been, for in excess of five years, an Investment
Counselor for Loomis, Sayles & Company, Inc., and serves as a Managing Partner
and Vice President of Loomis, Sayles & Company. He also serves as a Director
of Sierra Pacific Resources, Inc., a public utility company. Mr. Bliss has
been a Director of the Company since August 1993.
29
<PAGE> 33
COMMITTEES AND MEETINGS OF THE BOARD
The Company currently has only three committees of the Board of Directors,
the Audit Committee, the Employee Plan Committee and the Special Committee
formed in connection with the Merger. The Audit Committee, composed of Messrs.
Edward E. Runyan, Hollis and Marolda, considers financial matters relating to
the Company's independent auditors and hears reports by the Company's
independent auditors with respect to management controls and other related
matters. The Audit Committee met one time during the fiscal year ended March
31, 1996. The Employee Plan Committee is composed of Messrs. Edward E. Runyan,
Marolda, Hollis and Bliss, and administers the Company's 1994 Employee
Incentive Stock Option Plan. The Employee Plan Committee met one time during
the Company's fiscal year ended March 31, 1996. The Special Committee,
composed of Messrs. Edward E. Runyan, Gilliam and Bliss, was formed to consider
issues related to the Merger. See "SPECIAL FACTORS - BACKGROUND OF THE
MERGER." The Special Committee met three times during the fiscal year ended
March 31, 1996.
During the year ended March 31, 1996, the Board of Directors held four
meetings. No Director proposed for election attended fewer than 75 percent of
the aggregate of the total number of Board and Committee (as applicable)
meetings held during the period that he served.
REMUNERATION OF MANAGEMENT
The following table sets forth information as to remuneration paid by the
Company to its chief executive officer and its only other executive officer
whose total cash compensation exceeded $100,000, for services rendered in all
capacities to the Company during each of the last three fiscal years ended
March 31, 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation(1) Compensation Compensation(2)
---------------------- ------------ ---------------
Securities
Underlying
Name and Principal Position Year Salary Bonus Options/SARs
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C> <C>
E.E. Runyan 1996 $70,000 $15,778 (3) 4,000 $6,000
Chairman of the Board, Chief 1995 $65,833 $ 5,000 (4) 3,000 $4,500
Executive Officer & a Director 1994 $60,000 $10,000 0 $6,000
Gary B. Gilliam 1996 $90,000 $15,778 (3) 4,000 $18,578 (5)
President, Chief Financial 1995 $89,917 $ 5,000 (4) 5,000 $16,667 (5)
Officer, Secretary & a Director 1994 $85,000 $10,000 0 $16,210 (5)
</TABLE>
- -------------------
(1) In addition to annual salary and bonuses, certain of the Company's
executive officers receive certain personal benefits as part of their
annual compensation. The aggregate amount of such personal benefits,
however, does not exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for any of the named executive officers.
30
<PAGE> 34
(2) Includes amounts paid to the named persons in their capacities as
Directors of the Company for attendance at meetings of the Board.
(3) Does not include a performance bonus of approximately $34,225 for services
rendered in the fiscal year ended March 31, 1996, but paid in the fiscal
year ended March 31, 1997.
(4) Does not include a performance bonus of approximately $15,778 for services
rendered in the fiscal year ended March 31, 1995, but paid in the fiscal
year ended March 31, 1996.
(5) Includes the dollar value of any insurance premiums paid by, or on behalf
of, the Company with respect to term life insurance for the benefit of the
named executive officer.
EMPLOYMENT ARRANGEMENTS
The Company has no employment agreements with any of its current officers or
employees, and has no compensatory plans or arrangements related to the
resignation, retirement or other termination of an executive officer's
employment or to a change in control of the Company other than benefits under
the Employee Benefit Plans. See "-EMPLOYEE BENEFIT PLANS."
DIRECTORS' FEES
The Company currently compensates its Directors for attendance at Board and
Committee meetings at the rate of $1500 for Board meetings and $500 for
Committee meetings held separately from Board meetings.
EMPLOYEE BENEFIT PLANS
The Company currently has three employee benefit plans, the Seaboard Oil Co.
1994 Employee Incentive Stock Option Plan, the Outside Directors Stock Option
Plan of Seaboard Oil Co. and the Directors Long-Term Incentive Plan of Seaboard
Oil Co. (collective, the "Employee Benefit Plans"). The following tables
reflect grants under the Employee Benefit Plans to the executive officers named
in the Summary Compensation Table. A description of each of the Employee
Benefit Plans follows the tables.
OPTIONS/SARS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Shares % of Total Options/SARs Granted Exercise Expiration
Name Underlying Options/SARs Granted(1) to Employees in Fiscal Year (2) Price Date
---- ------------------------------- --------------------------- ----- ----
<S> <C> <C> <C> <C>
E.E. Runyan 4,000 33% $5.50 August 25,
2005
Gary B. Gilliam 4,000 33% $5.00 August 25,
2005
</TABLE>
- --------------------
(1) All shares listed relate to options granted under the 1994 Employee
Incentive Stock Option Plan on August 25, 1995, and are immediately and
fully exercisable.
(2) These percentages are based solely on the options granted under the 1994
Employee Incentive Stock Option Plan and do not include options granted to
non-employee directors under the Outside Directors Stock Option Plan.
31
<PAGE> 35
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Unexercised Value of Unexercised In-the-Money
Options/SARs at FY-End Options/SARs at FY-End
Name Exercisable/Unexercisable(1) Exercisable/Unexercisable(2)
---- ------------------------- -------------------------
<S> <C> <C>
E.E. Runyan 7,000/0 $1,850.00/0
Gary B. Gilliam 9,000/0 $6,500.00/0
</TABLE>
- ----------------
(1) All shares listed relate to options granted under the 1994 Employee
Incentive Stock Option Plan on August 26, 1994, and on August 25, 1995,
and are immediately and fully exercisable.
(2) The bid and ask prices for the Common Stock as reported on the Nasdaq
Small-cap Market on March 31, 1996 (fiscal year end) were $5.75 and $6.25,
respectively. Therefore, the "fair market value" used to calculate the
value in this column is $6.00.
Outside Directors Stock Option Plan. The Outside Directors Stock Option
Plan provides for the issuance of stock options to the outside directors of the
Company. A total of 40,000 shares of Common Stock has been authorized and
reserved for issuance under the plan, subject to adjustments to reflect changes
in the Company's capitalization resulting from stock splits, stock dividends
and similar events. Only outside directors are eligible to participate in the
plan. Outside directors are those directors of the Company who are not
executive officers or regular salaried employees of the Company as of the date
an option is granted. Under the plan, an option for 2,000 shares of Common
Stock will be granted to each person who qualifies as an outside director as of
the effective date of the plan and each year thereafter that such person is
elected as a director of the Company through and including 1998. The exercise
price of each option granted under the plan will be the fair market value (as
reported on the Nasdaq Small Cap Market) of the Common Stock at the time the
option is granted, and may be paid either in cash or shares of Common Stock.
Each option will be exercisable immediately, and will expire ten years from the
date of grant. An option granted under the plan is not transferrable other
than by will or the laws of descent and distribution. In the event a
participant in the plan ceases to be an outside director, other than by reason
of death or change of control of the Company, such participant may exercise an
outstanding option under the plan within ninety days after such termination, to
the extent the participant was entitled to exercise the option on the date of
termination. In the event of the death of a participant under the plan, such
participant's option(s) may be exercised by the executors or administrators of
the optionee's estate or by the legatees of such participant within one year
after his death, so long as the term of the option has not expired. In the
event of a change of control of the Company, each participant will be provided
with notice of the change of control and will have thirty days from the date of
such notice to exercise options granted under the plan, subject to certain
conditions. The Company does not receive any consideration upon the grant of
options under the plan. The options granted under the plan are intended to be
non-qualifying options for federal income tax purposes. Because options under
the plan are not generally transferrable, do not appear to be subject to a
substantial risk of forfeiture and the exercise price will be the fair market
value of the common stock on the date of grant, the options should not be
taxable to an optionee until the optionee exercises the option, at which time
the optionee would recognize income on the difference between the exercise
price and the fair market value of the shares on the date of exercise. The
grant of options under the plan should be treated as compensation paid by the
Company for purposes of the Company's federal income tax considerations. The
Board of Directors may amend the plan without the approval of the stockholders
of the Company in any respect other than the following, which require
stockholder approval: material increases in the number of shares which may be
awarded under the plan, material increases in the benefits accruing to
participants under the plan, material modifications of the requirements for
eligibility for participation in the plan, or any other amendment which
requires stockholder approval by law. The Company currently has four
directors, Messrs. Edward E. Runyan, Marolda, Hollis and Bliss, who are
eligible to participate in the plan. Pursuant to the terms of the plan, an
option for 2,000 shares of Common Stock was granted to each of the currently
eligible outside directors as of August 25, 1995, with an exercise price of
$5.00 per share.
1994 Employee Incentive Stock Option Plan. The 1994 Employee Incentive
Stock Option Plan provides for the grant of qualified stock options to the
employees of the Company and its subsidiaries, including officers and directors
who are salaried
32
<PAGE> 36
employees. A total of 60,000 shares of Common Stock has been authorized and
reserved for issuance under the plan, subject to adjustment to reflect changes
in the Company's capitalization resulting from stock splits, stock dividends
and similar events. The plan is administered by the Employee Plan Committee,
which consists of not less than three and not more than five directors who are
not eligible to participate in the plan. The Committee has the sole authority
to interpret the plan, to determine the persons to whom options will be
granted, to determine the basis upon which the options will be granted, and to
determine the exercise price, duration and other terms of the options to be
granted under the plan; provided that (a) the exercise price of each option
granted under the plan may not be less than the fair market value of the Common
Stock on the date the option is granted (110% of fair market value if the
employee is the beneficial owner of 10% or more of the Company's voting
securities), (b) the exercise price must be paid in cash or by surrendering
previously owned shares of Common Stock upon the exercise of the option, (c)
the term of the option may not exceed ten years, and (d) no option is
transferrable other than by will or the laws of descent and distribution. Upon
termination of an optionee's employment (other than by death or disability),
the option may be exercised prior to the expiration date of the option or
within three months after the date of such termination, whichever is earlier,
but only to the extent the optionee had the right to exercise the option upon
the date of such termination. In the event of the death or disability of an
optionee, the option may be exercised by such person, his guardian, legatee or
personal representative at any time prior to the expiration date of the option
or within one year after the date of the death or disability, whichever is
earlier, but only to the extent the optionee had the right to exercise the
option as of the date of his death or disability. Options may not be granted
under the plan to any individual if the effect of such grant would permit that
person to have the first opportunity to exercise such options, in any calendar
year, for the purchase of shares having a fair market value (at the time of
grant of the option) in excess of $100,000.00. Neither the Company nor any of
its subsidiaries will receive any consideration for the granting of options
under the plan. Options granted under the plan are intended to have the
federal income tax consequences of a qualified stock option. As a result, the
exercise of the option will not be a taxable event; the taxable event occurs at
the time the shares of Common Stock acquired upon exercise of the option are
sold. If the optionee holds such shares for the later of two years from the
date the option was granted or one year from the date of exercise of the
option, the difference between the price paid for the shares at exercise and
the price for which those shares are sold will be treated as capital gains
income. If the optionee does not hold the shares for the required holding
period, the income would be treated as ordinary income rather than capital
gains income. The grant of options under the plan will be treated as
compensation by the Company for federal income tax purposes. The Board of
Directors may amend the plan, without stockholder approval, in any respect
other than the following, which will require stockholder approval: increasing
the total number of shares for which options may be granted under the plan,
changing the minimum exercise price, affecting outstanding options or the
unexercised rights thereunder, extending the option period, or extending the
termination date of the plan. There are currently approximately ten persons
who are eligible to participate under the plan. On August 25, 1995, options
were granted under the plan to Mr. E.E. Runyan (4,000 shares), Mr. Gary Gilliam
(4,000 shares), and certain employees who are not executive officers (as a
group, 4,000 shares).
Directors Long-Term Incentive Plan. The Directors Long-Term Incentive Plan
provides for awards of shares of Common Stock to the current directors of the
Company based upon the Company achieving certain performance objectives
described in the plan over a five year period. A total of 50,000 shares of
Common Stock has been authorized and reserved for issuance pursuant to the
plan, subject to adjustments to reflect changes in the Company's capitalization
resulting from stock splits, stock dividends and similar events. Only the
current directors of the Company are eligible to participate under the plan.
The number of shares included in the awards to the directors, if any, will be
based upon the extent to which certain performance objectives are attained by
the Company. The performance objectives are based upon increases in the value
of the Company as determined in accordance with a formula set forth in the
plan. Upon the death of any of the participants, that participant's legatees
or personal representative will receive an award under the plan based upon the
number of years that participant served as a director under the plan. In the
event of a change of control of the company or in the event the performance
objectives are fully attained at any annual review prior to termination of the
plan, awards will be granted to the directors as if the performance objectives
had been fully attained. If not previously granted, awards will be granted
under the plan to the extent the performance objectives are attained at the
expiration of five years from the date of the plan. The plan will terminate
upon grants of awards to all eligible directors or upon the expiration of the
five year period. If an eligible director is terminated for any reason other
than death or change of control, the terminated director will not be entitled
to any award under the plan. The Board of Directors may amend the plan without
approval of the stockholders in any respect other than the following, which
require stockholder approval: material increases in the number of shares which
may be awarded under the plan, material increases in the benefits accruing to
participants in the plan, material modifications of the requirements for
eligibility for participation under the plan, and any other amendment requiring
stockholder approval by law. There are six persons eligible to participate
under the plan. No awards have been granted under the plan.
33
<PAGE> 37
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In February 1996, the Company entered into two drilling arrangements with
Honolulu Oil Co. Mr. E.E. Runyan is a principal shareholder of Honolulu Oil
Co., and Mr. Marolda is a director of that corporation. Pursuant to the
arrangements, the Company acquired interests in oil and gas leases from Honolulu
Oil Co. in exchange for an agreement to pay $20,000 for each well drilled on the
subject leases, plus a cash payment at closing on one of the leases. As of June
30, 1996, the Company had paid to Honolulu Oil Co. approximately $60,000
pursuant to these arrangements. The Company believes the terms of these
transactions to be fair and in accordance with customary practice in the
industry.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company pursuant to the rules and regulations promulgated
under Section 16(a) of the Securities Exchange Act of 1934 during and with
respect to the Company's last fiscal year and upon certain written
representations received by the Company, the Company is not aware of any
failure by a reporting person of the Company under Section 16(a) to timely file
reports required by Section 16(a).
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public accountant for the most recently completed
fiscal year and for the current year is KPMG Peat Marwick LLP. A
representative of KPMG Peat Marwick LLP will be present at the Meeting. This
representative will have an opportunity to make a statement if he or she
desires to do so, and will be available to respond to Stockholder questions.
FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission, which contains financial statements as of,
and for the year ended, March 31, 1996 accompanies this Proxy Statement.
STOCKHOLDER PROPOSALS
In the event the Merger is not approved and consummated, Stockholders who
desire to present proposals to the Company for consideration for inclusion in
the Company's Proxy Statement and form of proxy for the 1997 Meeting of
Stockholders of the Company must submit such proposals to the Secretary of the
Company by April 1, 1997.
TRANSACTION OF OTHER BUSINESS
Management does not intend to present to the Meeting any business other than
as set forth in the Notice of Annual Meeting and knows of no other business to
be presented for action at the Meeting. If, however, any other business should
properly come before the Meeting or any adjournments thereof, it is intended
that all proxies will be voted with respect thereto in accordance with the best
judgment of the persons named in the proxies.
By Order of the Board of Directors
Gary B. Gilliam
President, Chief Financial Officer and Secretary
Midland, Texas
July ____, 1996
34
<PAGE> 38
SEABOARD OIL CO. CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements and
Supplementary Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheet as of
March 31, 1996 F-3
Consolidated Statements of Operations,
For the years ended March 31, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity,
For the years ended March 31, 1996 and 1995 F-5
Consolidated Statements of Cash Flows,
For the years ended March 31, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 39
Independent Auditors' Report
The Board of Directors and Stockholders
Seaboard Oil Co.:
We have audited the accompanying consolidated balance sheet of Seaboard Oil Co.
and subsidiaries as of March 31, 1996 and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years ended March
31, 1996 and 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Seaboard Oil Co.
and subsidiaries as of March 31, 1996 and the results of their operations and
their cash flows for the years ended March 31, 1996 and 1995, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Midland, Texas
May 20, 1996
F-2
<PAGE> 40
SEABOARD OIL CO.
CONSOLIDATED BALANCE SHEET
March 31, 1996
<TABLE>
<S> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 3,827,000
Accounts receivable:
Trade 47,000
Oil and gas sales 650,000
Other 9,000
Other current assets 54,000
-----------
Total current assets 4,587,000
-----------
Property and equipment at cost:
Oil and gas properties, based on
successful efforts accounting method 16,715,000
Other equipment 868,000
-----------
17,583,000
Less accumulated depreciation and
depletion (7,251,000)
-----------
Net property and equipment 10,332,000
-----------
$14,919,000
===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable $ 176,000
Accrued liabilities:
Oil and gas sales 117,000
Other 218,000
-----------
Total current liabilities 511,000
-----------
Stockholders' equity:
Preferred Stock, $.10 par value.
Authorized 500,000 shares; no
shares issued or outstanding -
Common Stock, $.01 par value.
Authorized 3,000,000 shares,
1,567,015 issued; 1,467,369 outstanding 16,000
Capital in excess of par value 9,517,000
Retained earnings 5,423,000
-----------
14,956,000
Less: Treasury stock, at cost, 99,646 shares (548,000)
-----------
Total stockholders' equity 14,408,000
Commitments ___________
$14,919,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 41
SEABOARD OIL CO.
Consolidated Statements of Operations
For the years ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ --------------
<S> <C> <C>
Operating revenues-oil and
gas sales $ 6,048,000 $ 4,366,000
-------------- ---------------
Operating costs and expenses:
Lease operating expenses 1,887,000 1,624,000
Dryhole and abandonment 21,000 283,000
Depreciation and depletion 1,766,000 1,100,000
General and administrative 786,000 746,000
Geological and geophysical 17,000 -
-------------- ---------------
Total operating costs
and expenses 4,477,000 3,753,000
-------------- ---------------
Operating income 1,571,000 613,000
-------------- ---------------
Other income:
Interest income 167,000 143,000
Gains on sales of property and
equipment 69,000 -
Other income 2,000 68,000
-------------- ---------------
Total other income 238,000 211,000
-------------- ---------------
Income before income taxes 1,809,000 824,000
Income tax expense-current 8,000 -
-------------- ---------------
Net income $ 1,801,000 $ 824,000
============== ===============
Earnings per share $ 1.22 $ 0.68
============== ===============
Weighted average shares
outstanding 1,478,530 1,215,196
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 42
SEABOARD OIL CO.
Consolidated Statements of Stockholders' Equity
For the years ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
----------------------- Capital Treasury Stock
Shares in excess Retained --------------------
issued Amount of par value earnings Shares Amount Total
--------- ------- ------------ ---------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1994 817,089 $ 8,000 $6,145,000 $2,798,000 66,927 $(365,000) $ 8,586,000
Net Income - - - 824,000 - - 824,000
Issuance of common stock 749,926 8,000 3,372,000 - - - 3,380,000
Purchase of common stock - - - - 12,638 ( 70,000) ( 70,000)
--------- ------- ---------- ---------- ------ --------- -----------
Balances at March 31, 1995 1,567,015 16,000 9,517,000 3,622,000 79,565 (435,000) 12,720,000
Net Income - - - 1,801,000 - - 1,801,000
Purchase of common stock - - - - 20,081 (113,000) (113,000)
--------- ------- ---------- ---------- ------ --------- -----------
Balances at March 31, 1996 1,567,015 $16,000 $9,517,000 $5,423,000 99,646 $(548,000) $14,408,000
========= ======= ========== ========== ====== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 43
SEABOARD OIL CO.
Consolidated Statements of Cash Flows
For the years ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,801,000 $ 824,000
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and depletion 1,766,000 1,100,000
Dryhole and abandonment 11,000 275,000
Gain on sale of assets (69,000) -
Income taxes 8,000 -
Change in operating assets and liabilities:
Increase in accounts receivable (163,000) (125,000)
(Increase) decrease in other
current assets 90,000 (46,000)
Increase in accounts payable 25,000 75,000
Increase in accrued liabilities 85,000 49,000
----------- ------------
Net cash provided by operating activities 3,554,000 2,152,000
----------- ------------
Cash flows from investing activities:
Additions to oil and gas
properties (3,025,000) (2,721,000)
Additions to other equipment (442,000) (30,000)
Proceeds from sales of
property and equipment 84,000 -
----------- ------------
Net cash used in
investing activities (3,383,000) (2,751,000)
----------- ------------
Cash flows from financing activities:
Purchase of Treasury stock (113,000) (70,000)
Proceeds from stock offering - 3,380,000
----------- ------------
Net cash provided by (used in)
financing activities (113,000) 3,310,000
----------- ------------
Net increase in cash and
cash equivalents 58,000 2,711,000
Cash and cash equivalents at beginning
of year 3,769,000 1,058,000
----------- ------------
Cash and cash equivalents at end
of year $ 3,827,000 $ 3,769,000
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 44
SEABOARD OIL CO.
Notes to Consolidated Financial Statements
March 31, 1996 and 1995
(1) Organization and Summary of Significant Accounting Policies
Organization
Seaboard Oil Co. (the "Company") was organized as a Delaware corporation
in June 1988 and began operations in March 1989. The Company's
business focus is in domestic oil and gas exploration, development and
production. The majority of the Company's business is conducted in
the Permian Basin area of Texas with minor operations in New Mexico,
Louisiana, Oklahoma, Arkansas, North Dakota, Colorado and Wyoming.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant
accounts and transactions between the Company and its subsidiaries
have been eliminated.
Use of Estimates in the Preparation of Financial Statements
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
money market accounts and highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
F-7
<PAGE> 45
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
Impairment of Long-Lived Asset
The Company follows the provisions of Statement of Financial Accounting
Standards No. 121 - Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of ("FAS 121").
Consequently, the Company reviews its long-lived assets to be held
and used, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or
circumstances indicate that the carrying value of those assets may not
be recoverable. An impairment loss is indicated if the sum of the
expected future cash flows on a field by field basis, is less than the
carrying amount of the assets for the corresponding field. No
impairment was determined to exist during the year ended March 31,
1996.
Oil and Gas Properties
The Company utilizes the successful efforts method of accounting for its
oil and gas properties and equipment. Under this method, all costs
associated with productive wells and nonproductive development wells
are capitalized while nonproductive exploration costs are expensed.
The carrying amounts of properties sold or otherwise disposed of and
the related allowances for depletion are eliminated from the accounts
and any gain or loss is included in the results of operations.
Capitalized costs relating to proved properties are depleted on net
equivalent barrels using the unit- of-production method applied to
groups of properties with common geological structures based on
estimated proved oil and gas reserves. Costs of significant
nonproducing properties and development projects are excluded from
depletion until such time as the related project is developed and
proved reserves are established or impairment is determined.
Prior to the adoption of FAS 121 on April 1, 1995, the Company's
aggregate oil and gas properties were carried at cost, not in excess
of total estimated future net revenues net of related income tax
effects calculated on a company-wide basis. The adoption of FAS 121
had no effect on the Company's consolidated financial statements.
F-8
<PAGE> 46
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
Other Equipment
Other equipment is recorded at cost. Maintenance and repairs are charged
to operations; renewals and betterments are charged to the appropriate
property and equipment accounts. Upon retirement or disposition of
assets other than oil and gas properties, the cost and related
accumulated depreciation are removed from the accounts with the
resulting gains or losses, if any, reflected in results of operations.
Depreciation of other property and equipment is computed based on the
straight-line method over the estimated useful lives of the assets,
which range from three to fifteen years.
Gas Balancing
The Company utilizes the sales method of accounting for
natural gas revenues whereby revenues are recognized based on the amount
of gas sold to purchasers. The amount of gas sold may differ from the
amount to which the Company is entitled based on its working interests
in the properties. At March 31, 1996, the Company considers the
effect of its overproduced position to be immaterial.
Income Taxes
The Company accounts for federal income taxes using the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
Earnings Per Share
Earnings per common share are based on the weighted average number of
common shares outstanding during each period. Stock options for the
years ended March 31, 1996 and 1995 were antidilutive.
F-9
<PAGE> 47
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
Environmental
The Company is subject to extensive Federal, state and local
environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and
may require the Company to remove or mitigate the environmental
effects of the disposal or release of petroleum or chemical substances
at various sites. Environmental expenditures are expensed or
capitalized depending on their future economic benefit. Expenditures
that relate to an existing condition caused by past operations and
that have no future economic benefits are expensed. Liabilities for
expenditures of a noncapital nature are recorded when environmental
assessment and/or remediation is probable, and the costs can be
reasonably estimated.
(2) Disclosures About Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable, and
accrued liabilities approximates fair value because of the short
maturity of these instruments.
(3) Common Stock Rights Offering
On August 8, 1994 the Company closed its common stock rights offering
dated July 8, 1994. The Company offered 749,926 shares of its common
stock at $4.61 per share to stockholders of record at June 24, 1994.
The net proceeds the Company received was approximately $3,380,000.
F-10
<PAGE> 48
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
(4) Income Taxes
Federal income tax expense differs for the years ended March 31, 1996 and
1995 from the amount computed at the Federal statutory income tax rate
as follows:
<TABLE>
<CAPTION>
Years ended
March 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Income tax expense at
statutory rates $616,000 $283,000
Increase (reduction) in
income taxes resulting
from:
Change in beginning-of-the-
year balance of the valuation
allowance for deferred tax
assets in income tax expense (617,000) (284,000)
Other, net 9,000 1,000
-------- --------
Income tax expense $ 8,000 $ -
======== ========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
March 31 are presented below:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $3,083,000
Accounts receivable, principally
due to allowance for doubtful accounts 23,000
Alternative minimum tax credit
carryforwards 6,000
Other 5,000
----------
Total gross deferred tax assets 3,117,000
Less valuation allowance (1,862,000)
----------
Net deferred tax assets 1,255,000
----------
Deferred tax liability:
Property and equipment, principally
due to differences in basis and
depletion and the deduction of
intangible drilling costs for
tax purposes (1,255,000)
----------
Net deferred tax asset (liability) $ -
==========
</TABLE>
F-11
<PAGE> 49
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Based on
recent operating results, the Company expects to generate sufficient
taxable income during the carryforward periods to realize the net
deferred tax assets remaining as of March 31, 1996. The valuation
allowance for deferred tax assets as of April 1, 1995 was $2,479,000.
The net change in the total valuation allowance for the years ended
March 31, 1996 and 1995 was a decrease of $617,000 and $284,000,
respectively.
At March 31, 1996, the Company has net operating loss carryforwards and
alternative minimum tax carryforwards which may be used in future years
to offset future regular and alternative minimum taxable income. The
schedule below summarizes the net operating loss carryforwards and
alternative minimum tax carryforwards and their expiration dates. The
carryforwards expire as of March 31, of the year listed.
<TABLE>
<CAPTION>
Net Alternative
Date of Operating Loss Minimum Tax
expiration Carryforwards Carryforwards
---------- -------------- -------------
<S> <C> <C>
1998 $2,629,000 $2,141,000
1999 1,288,000 1,288,000
2001 2,268,000 2,268,000
2002 147,000 147,000
2003 41,000 41,000
2004 1,421,000 1,421,000
2005 1,114,000 1,026,000
2007 111,000 8,000
2009 48,000 -
2010 3,000 -
--------- ---------
$9,070,000 $8,340,000
========= =========
</TABLE>
(5) Line of Credit
On August 17, 1994, the Company established a two year revolving line of
credit of up to $5,000,000 with a bank. The current borrowing base on
the line of credit is $1,800,000 and is determined by the lender's
valuation of certain of the Company's proved developed producing oil and
gas properties. The interest rate is the bank's prime rate and a
commitment fee of 1/2 of 1% per annum is payable on the unused portion of
the credit line. The line of credit is secured by a significant portion
of the Company's oil and gas properties and is subject to the terms of an
agreement which restricts the incurrence of
F-12
<PAGE> 50
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
additional indebtedness and limits the amount of lease payments. At
March 31, 1996 the Company had not utilized any portion of its credit
line. Commitment fee expense was $9,000 for each of the years ended
March 31, 1996 and 1995.
(6) Stock Option and Stock Award Plans
Employee Incentive Stock Option Plan.
During the 1995 fiscal year, the Company authorized and adopted the 1994
Employee Incentive Stock Option Plan (the "1994 Plan") which was approved
by the Company's stockholders. A total of 60,000 shares of common stock
were authorized and reserved for issuance under the 1994 Plan. Options
are issued with an exercise price equal to the fair market value of the
common stock at the date of grant. Each option is exercisable
immediately and will expire ten years from the date of grant. No options
were exercised in the fiscal years ended March 31, 1996 and 1995. Shares
to be issued under the 1994 Employee Incentive Stock Option Plan were
registered under the Securities Act of 1933 on November 22, 1994.
A summary of stock option activity for the 1994 Plan for the past two years is
as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares per Share
--------- ------------
<S> <C> <C>
Outstanding at
March 31, 1994 - -
Granted 12,000 $5.50-$6.05
Exercised - -
Outstanding at
March 31, 1995 12,000 $5.50-$6.05
Granted 12,000 $5.00-$5.50
Exercised - -
Outstanding at
March 31, 1996 24,000 $5.00-$6.05
</TABLE>
Outside Directors' Stock Option Plan.
During the 1995 fiscal year, the Company authorized and adopted the Outside
Director Stock Option Plan ("Outside Directors' Plan") which was approved
by the Company's stockholders. The Outside Directors' Plan provides
for
F-13
<PAGE> 51
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
the issuance of stock options to the outside directors of the Company.
Outside directors are those directors of the Company who are not
executive officers or regular salaried employees of the Company. A total
of 40,000 shares of common stock were authorized and reserved for
issuance under the Outside Directors' Plan. Under the Outside
Directors' plan, an option for 2,000 shares of common stock was granted
to each person who qualified as an outside director as of the effective
date of the Outside Directors' Plan which was August 26, 1994. Each year
thereafter that an outside director is elected as a director of the
Company, an option for 2,000 shares of common stock will be granted to
that outside director through and including 1998. The exercise price of
each option granted under the Outside Directors' Plan will be issued at
the fair market value of the common stock at the date of grant. Each
option is exercisable immediately and will expire ten years from the date
of grant. No options were exercised in the fiscal years ended March 31,
1996 and 1995. Shares to be issued under the Outside Directors' Stock
Option Plan were registered under the Securities Act of 1933 on November
23, 1994.
A summary of stock option activity for the Outside Directors' Plan for the
past two years is as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares per Share
--------- ------------
<S> <C> <C>
Outstanding at
March 31, 1994 - -
Granted 8,000 $5.50
Exercised - -
Outstanding at
March 31, 1995 8,000 $5.50
Granted 8,000 $5.00
Exercised - -
Outstanding at
March 31, 1996 16,000 $5.00-$5.50
</TABLE>
Directors' Long-Term Incentive Plan.
During the 1995 fiscal year, the Company authorized and adopted the
Directors' Long-Term Incentive Plan ("Long-Term Plan") which was approved
by the Company's stockholders. The Long-Term Plan provides for awards of
common stock to the current directors of the Company
F-14
<PAGE> 52
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
based upon the Company achieving certain performance objectives over a
five year period. A total of 50,000 shares of common stock were
authorized and reserved for issuance pursuant to the Long-Term Plan.
Only the current directors of the Company are eligible to
participate under the Long-Term Plan. The number of shares included in
the awards to the directors, if any, will be based upon the extent to
which certain performance objectives are attained by the Company. The
performance objectives are based upon increases in the value of the
Company as determined in accordance with the Long-Term Plan. The
Long-Term Plan will terminate upon grants of awards to all eligible
directors or upon the expiration of a five year period ending March 31,
1999. There are six persons eligible to participate under the Long-Term
Plan and no awards have been granted or earned under the Long-Term Plan
as of March 31, 1996 or 1995. Shares to be issued under the Directors'
Long-Term Incentive Plan were registered under the Securities Act of 1933
on November 22, 1994.
(7) Related Party Transactions
Certain officers and directors of the Company concurrently hold comparable
positions with Seaboard Acquisition Partners, Inc. ("SAP"). As a result
of the Company's Common Stock Rights Offering described in Note 3, SAP
acquired 701,448 shares of common stock for approximately $3,234,000,
increasing its ownership to approximately 71% at March 31, 1995 and 1996.
(8) Significant Customers
Sales to the Company's significant customers in 1996 and 1995, as a
percentage of oil and gas production revenue, were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Customer A 44% 45%
Customer B 33% 38%
</TABLE>
F-15
<PAGE> 53
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
(9) Statement of Cash Flows
There were $632,000 in non-cash additions to oil and gas properties for
the year ended March 31, 1995.
No Federal income taxes were paid in the years ended March 31, 1996 and
1995, as a result of loss carryforwards. No interest expense was paid
in the years ended March 31, 1996 or 1995.
(10) Oil and Gas Expenditures
The following tables set forth certain historical costs and operating
information related to the Company's oil and gas producing activities:
<TABLE>
<CAPTION>
March 31
--------------------
1996 1995
---- ----
<S> <C> <C>
Capitalized Costs:
Proved properties $16,387,000 $14,133,000
Unproved properties 328,000 215,000
Less accumulated
depletion (6,983,000) (5,277,000)
---------- -----------
Net capitalized
costs $ 9,732,000 $ 9,071,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years ended
March 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
Costs incurred:
Proved property
acquisition costs $ 9,000 $ 86,000
========= =========
Unproved property
acquisition costs $ 122,000 $ 84,000
========= =========
Exploration costs $ 200,000 $ 360,000
========= =========
Development costs $2,073,000 $2,823,000
========= =========
</TABLE>
F-16
<PAGE> 54
SEABOARD OIL CO.
Notes to Consolidated Financial Statements (Continued)
March 31, 1996 and 1995
Results of Operations
The following table reflects the results of operations for the
Company's oil and gas producing activities:
<TABLE>
<CAPTION>
Years ended
March 31,
----------------
1996 1995
---- ----
<S> <C> <C>
Revenues $6,048,000 $4,366,000
Production costs
including pro-
duction taxes (1,887,000) (1,624,000)
Dryhole and aban-
donment (21,000) (283,000)
Depletion (1,706,000) (1,053,000)
--------- ---------
Results of operations
for oil and gas
producing activities
(excluding corporate
overhead costs) $2,434,000 $1,406,000
========= =========
</TABLE>
F-17
<PAGE> 55
SEABOARD OIL CO.
Unaudited Supplementary Information
March 31, 1996 and 1995
(11) Supplemental Oil and Gas Reserve Data (Unaudited)
The following table presents estimates of the Company's proved oil and
gas reserves, which are all located in the United States and are
prepared by independent petroleum engineers. Reserves were estimated
in accordance with guidelines established by the Securities and
Exchange Commission and the Financial Accounting Standards Board, which
require that reserve estimates be prepared under existing economic and
operating conditions with no provision for price and cost escalations
except by contractual arrangements. Information for oil is presented
in barrels (Bbl) and for gas in thousands of cubic feet (Mcf).
<TABLE>
<CAPTION>
Reserves Quantities
------------------------
Oil Gas
(Bbls) (Mcf)
------ -----
<S> <C> <C>
Total proved reserves:
Reserves as of
March 31, 1994 1,598,882 1,887,433
Revisions of previous
estimates 911,082 610,118
Purchase of minerals in
place 31,879 15,762
Production (225,603) (331,535)
--------- ---------
Reserves as of
March 31, 1995 2,316,240 2,181,778
New discoveries & extensions 26,196 40,663
Revisions of previous
estimates (84,339) 13,965
Purchase of minerals in
place 462 13,318
Sales of reserves in place (249) (14,154)
Production (311,004) (330,951)
--------- ---------
Reserves as of
March 31, 1996 1,947,306 1,904,619
========= =========
Proved developed reserves as of
March 31, 1995 2,003,769 2,181,778
========= =========
March 31, 1996 1,947,306 1,904,619
========= =========
</TABLE>
F-18
<PAGE> 56
SEABOARD OIL CO.
Unaudited Supplementary Information (Continued)
March 31, 1996 and 1995
The standardized measure of discounted future net cash flows, in
management's opinion, should be examined with caution. The basis for
this table is the reserve studies prepared by independent petroleum
consultants, which contain imprecise estimates of quantities and rates
of production of reserves. Revisions of previous year estimates can
have a significant impact on these results. Also, exploration costs in
one year may lead to significant discoveries in later years and may
significantly change previous estimates of proved reserves and their
valuation. Therefore, the standardized measure of discounted future
net cash flow is not necessarily a "best estimate" of the fair value of
the Company's proved oil and gas properties.
Standardized measure of oil and gas reserves
The following tabulation reflects the Company's estimated
discounted future cash flows from oil and gas production:
<TABLE>
<CAPTION>
Years ended
March 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Future cash flows $44,178,000 $44,590,000
Future production
and development
costs (19,073,000) (20,982,000)
---------- ----------
Future cash flows
before income taxes 25,105,000 23,608,000
Future income taxes (3,398,000) (2,491,000)
---------- -----------
Future net cash flows 21,707,000 21,117,000
Annual discount
at 10% (5,336,000) (5,692,000)
---------- ----------
Standardized
measure of oil and
gas reserves $16,371,000 $15,425,000
========== ==========
</TABLE>
The future cash flows reflected above are based on estimated oil and gas
reserves utilizing prices and costs in effect at the end of each period.
F-19
<PAGE> 57
SEABOARD OIL CO.
Unaudited Supplementary Information (Continued)
March 31, 1996 and 1995
The following are the significant sources of changes in discounted future
net cash flows:
<TABLE>
<CAPTION>
Years ended
March 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Oil and gas sales,
net of production
costs $(4,162,000) $(2,742,000)
New discoveries and extensions 234,000 -
Net changes in prices
and production costs 2,753,000 2,738,000
Purchases of minerals
in place 8,000 255,000
Sales of minerals in place (10,000) -
Changes in future
development costs 581,000 (1,217,000)
Accretion of
discount 1,543,000 918,000
Revision of quantity
estimates (595,000) 6,721,000
Net change in income taxes (649,000) -
Changes in production
rates and other 1,243,000 (427,000)
---------- ----------
$ 946,000 $ 6,246,000
========== ==========
</TABLE>
F-20
<PAGE> 58
APPENDIX I
AGREEMENT AND PLAN OF MERGER
<PAGE> 59
AGREEMENT AND PLAN OF MERGER
AMONG
SEABOARD ACQUISITION PARTNERS, INC.,
SEABOARD MIDLAND, INC. and
SEABOARD OIL CO.
DATED AS OF JUNE 28, 1996
<PAGE> 60
AGREEMENT AND PLAN OF MERGER, dated as of June 28, 1996 (this
"Agreement"), among SEABOARD ACQUISITION PARTNERS, INC., a Delaware corporation
("Parent"), SEABOARD MIDLAND, INC., a Delaware corporation and a wholly owned
subsidiary of Parent ("MergerCo."), and SEABOARD OIL CO., a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, MergerCo. and the
Company have each determined that it is in the best interests of their
respective stockholders for Parent to acquire the Company upon the terms and
subject to the conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, the Boards of
Directors of Parent, MergerCo. and the Company have each approved the merger
(the "Merger") of MergerCo. with and into the Company in accordance with the
General Corporation Law of the State of Delaware ("Delaware Law"), upon the
terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, MergerCo. and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in Article VI, and in accordance with Delaware Law, at the
Effective Time (as hereinafter defined) MergerCo. shall be merged with and into
the Company. As a result of the Merger, the separate corporate existence of
MergerCo. shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). Notwithstanding
anything to the contrary contained in this Section 1.01, Parent may elect (with
the Company's consent, which consent shall not be unreasonably withheld)
instead, at any time prior to the fifth business day immediately preceding the
date on which the Proxy Statement (as hereinafter defined) is mailed initially
to the Company's stockholders, to merge the Company into MergerCo. or another
direct or indirect wholly owned subsidiary of Parent. In such event, the
parties agree to execute an appropriate amendment to this Agreement in order to
reflect the foregoing and to provide, as the case may be, that MergerCo. or
such other wholly owned subsidiary of Parent shall be the Surviving
Corporation.
SECTION 1.02. Effective Time; Closing. As promptly as
practicable after the satisfaction or waiver of the conditions set forth in
Article VI hereof, the parties hereto shall cause the Merger to be consummated
by filing the Certificate of Merger in the form attached hereto as Exhibit 1.02
(the "Merger Certificate"), together with required officers' certificates, with
the Secretary of State of the State of Delaware, in such form as is required
by, and executed in accordance with the relevant provisions of Delaware Law
(the date and time of such filing or the effective time set forth in the Merger
Certificate being the "Effective Time"). The closing of the Merger (the
"Closing") will take place as soon as practicable on the later of (i) the date
of the Stockholder's Meeting referred to in Section 5.01 and (ii) the fifth
business day after satisfaction or waiver of the latest to occur of the
conditions set forth in Article VI (the "Closing Date"), at the offices of
Cotton, Bledsoe, Tighe & Dawson, 500 West Illinois, Suite 300, Midland, Texas
79701, unless a different date or place is agreed to in writing by the parties
hereto.
SECTION 1.03. Effect of the Merger. At the Effective Time,
the effect of the Merger shall be as provided in the applicable provisions of
this Agreement and Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the rights and
property of the Company and MergerCo. shall vest in the Surviving Corporation,
and all debts and liabilities of the Company and MergerCo. shall become the
debts and liabilities of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; Bylaws. (a)
Unless otherwise determined by Parent prior to the Effective Time, at the
Effective Time the Certificate of Incorporation of the Company, as in effect
2
<PAGE> 61
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation.
(b) Unless otherwise determined by Parent prior to the
Effective Time, the Bylaws of the Company, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation or such Bylaws.
SECTION 1.05. Directors and Officers. The directors of the
Company immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation, and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 1.06. Conversion of Securities. At the Effective
Time, by virtue of the Merger and without any action on the part of MergerCo.,
the Company or the holders of any of the following securities:
(a) Each share of Common Stock, par value $.01 per share,
of the Company ("Company Common Stock") (shares of Company
Common Stock being hereinafter collectively referred to as
"Shares") issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled pursuant
to Section 1.06(b) and any Dissenting Shares (as hereinafter
defined)) shall be converted automatically into the right to
receive an amount equal to $9.75 in cash (the "Merger
Consideration") payable, without interest, to the holder of
such Share, upon surrender, in the manner provided in Section
1.09, of the certificate that formerly evidenced such Share;
(b) Each share of Company Common Stock owned by Parent or
held by the Company as treasury stock immediately prior to the
Effective Time shall be canceled without any conversion
thereof and no payment or distribution shall be made with
respect thereto; and
(c) Each share of Common Stock, par value $.10 per share,
of MergerCo. issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of Common
Stock, par value $.01 per share, of the Surviving Corporation.
SECTION 1.07. Employee Stock Options. (a) At the Effective
Time, each outstanding option to purchase Company Common Stock ("Employee
Options"), granted under the Company's 1994 Employee Incentive Stock Option
Plan or the Outside Directors Stock Option Plan (the "Stock Option Plans"),
whether or not then exercisable, shall be canceled by the Company and each
holder of a canceled Employee Option shall receive from Parent, in cancellation
and settlement of the Employee Option, a cash amount (the "Option
Consideration") equal to the product of (i) the number of shares of Company
Common Stock previously subject to the Employee Option as of such time,
multiplied by (ii) the excess, if any, of the Merger Consideration over the
exercise price per share of Company Common Stock previously subject to the
Employee Option. Prior to the Closing, the Company shall provide Parent with a
listing of Employee Options held by each optionee (including the date of grant,
the number of Shares issuable upon exercise of the Employee Option, and the
Option Consideration to which the optionee is entitled) certified by an
executive officer of the Company. As of the Effective Time, each holder of an
Employee Option will be entitled to receive only an amount equal to the Option
Consideration. All amounts payable under this Section 1.07(a) shall be paid at
the Effective Time and shall be subject to any minimum required withholding of
taxes and shall be paid without interest. The Company shall not grant or amend
any Employee Options and shall not amend or modify the Stock Option Plans after
the date hereof.
(b) At the Effective Time, any and all rights held by any of
the directors eligible to receive an award (the "Incentive Plan Awards") of
Company Common Stock under the Directors Long-Term Incentive Plan (the
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"Long-Term Plan") shall be canceled by the Company and each holder of an
Incentive Plan Award shall receive from the Parent, in cancellation and
settlement of the Incentive Plan Award, a cash amount (the "Award
Consideration") equal to the product of (i) the number of shares of Company
Common Stock previously subject to the Incentive Plan Award as determined under
the Long-Term Plan based upon a change of control of the Company, multiplied by
(ii) the Merger Consideration. As of the Effective Time, each holder of an
Incentive Plan Award will be entitled only to the Award Consideration and is
not entitled to any shares of Company Common Stock. All amounts payable under
this Section 1.07(b) shall be paid at the Effective Time and shall be subject
to any minimum required withholding of taxes and shall be paid without
interest. The Company shall not amend or modify the Long-Term Plan after the
date hereof.
SECTION 1.08. Procedure for Payment; Stock Transfer Books.
(a) Immediately after the Effective Time, Parent shall deposit or cause to be
deposited into a segregated bank account (the "Account") cash in an aggregate
amount necessary to make the payments required pursuant to Section 1.06 and
Section 1.07 hereof. The Account shall be at a financial institution whose
deposits are insured by the United States government. All interest, if any,
earned on the Account shall be paid to the Surviving Corporation. The funds
deposited in the Account shall be used and withdrawn only as providing in this
Agreement.
(b) As soon as possible after the Effective Time, the
Surviving Corporation shall cause to be mailed to each person who was, at the
Effective Time, a holder of record of Shares entitled to receive the Merger
Consideration pursuant to Section 1.06(a) a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the certificates evidencing such Shares (the "Certificates") shall
pass, only upon proper delivery of the Certificates to the Surviving
Corporation) and instructions for use in effecting the surrender of the
Certificates pursuant to such letter of transmittal. Upon surrender to the
Surviving Corporation of a Certificate, together with such letter of
transmittal duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor the Merger Consideration for each Share formerly evidenced
by such Certificate, and such Certificate shall then be canceled. No interest
shall accrue or be paid on the Merger Consideration payable upon the surrender
of any Certificate for the benefit of the holder of such Certificate. If
payment of the Merger Consideration is to be made to a person other than the
person in whose name the surrendered Certificate is registered on the stock
transfer books of the Company, it shall be a condition of payment that the
Certificate so surrendered shall be endorsed properly or otherwise be in proper
form for transfer and that the person requesting such payment shall have paid
all transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable. After
the Effective Time, until surrendered in accordance with the provisions of
Section 1.08(b), each Certificate (other than Certificates representing shares
owned by the Parent and Dissenting Shares) shall represent for all purposes
solely the right to receive the Merger Consideration for each Share evidenced
by such Certificate, without any interest thereon.
(c) Any portion of the funds in the Account (including any
interest earned thereon) that remains unclaimed by the stockholders of the
Company more than 180 days after the Effective Time shall be paid to the
Surviving Corporation. Holders of Certificates shall thereafter look only to
the Surviving Corporation as general creditors thereof for payment of any
Merger Consideration that may be payable upon due surrender of their
Certificates. Notwithstanding the foregoing, neither the Parent nor the
Surviving Corporation shall be liable to a holder of a Certificate for amounts
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar laws.
(d) Closing of Transfer Records. After the Effective Time,
the stock transfer ledger of the Company shall be closed and any transfers of
Company Common Stock not registered on such ledger prior to the Effective Time
shall not be made on the stock transfer books of the Surviving Corporation.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for cash as provided in this
Section 1.08.
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SECTION 1.09 Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, in the event that dissenters' rights are
available in connection with the Merger pursuant to Section 262 of the Delaware
General Corporation Law, Shares that are issued and outstanding immediately
prior to the Effective Time and that are held by stockholders who did not vote
in favor of the Merger and comply with all of the relevant provisions of
Section 262 of the Delaware General Corporation Law (the "Dissenting Shares")
shall not be converted into or be exchangeable for the right to receive the
Merger Consideration. If such holders fail to perfect or effectively withdraw
or lose such right, such holder's Shares shall thereupon be deemed to have been
converted into and to have become exchangeable for the right to receive, as of
the Effective Time, the Merger Consideration without any interest thereon. The
Company shall give the Parent (i) prompt notice of any written demands for
appraisal of Shares received by the Company and (ii) the opportunity to direct
all negotiations and proceedings with respect to any such demands. The Company
shall not, without the prior consent of the Parent, voluntarily make any
payment with respect to, or settle or offer to settle, any such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and MergerCo. as
follows. With respect to any representations or warranties in this Article II
indicated to be limited to the knowledge of the Company (or words to like
effect), such knowledge will be deemed to include the knowledge of officers of
the Company who are also affiliated with Parent or MergerCo.
SECTION 2.01. Organization, Qualification, and Corporate
Power. Each of the Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each of the Company and its subsidiaries is
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required, except for failures to
so qualify would not have a material adverse effect on the Company and its
subsidiaries taken as a whole. The Company's subsidiaries and the state of
incorporation of each are identified on Schedule 2.01.
SECTION 2.02. Certificate of Incorporation and Bylaws. The
Company has heretofore furnished to Parent a complete and correct copy of the
Certificate of Incorporation and the Bylaws, each as amended to date, of the
Company. The Company is not in violation of any provision of its Certificate
of Incorporation or Bylaws.
SECTION 2.03. Capitalization. (a) The authorized capital
stock of the Company consists of 3,000,000 Shares and 500,000 shares of
Preferred Stock $.10 par value ("Company Preferred Stock"). As of March 31,
1996, (i) 1,467,369 Shares are issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) 99,646 Shares are held in the
treasury of the Company, and (iii) 150,000 Shares are reserved for issuance
pursuant to the Stock Option Plans and the Directors Long-Term Incentive Plans.
Since March 31, 1996, the Company has not granted any employee stock options or
stock incentive rights. As of the date hereof, no shares of Company Preferred
Stock are issued and outstanding.
(b) Except for the options granted and rights under the
Stock Option Plans and the Long-Term Plan as described in this Agreement, there
are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
of the Company or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in, the Company. There are no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any Shares or to provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any person.
(c) All of the outstanding shares of capital stock and
other equity interests of each subsidiary of the Company are owned of record
and beneficially by the Company.
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SECTION 2.04. Authority Relative to this Agreement. (a) The
Company has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby (the "Transactions"). The execution and
delivery of this Agreement by the Company and the consummation by the Company
of the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the Transactions
(other than, with respect to the Merger, the approval and adoption of this
Agreement and the Merger by the holders of a majority of the then outstanding
Shares, and the filing of the Merger Certificate, as required by Delaware Law.)
This Agreement has been duly and validly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by Parent and
MergerCo., constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
(b) The Board, at a meeting duly called and held on June
5, 1996, has unanimously (i) determined that this Agreement and the
Transactions, including the Merger, are fair to and in the best interests of
the holders of Shares, Employee Options, and the Incentive Awards, (ii)
approved and adopted this Agreement and the Transactions and (iii) recommended
that the shareholders of the Company approve and adopt this Agreement and the
Transactions.
(c) Principal Financial Securities, Inc. has delivered to
the Special Committee formed by the Board to review and consider the
possibility of a merger (the "Special Committee") a written opinion that the
consideration to be received by the holders of Shares pursuant to the Merger is
fair to the holders of Shares (other than Parent) from a financial point of
view.
(d) The Company has been advised by each of its directors
and executive officers that they intend to vote all Shares beneficially owned
by them in favor of the approval and adoption by the shareholders of the
Company of this Agreement and the Transactions; provided, that no provision of
this Agreement shall be interpreted to preclude directors or executive officers
of the Company from transferring or distributing Shares beneficially owned by
them prior to the Effective Time.
SECTION 2.05. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of the Company, (ii)
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Company or by which any property or asset of the Company is
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on
any property or asset of the Company pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation except (in the case of clauses (ii) and (iii)) for
such conflicts, violations, breaches, defaults, rights or liens or other
encumbrances that would not, individually or in the aggregate, have a material
adverse effect to the Company.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), state securities or "blue sky" laws
("Blue Sky Laws") and Delaware Law and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, or
otherwise prevent the Company from performing its obligations under this
Agreement, and would not, individually or in the aggregate, have a material
adverse effect on the Company.
SECTION 2.06. Compliance. The Company is not in conflict
with, or in default or violation of, (i) any law, rule, regulation, order,
judgment or decree applicable to the Company or by which any property or asset
of the Company is bound or affected, or (ii) any note, bond, mortgage,
indenture, contract, agreement,
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lease, license, permit, franchise or other instrument or obligation to which
the Company is a party or by which the Company or any property or asset of the
Company is bound or affected, except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have a material
adverse effect on the Company.
SECTION 2.07. SEC Filings; Financial Statements. (a) The
Company has filed all forms, reports and documents required to be filed by it
with the Securities and Exchange Commission (the "SEC") since December 31, 1994
(the "SEC Reports"), including without limitation (i) its Annual Reports on
Form 10-KSB for the fiscal years ended March 31, 1995 and March 31, 1996,
respectively, and (ii) all proxy statements relating to the Company's meetings
of shareholders (whether annual or special) held since December 31, 1994. The
SEC Reports (i) were prepared in accordance with the requirements of the
Securities Act of 1993, as amended (the "Securities Act"), and the Exchange
Act, as the case may be, and the rules and regulations thereunder and (ii) did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(b) Each of the financial statements (including, in each
case, any notes thereto) contained in the SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as may be indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q) and each fairly presented the financial position, results of
operations and changes in financial position of the Company as at the
respective dates thereof and for the respective periods indicated therein
(subject, in the case of unaudited statements, to such normal recurring audit
adjustments as are necessary, in the opinion of the Company, to present fairly
such data.)
(c) Except as and to the extent set forth on the balance
sheet of the Company at March 31, 1996, including the notes thereto (the "1996
Balance Sheet"), the Company has no liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise) which would be required to
be reflected on a balance sheet, or in the notes thereto, prepared in
accordance with generally accepted accounting principles, except (i) as
disclosed in any SEC Report filed prior to the date of this Agreement and (ii)
for liabilities and obligations incurred in the ordinary course of business
consistent with past practice which would not, individually or in the
aggregate, have a material adverse effect on the Company.
(d) The Company has heretofore furnished to Parent
complete and correct copies of all amendments and modifications that have not
been filed by the Company with the SEC to all agreements, documents and other
instruments that previously had been filed by the Company with the SEC and are
currently in effect except for such amendments or modifications which are not
material, either individually or in the aggregate.
SECTION 2.08. Absence of Certain Changes or Events. Since
March 31, 1996, except as contemplated by this Agreement or disclosed in any
SEC Report filed since March 31, 1996, and prior to the date of this Agreement,
the Company has conducted its business only in the ordinary course and in a
manner consistent with past practice and, since March 31, 1996, there has not
been (i) any change in the business, operations, properties, condition
(financial or otherwise), assets or liabilities (including, without limitation,
contingent liabilities) of the Company having, individually or in the
aggregate, a material adverse effect on the Company, (ii) any damage,
destruction or loss (whether or not covered by insurance) with respect to any
property or asset of the Company having, individually or in the aggregate, a
material adverse effect on the Company, (iii) any change by the Company in its
accounting methods, principles or practices, (iv) any revaluation by the
Company of any asset, other than in the ordinary course of business consistent
with past practice, (v) any entry by the Company into any commitment or
transaction material to the Company, (vi) any declaration, setting aside or
payment of any dividend or distribution in respect of any capital stock of the
Company or any redemption, purchase or other acquisition of any of its
securities, or (vii) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in
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the compensation payable or to become payable to any officers, directors, or key
employees of the Company, except in the ordinary course of business consistent
with past practice.
SECTION 2.09. Absence of Litigation. Except as disclosed in
the SEC Reports filed prior to the date of this Agreement, there is no claim,
action, proceeding or investigation pending or, to the Company's knowledge,
threatened against the Company, or any property or asset of the Company, before
any court, arbitrator or administrative, governmental or regulatory authority
or body, domestic or foreign, which (i) individually or in the aggregate, is
reasonably likely to have a material adverse effect on the Company or (ii)
seeks to delay or prevent the consummation of any Transaction. As of the date
hereof, neither the Company nor any property or asset of the Company is subject
to any order, writ, judgment, injunction, decree, determination or award
having, individually or in the aggregate, a material adverse effect on the
Company.
SECTION 2.10. Employee Benefit Plans. The employee benefit
plans, programs and arrangements maintained for the benefit of any current or
former employee, officer or director of the Company are described in Section
1.07 hereof (the "Plans") and Parent has been furnished with a copy of each
Plan and each material document prepared in connection with each Plan. Except
as disclosed by the Company to the Parent: (i) none of the Plans is a
multiemployer plan within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); (ii) none of the Plans promises or
provides retiree medical or life insurance benefits to any person; (iii) each
Plan intended to be qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), has received a favorable determination letter
from the Internal Revenue Service (the "IRS") that it is so qualified and
nothing has occurred since the date of such letter to affect the qualified
status of such Plan; and (iv) each Plan has been operated in all material
respects in accordance with its terms and the requirements of applicable law.
SECTION 2.11. Proxy Statement. The proxy statement to be
sent to the stockholders of the Company in connection with the Stockholders'
Meeting (as hereinafter defined) (such proxy statement, as amended or
supplemented, being referred to herein as the "Proxy Statement"), shall not, at
the date the Proxy Statement (or any amendment or supplement thereto) is first
mailed to stockholders of the Company, at the time of the Stockholders' Meeting
and at the Effective Time, be false or misleading with respect to any material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which shall have become false or
misleading. The Proxy Statement shall comply in all material respects as to
form with the requirements of the Exchange Act and the rules and regulations
thereunder.
SECTION 2.12. Real Property and Leases. The Company has
sufficient title to all its properties and assets to conduct its business as
currently conducted or as contemplated to be conducted, with only such
exceptions as, individually or in the aggregate, would not have a material
adverse effect to the Company.
SECTION 2.13. Taxes. The Company has filed all federal,
state, local and foreign tax returns and reports required to be filed by it and
has paid and discharged all taxes shown as due thereon and has paid all
applicable ad valorem taxes as are due, other than (i) such payments as are
being contested in good faith by appropriate proceedings and (ii) such filings,
payments or other occurrences that, individually or in the aggregate, would not
have a material adverse effect. No taxing authority or agency, domestic or
foreign, is now asserting or, to the best knowledge of the Company, threatening
to assert against the Company any deficiency or claim for additional taxes or
interest thereon or penalties in connection therewith. The Company has not
granted any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of, any federal, state, county,
municipal or foreign income tax. The accruals and reserves for taxes reflected
in the 1996 Balance Sheet are adequate to cover all taxes accruable through
such date (including interest and penalties, if any, thereon) in accordance
with generally accepted accounting principles.
SECTION 2.14. Environmental Matters. (a) As used in this
Agreement "Environmental Laws" shall mean: any federal, state or local law,
rule, or regulation or common law, relating to public health or safety, worker
health or safety, or pollution, damage to or protection of the environment
including, without limitation,
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laws relating to emissions, discharges, releases or threatened release of
Hazardous Materials (as defined by such laws) into the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, generation, disposal, transport or
handling of any Hazardous Material.
(b) There are no specific facts or circumstances known to
the Company that would indicate that the Company or any of its subsidiaries
will likely be subject to liability in respect of a violation or alleged
violation of any Environmental Laws, which would be material to the Company and
its subsidiaries, taken as a whole.
SECTION 2.15. Brokers' Fees. The Company does not have any
liability or obligation to pay any fees or commissions to any broker, finder,
or similar agent with respect to the transactions contemplated by this
Agreement, except for the fees payable to Principal Financial Securities, Inc.
under its engagement letter with the Company, dated May 2, 1996.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO.
Parent and MergerCo. hereby, jointly and severally, represent
and warrant to the Company that:
SECTION 3.01. Corporate Organization. Each of Parent and
MergerCo. is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and has the requisite power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a material adverse effect on the business or operations of
Parent and MergerCo.
SECTION 3.02. Authority Relative to this Agreement. Each of
Parent and MergerCo. has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the Transactions. The execution and delivery by Parent and
MergerCo. of this Agreement, and the consummation by Parent and MergerCo. of
the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Parent or
MergerCo. are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the filing and
recordation of the Merger Certificate as required by Delaware Law). This
Agreement has been duly and validly executed and delivered by Parent and
MergerCo. and, assuming the due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of each of Parent
and MergerCo. enforceable against each of Parent and MergerCo. in accordance
with its terms.
SECTION 3.03. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and MergerCo. do
not, and the performance of this Agreement by Parent and MergerCo. will not,
(i) conflict with or violate the Certificate of Incorporation or Bylaws of
either Parent or MergerCo., (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or MergerCo. or by
which any property or asset of either of them is bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or other encumbrance on any property or asset of
Parent or MergerCo. pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or MergerCo. is a party or by which Parent or
MergerCo. or any property or asset of either of them is bound or affected,
except (in the case of clauses (ii) and (iii)) for any such conflicts,
violations, breaches or other occurrences which would not, individually or in
the aggregate, have a material adverse effect on the business or operations of
Parent or MergerCo.
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(b) The execution and delivery of this Agreement by
Parent and MergerCo. do not, and the performance of this Agreement by Parent
and MergerCo. will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, except (i) for applicable requirements, if any,
of the Exchange Act, Blue Sky Laws and Delaware Law and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the
Merger, or otherwise prevent Parent or MergerCo. from performing its respective
obligations under this Agreement.
SECTION 3.04. Financing. At the Effective Time, Parent will
have sufficient funds to pay the Merger Consideration, Option Consideration and
Award Consideration. Parent shall deliver to Company a commitment for the
lending of such funds from Texas Commerce Bank prior to the filing of the Proxy
Statement with the SEC.
SECTION 3.05. Absence of Litigation. There is no claim,
action, proceeding or investigation pending or, to Parent's or MergerCo.'s
knowledge, threatened, against Parent or MergerCo., or any property or asset of
Parent or MergerCo., before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, which seeks
to delay or prevent the consummation of any Transaction.
SECTION 3.06. Proxy Statement. The information supplied by
Parent for inclusion in the Proxy Statement will not, on the date the Proxy
Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Company, at the time of the Stockholders' Meeting and at
the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with respect
to any material fact, or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for Stockholders' Meeting which
shall have become false or misleading. Notwithstanding the foregoing, Parent
and MergerCo. make no representation or warranty with respect to any
information supplied by the Company or any of its representatives which is
contained in any of the foregoing documents.
SECTION 3.07. Brokers' Fees. No broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Transactions based upon arrangements made by or on behalf
of Parent or MergerCo.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. Conduct of Business by the Company Pending the
Merger. The Company covenants and agrees that, between the date of this
Agreement and the Effective Time, unless Parent shall otherwise agree in
writing, the business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of business
and in a manner consistent with past practice; and the Company shall use its
reasonable best efforts to preserve substantially intact the business
organization of the Company, to keep available the services of the current
officers and employees of the Company and to preserve the current relationships
of the company with customers, suppliers, licensees, licensors and other
persons with which the Company has significant business relations. By way of
amplification and not limitation, except as contemplated by this Agreement,
the Company shall not, between the date of this Agreement and the Effective
Time, directly or indirectly do, or propose to do, any of the following
without the prior written consent of Parent.
(a) amend or otherwise change its Certificate of
Incorporation or Bylaws;
(b) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance of, (i)
any shares of capital stock of any class of the Company, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest) of the Company (except
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for the issuance of a maximum of 40,000 Shares issuable upon the exercise of
employee stock options outstanding on the date hereof, if such are exercised
prior to the Effective Time);
(c) declare, set aside, or pay any dividend or
distribution with respect to its capital stock (whether in cash or in kind), or
redeem, repurchase, or otherwise acquire any of its capital stock;
(d) issue any note, bond, or other debt security or
create, incur, assume, or guarantee any indebtedness for borrowed money or
capitalized lease obligation outside the ordinary course of business;
(e) grant any security interest on any of its assets
outside the ordinary course of business; or transfer, lease, license, sell,
mortgage, pledge, dispose of or encumber any assets or incur or modify any
indebtedness or other liability other than in the ordinary course of business;
(f) make any capital investment in, make any loan to,
acquire the securities or assets of, or merge or consolidate with, any other
person outside the ordinary course of business;
(g) make any acquisition of a material amount of assets
or securities or enter into any material contract or any release or
relinquishment of any material contract rights, not in the ordinary course of
business;
(h) make any change in employment terms for any of its
directors, officers, and employees outside the ordinary course of business;
grant any severance or termination pay to, or enter into any employment or
severance agreement with any director, officer or other employee of the Company
or any of its subsidiaries, other than pursuant to benefit plans in existence
as of the date of this Agreement and in the ordinary course of business;
establish, adopt, enter into, or, except as required by law, amend any benefit
plans, or make any new grants or awards under any benefit plans other than in
the ordinary course of business; and
(i) commit to do any of the foregoing.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Stockholders' Meeting. The Company, acting
through the Board, shall, in accordance with applicable law and the Company's
Certificate of Incorporation and Bylaws, (i) duly call, give notice of, convene
and hold an annual or special meeting of its stockholders as soon as reasonably
practicable for the purpose of considering and taking action on this Agreement
and the Transactions (the "Stockholders' Meeting") and (ii) subject to its
fiduciary duties under applicable law, (A) include in the Proxy Statement the
unanimous recommendation of the Board to the stockholders of the Company to
approve and adopt this Agreement and the Transactions and (B) use its
reasonable best efforts to obtain such approval and adoption.
SECTION 5.02. Proxy Statement. The Company shall file the
Proxy Statement with the SEC under the Exchange Act, and shall use its
reasonable best efforts to have the Proxy Statement cleared by the SEC.
Parent, MergerCo. and the Company shall cooperate with each other in the
preparation of the Proxy Statement, and the Company shall notify Parent of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC. The Company shall give Parent and its counsel the opportunity to review
the Proxy Statement prior to its being filed with the SEC and shall give Parent
and its counsel the opportunity to review all amendments and supplements to the
Proxy Statement and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC. Each
of the Company, Parent and MergerCo. agrees to use its reasonable best efforts,
after consultation with the other parties hereto, to respond promptly to all
such comments of and requests by the SEC and to cause the Proxy Statement and
all required amendments and supplements thereto to be mailed to the holders of
Shares entitled to vote at the Stockholders' Meeting at the earliest
practicable time.
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SECTION 5.03. Access to Information; Confidentiality. From
the date hereof to the Effective Time, the Company shall, and shall cause the
officers, directors, employees, auditors and agents of the Company to, afford
the officers, employees and agents of Parent and MergerCo. and persons
providing or committing to provide Parent or MergerCo. with financing for the
Transactions complete access at all reasonable times to the officers,
employees, agents, properties, offices, properties, books and records of the
Company, and shall furnish Parent and MergerCo. and persons providing or
committing to provide Parent or MergerCo. with financing for the Transactions
with all financial, operating and other data and information as Parent or
MergerCo., through its officers, employees or agents, may reasonably request.
All information obtained by the Company, Parent or MergerCo. or other persons
pursuant to this Section 5.03 shall be kept confidential.
SECTION 5.04. No Solicitation of Transactions. The Company
shall not, and it shall not authorize or permit any of its subsidiaries,
officers, directors or employees or any advisors or agents retained by the
Company or its subsidiaries, directly or indirectly, to (i) solicit, initiate
or knowingly encourage or induce the making of any proposal (other than by
Parent or MergerCo.) regarding any merger, business combination or similar
transaction involving the Company, any sale or other disposition of assets of
the Company (other than in the ordinary course of business) or any offer to
purchase, tender offer or similar transaction involving the Common Stock (a
"Company Acquisition Proposal"), (ii) negotiate with any third party with
respect to any Company Acquisition Proposal, (iii) endorse or recommend the
Company Acquisition Proposal of any third party, or (iv) enter into any
contract with any third party with the intent to effect any Company Acquisition
Proposal. Notwithstanding the foregoing, nothing in this Section 5.04 shall
limit or prohibit the Company from issuing a press release relating to the
Merger or (ii) shall limit or prohibit the Company or any officer, director or
employee of the company or any advisor or agent retained by the Company (in
each case, as authorized by the Special Committee) from (A) furnishing or
causing to be furnished information concerning the Company, (B) participating
in discussions and negotiations through its authorized representatives with
persons who have sought such information if the Special Committee, upon the
advice of its legal counsel, determines in good faith that the failure to
provide such information or to participate in such discussions or negotiations
would cause the members of the Board of Directors to be subject to a risk of a
breach of their fiduciary duties under applicable law, and (C) entering into a
contract to effect a Company Acquisition Proposal that the Special Committee,
with the advise of its legal and financial advisors, determines in good faith
is more favorable to the stockholders than the Merger contemplated hereby.
(The foregoing sentence shall not relieve any person from the responsibility of
protecting confidential information of the Company when it is furnished to a
third party.)
SECTION 5.05. Directors' and Officers' Indemnification and
Insurance. The Certificate of Incorporation and Bylaws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification than are set forth in Certificate of Incorporation and Bylaws
of the Company, which provisions shall not be amended, repealed or otherwise
modified for a period of five years from the Effective Time in any manner that
would affect adversely the rights thereunder of individuals who at the
Effective Time were directors, officers or agents of the Company, unless such
modification shall be required by law.
SECTION 5.06. Notification of Certain Matters. The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence, or non-occurrence, or any event the occurrence,
or non-occurrence, of which would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate and (ii) any
failure of the Company, Parent or MergerCo., as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.06 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 5.07. Further Action; Reasonable Best Efforts. Upon
the terms and subject to the conditions hereof, each of the parties hereto
shall use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the Transactions, including, without limitation, using its
reasonable best efforts to obtain all consents, approvals, authorizations,
waivers and orders of governmental authorities and parties to any material
contracts with the Company as are necessary for the consummation of
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the Transactions and to fulfill the conditions to the Merger. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each party to this Agreement shall use their reasonable best efforts to take all
such action.
SECTION 5.08. Public Announcements. Parent and the Company
acknowledge that they previously agreed to the issuance of a press release
disclosing the terms of the Transactions. Parent and the Company shall consult
with each other before issuing any subsequent press release or otherwise making
any public statements with respect to this Agreement, the Merger Agreement or
any Transaction and shall not issue any such press release or make any such
public announcement without the prior approval of Parent and the Company of
such press release or public statement, except as may be required by law, in
which case the disclosing party must use all commercial and reasonable efforts
to advise the other parties prior to making any such disclosure.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Merger. The respective
obligations of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) This Agreement and the Transactions shall have been
approved and adopted by the affirmative vote of the stockholders of the Company
to the extent and in the manner required by Delaware Law and the Certificate of
Incorporation of the Company;
(b) No governmental authority or other agency or
commission or court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the acquisition of Shares
by Parent or MergerCo. or any affiliate of either of them illegal or otherwise
restricting, preventing or prohibiting consummation of the Transactions;
(c) All other required authorizations, consents, and
approvals of governmental authorities and third parties shall have been
obtained:
(d) The parties shall have performed and complied with,
in all material respects, all agreements and obligations contained in this
Agreement and required to be performed or complied with at or prior to the
Effective Time; and
(d) All representations and warranties of the parties
shall be true and correct in all material respects.
SECTION 6.02. Additional Conditions to Obligations of Parent
and MergerCo. The obligations of Parent and MergerCo. to effect the Merger are
also subject to the following conditions:
(a) Parent and, as necessary, the Company, shall have
entered into a credit arrangement with Texas Commerce Bank to provide available
funds for the Transactions of not less than $4.9 million;
(b) The number of Shares with respect to which the
holders thereof shall have exercised dissenters' rights shall not exceed ten
percent (10%) of the total number of Shares outstanding; and
(c) There shall not have occurred any material adverse
change in the business, financial condition, operations or results of
operations of the Company except such changes as are contemplated by this
Agreement.
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SECTION 6.03. Additional Conditions to Obligation of the
Company. The obligation of the Company to effect the Merger is also subject to
the Special Committee having received, if requested by the Special Committee in
its sole discretion, an opinion or confirmation of such opinion delivered at an
earlier date of Principal Financial Securities, Inc. dated as of the closing
date in form and substance acceptable to the Special Committee, to the effect
that the Merger Consideration is fair, from a financial point of view, to the
holders of Shares (other than Parent).
SECTION 6.04 Waiver of Conditions. Any party may waive any
condition set forth above if it executes a writing so stating at or prior to
Closing.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be determined
and the Merger and the other Transactions may be abandoned at any time prior to
the Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the Transactions by the stockholders of the Company:
(a) By mutual written consent duly authorized by the Board
of Directors of Parent, MergerCo. and the Company; or
(b) By either of Parent or MergerCo. upon giving written
notice to the Company at any time prior to the Effective Time,
if the Closing shall not have occurred on or before December
31, 1996 due to the failure of any condition precedent to the
obligations of Parent or MergerCo. (unless the failure results
primarily from either of Parent or MergerCo. breaching any
material representation, warranty, or covenant contained in
this Agreement).
(c) By the Company upon giving written notice to Parent
and MergerCo. at any time (i) prior to the Effective Time, if
the Closing shall not have occurred on or before December 31,
1996 due to the failure of any condition precedent to the
Company's obligations (unless the failure results primarily
from the Company breaching any representation, warranty, or
covenant contained in this Agreement), (ii) prior to the
Effective Time, at any time after the stockholders if the
stockholder approval is not obtained (unless such event
constitutes a Company Triggering Event (as defined below); or
(iii) prior to the Effective Time, if the Company receives a
bona fide offer to effect a Company Acquisition Proposal
which the Special Committee, upon advice of its legal and
financial advisors, determines in good faith is more
favorable to the stockholders than the Merger contemplated
hereby, provided that the Special Committee shall
have recommended to the Board of Directors approval of such
Company Acquisition Proposal and the Board of Directors shall
have approved such Company Acquisition Proposal.
(d) Any nonbreaching Party may terminate this Agreement by
giving written notice to the other parties at any time prior
to the Effective Time in the event a party has breached any
material representation, warranty or covenant for the benefit
of such non-breaching party contained in this Agreement in any
material respect, the terminating party has notified the
breaching party of the breach, and the breach has continued
without cure for a period of 10 days after the notice of
breach. Such termination by the Company shall be by action of
its Board of Directors after receipt of the recommendation of
the Special Committee.
(e) Either Parent or MergerCo. may terminate this
Agreement by giving written notice to the Company at any time
prior to the Effective Time upon the occurrence of any of the
following events (a "Company Triggering Event"): (i) the
Company's Board of Directors shall have failed to recommend,
or shall have withdrawn or have modified, in a manner adverse
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to either Parent and MergerCo., its recommendation of adoption
of this Agreement; (ii) the Company's Board of Directors shall
have approved, endorsed or recommended any Company Acquisition
Proposal; (iii) the Company enters into any contract to
consummate any Company Acquisition Proposal; or (iv) any
person or group other than Parent becomes the beneficial owner
of 10% or more of the outstanding shares of any class of
capital stock of the Company.
SECTION 7.02. Effect of Termination. If this Agreement is
terminated pursuant to Section 7.01, this Agreement shall become void and of no
effect, without any liability on the part of any party hereto or its
affiliates, directors, officers, stockholders or partners other than as
provided in this Section 7.02, which section is intended to serve as liquidated
damages. If this Agreement is terminated pursuant to Section 7.01(d), all
rights and obligations of the parties hereunder shall terminate without any
liability of any party to any party, except for any liability of any party then
in breach.
If this Agreement is terminated by the Company pursuant to
Section 7.01(c)(iii) or is terminated by either Parent or Purchaser in the
event of a Company Triggering Event pursuant to Section 7.01(e), the Company
shall promptly reimburse Parent for all of Parent's and Purchaser's actual,
documented, customary and reasonable fees and expenses (including the fees and
expenses of its counsel, bank and accountants) incurred in connection with the
transactions contemplated by this Agreement (the "Expense Reimbursement
Amount").
SECTION 7.03. Amendment. This Agreement may be amended by
the parties hereto by action taken by or on behalf of their respective Boards
of Directors at any time prior to the Effective Time; provided, however, that
such approval by the Company's Board of Directors may not authorize an
amendment unless and until it receives the recommendation of the Special
Committee to do so; provided, further, that after the approval and adoption of
this Agreement, the Merger Agreement and the Transactions by the stockholders
of the Company, no amendment may be made without the further approval of the
stockholders which would reduce the amount or change the type of consideration
into which each Share shall be converted upon consummation of the Merger or any
other term if such change would adversely effect the stockholders. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 7.04. Waiver. At any time prior to the Effective
Time, any party hereto may (i) extend the time for the performance of any
obligation or other act of any other party hereto, (ii) waive any inaccuracy in
the representations and warranties contained herein or in any document
delivered pursuant hereto and (iii) waive compliance with any agreement or
condition contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be, except that the agreements set
forth in Article I and Section 5.05 shall survive the Effective Time
indefinitely and those set forth in Sections 5.03 and 7.02 shall survive
termination indefinitely.
SECTION 8.02. Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt) by delivery in
person, by cable, telecopy, telegram or telex or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 8.02):
if the Parent or MergerCo.:
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<PAGE> 74
Seaboard Acquisition Partners, Inc.
3100 N. "A," Building B, Suite 201
Midland TX 79705.
if to the Company:
Seaboard Oil Co.
3100 N. "A," Building B, Suite 200
Midland TX 79705.
SECTION 8.03. Certain Definitions. For purposes of this
Agreement, the term:
(a) "affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such specified person;
(b) "beneficial owner" with respect to any Shares means a
person who shall be deemed to be the beneficial owner of such Shares under the
Exchange Act and the rules and regulations promulgated thereunder;
(c) "business day" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized to close in Midland, Texas;
(d) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise;
(e) "person" means an individual, corporation,
partnership, limited partnership, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association or entity or government, political subdivision, agency or
instrumentality of a government; and
(f) "subsidiary" or "subsidiaries" of the Company, the
Surviving Corporation, Parent or any other person means an affiliate controlled
by such person, directly or indirectly, through one or more intermediaries.
SECTION 8.04. Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the Transactions is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in mutually
acceptable manner in order that the Transactions be consummated as originally
contemplated to the fullest extent possible.
SECTION 8.05. Entire Agreement; Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof. This Agreement shall not be assigned by operation of
law or otherwise, except that Parent and MergerCo. may assign all or any of
their rights and obligations hereunder to any affiliate of Parent provided that
no such assignment shall relieve the assigning party of its obligations
hereunder if such assignee does not perform such obligations.
SECTION 8.06. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer
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<PAGE> 75
upon any other person any right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement, other than Section 5.05 (which is
intended to be for the benefit of the persons covered thereby and may be
enforced by such persons).
SECTION 8.07. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and that the
party shall be entitled to specific performance of the terms hereof, in
addition to any remedy at law or equity.
SECTION 8.08. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of Texas
applicable to contracts executed in and to be performed in that State except to
the extent Delaware Law shall be applicable. All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in
any court sitting in Midland, Texas.
SECTION 8.09 Headings. The descriptive headings contained
in this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
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<PAGE> 76
IN WITNESS WHEREOF, Parent, MergerCo. and the Company have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
SEABOARD ACQUISITION PARTNERS, INC.
By: /s/ E.E. Runyan
----------------------------------------
E.E. Runyan, President
SEABOARD MIDLAND, INC.
By: /s/ E.E. Runyan
----------------------------------------
E.E. Runyan, President
SEABOARD OIL CO.
By: /s/ Gary B. Gilliam
----------------------------------------
Gary B. Gilliam, President
18
<PAGE> 77
EXHIBIT 1.02
CERTIFICATE OF MERGER
OF
SEABOARD MIDLAND, INC.
INTO
SEABOARD OIL CO.
The undersigned corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of
the constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
Seaboard Midland, Inc. Delaware
Seaboard Oil Co. Delaware
SECOND: That an agreement and plan of merger between the
parties to the merger has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with the
requirements of Section 251 of the General Corporation Law of the State of
Delaware.
THIRD: That the name of the surviving corporation of the
merger is Seaboard Oil Co.
FOURTH: That the certificate of incorporation of Seaboard Oil
Co., a Delaware corporation, the surviving corporation, shall be the
certificate of incorporation of the surviving corporation.
FIFTH: That the executed agreement and plan of merger is on
file at the principal place of business of the surviving corporation. The
address of the principal place of business of the surviving corporation is 3100
North "A", Building B, Suite 200, Midland, Texas 79705.
SIXTH: That a copy of the agreement and plan of merger will
be furnished by the surviving corporation, on request and without cost to any
stockholder of any constituent corporation.
SEABOARD OIL CO.
By:
--------------------------------
Gary B. Gilliam, President
ATTEST:
By:
----------------------------------------
E.E. Runyan, Chairman of the Board
and Chief Executive Officer
<PAGE> 78
SCHEDULE 2.01
LIST OF SUBSIDIARIES OF THE COMPANY
Name of Subsidiary State of Incorporation
------------------ ----------------------
Probe, Inc. Texas
Mid-America Well Service, Inc. Texas
Mid-America Drilling Fluids, Inc. Texas
Mid-America Pipe & Supply Company Texas
<PAGE> 79
APPENDIX II
OPINION OF PRINCIPAL FINANCIAL SECURITIES, INC.
<PAGE> 80
JUNE 5, 1996
The Special Committee of the
Board of Directors
SEABOARD OIL CO.
3100 North A Street
Building B, Suite 200
Midland, TX 79705
Gentlemen:
Principal Financial Securities, Inc. ("PFS") understands that pursuant to
an Agreement and Plan of Merger between Seaboard Oil Company (the "Company")
and Seaboard Acquisition Partners ("SAP"), dated June 28, 1996 (the
"Agreement") and as reflected in an offer letter from SAP dated June 5, 1996,
SAP will acquire each outstanding share of Seaboard's common stock not already
held by SAP in a going-private transaction. You have asked us to advise you as
to the fairness of the terms of the Agreement, from a financial point of view,
to the current stockholders of the Company (other than SAP).
In arriving at our opinion we have:
1. Reviewed the Agreement;
2. Reviewed Seaboard's financial statements for the fiscal year ended
March 31, 1996 and certain other publicly available financial
statements and reports regarding the Company;
3. Reviewed certain reserve information provided by the Company
relating to the producing properties of the Company, including
certain reserve reports prepared by independent petroleum
engineers for the Company;
4. Reviewed certain financial and stock market data of the Company
and compared that data with similar data for other publicly-held
companies that have operations similar in some respect to the
operations of the Company;
5. Reviewed the financial terms, to the extent publicly available, of
certain comparable transactions;
6. Discussed with management of the Company the operations of and
business prospects for the Company and the anticipated financial
consequences of the proposed transaction to the Company; and
7. Performed other analyses as are customary in our industry.
<PAGE> 81
Seaboard Oil Co.
June 5, 1996
Page 2
As part of our investment banking business, we regularly issue fairness
opinions and are continually engaged in the valuation of companies and their
securities in connection with business reorganizations, private placements,
negotiated underwritings, mergers and acquisitions and valuations for estate,
corporate and other purposes. In the ordinary course of business, Principal
Financial Securities, Inc. and its affiliates at any time may hold long or
short positions, and may trade or otherwise effect transactions as principal or
for the accounts of customers, in debt or equity securities or options on
securities of the Company.
In connection with our review, we have not independently verified any of
the information concerning the Company and have relied on its being complete
and accurate in all material respects. In addition, we have not made an
independent evaluation or appraisal of the assets of the Company , nor have we
been furnished with any such independent evaluations or appraisals (other than
certain reserve reports prepared by independent petroleum engineers for the
Company).
Our opinion is based solely upon the information set forth herein as
reviewed by us and circumstances existing as of the date hereof. Events
occurring after the date hereof could materially affect the assumptions used
both in preparing this opinion and in the documents reviewed by us. We have
not undertaken to reaffirm or revise this opinion or otherwise comment upon any
events occurring after the date hereof.
We are not opining, and were not requested by you to opine, as to the
fairness of any aspect of the transaction other than the financial terms of the
Agreement. We have assumed that the Agreement and all other aspects of the
proposed transaction will be, in all respects, in compliance with all laws and
regulations that are applicable to Seaboard, SAP or the proposed transaction
(and we have relied as to all legal matters relating thereto on counsel to
Seaboard).
We have acted as financial advisor to the Board of Directors in
connection with this transaction and will receive a fee for our services. It is
understood that this letter is for the information of the Board of Directors
only and, without our prior written consent, other than as required by law or
judicial process, is not to be quoted or referred to, in whole or in part, in
any registration statement, prospectus or proxy statement, or in any other
written document used in connection with the offering or sale of securities,
nor shall this letter be used for any other purposes, except that this letter
may be filed with the Securities and Exchange Commission as an exhibit to a
proxy statement to be prepared in connection with the proposed transaction.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion that on the
date hereof the terms of the Agreement are fair, from a financial point of
view, to the current stockholders of the Company (other than SAP).
Very truly yours,
PRINCIPAL FINANCIAL SECURITIES, INC.
<PAGE> 82
APPENDIX III
LOAN COMMITMENT
<PAGE> 83
July 3, 1996
Seaboard Acquisition Partners, Inc.
3100 North "A", Suite 200
Midland, Texas 79705
ATTN: E. E. Runyan, President
RE: Proposed $5.0MM Revolving Credit Facility To Seaboard Acquisition
Partners, Inc. ("SAP") with regard to the Agreement and Plan of
Merger among Seaboard Oil Co., SAP, and Seaboard Midland, Inc.
("SMI"), the "Merger"
Dear Mr. Runyan:
Pursuant to our discussions with you, regarding the above referenced Credit
Facility, Texas Commerce Bank is pleased to submit our approved commitment to
you for a $5.0MM Revolving Credit Facility to be used to finance the Merger, as
outlined in the Agreement and Plan of Merger among "SAP", Seaboard Oil Co., and
"SMI" dated June 28, 1996. The terms and conditions of this Commitment are set
forth in the attached Term Sheet. Funding on the loan will be made
simultaneously with the closing of the Merger as outlined above. If these
terms are satisfactory, please execute in the space provided below and return
an executed copy to my attention.
Very Truly Yours,
/s/ Sidney K. Smith
--------------------
Sidney K. Smith
Senior Vice President
Accepted this 3rd day of July, 1996
Seaboard Acquisition Partners, Inc.
By: /s/ E. E. Runyan
---------------------------
E. E. Runyan, President
<PAGE> 84
TERM SHEET
SEABOARD ACQUISITION PARTNERS, INC.
BORROWERS: SEABOARD ACQUISITION PARTNERS, INC.
SEABOARD OIL CO.
FACILITY: REVOLVING LINE OF CREDIT
AMOUNT: $5,000,000.00 WITH AN INITIAL BORROWING BASE OF $5,000,000.00
PURPOSE: FINANCE MERGER COSTS ASSOCIATED WITH PLAN OF MERGER AMONG
SEABOARD OIL CO., SEABOARD ACQUISITION PARTNERS, INC.,
("SAP"), AND SEABOARD MIDLAND, INC. ("SMI"). ACQUISITION OF
PRODUCING OIL AND GAS PROPERTIES.
INTEREST
RATE: TCB PRIME, AS IT CHANGES, PAYABLE MONTHLY
MATURITY: SEPTEMBER 30, 1997
FEES: COMMITMENT FEE: 1/2 OF 1% (0.00500) PER ANNUM ON THE "UNUSED"
PORTION OF THE BORROWING BASE, PAYABLE SEMI-ANNUALLY, IN
ARREARS CONCURRENT WITH BORROWING BASE REVIEWS.
COLLATERAL: A) FIRST LIEN DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, AND
ASSIGNMENT OF PRODUCTION ON THE "MAJOR PROPERTIES" OF
BORROWER, AS REQUESTED BY BANK.
B) ALL COMMON STOCK OF SEABOARD OIL CO., OWNED OR PURCHASED
BY SAP (1,055,683 SHARES CURRENTLY OWNED)
<PAGE> 85
PAGE 2
SEABOARD ACQUISITION PARTNERS, INC.
TERM SHEET
AGREEMENTS: "LETTER AGREEMENT" BETWEEN BANK AND BORROWER PROVIDING FOR THE
FOLLOWING:
1. SEMI-ANNUAL BORROWING BASE RE-DETERMINATIONS, @ SOLE
DISCRETION OF BANK, ETC..
2. ANNUAL AUDITED FINANCIAL STATEMENTS, WITHIN 120 DAYS OF
BORROWER'S FISCAL YEAR-END, IN A FORM SATISFACTORY TO BANK,
PROVIDED THE APPROVED BORROWING BASE EXCEEDS $2,000,000.00 AS
OF BORROWER'S FISCAL YEAR-END BEGINNING MARCH 31, 1997.
3. QUARTERLY FINANCIAL STATEMENTS, WITHIN 45 DAYS, IN A FORM
SATISFACTORY TO BANK.
4. ENGINEERING DATA, TO INCLUDE MONTHLY PRODUCTION REPORTS,
RESERVE REPORTS, ETC., AS "REASONABLY REQUESTED" BY BANK.
CONDITIONS
PRECEDENT: SATISFACTORY REVIEW AND APPROVAL OF TITLE DOCUMENTS, ETC.
RELATING TO THE OWNERSHIP OF THE MORTGAGED PROPERTIES, AND
RECEIPT OF ALL SHARES OF SEABOARD OIL CO., COMMON STOCK
CURRENTLY HELD BY SAP.
LEGAL
COSTS: BORROWER TO PAY ALL COSTS INCURRED BY BANK IN CONNECTION WITH
THE PREPARATION OF LOAN DOCUMENTS, INCLUDING RECORDING FEES,
AND ANY "OUT-OF-POCKET" EXPENSES OF BANK'S COUNSEL REQUIRED TO
CONSUMMATE THIS TRANSACTION.
<PAGE> 86
APPENDIX IV
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
<PAGE> 87
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection
(d) of this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251, Section 252, Section
254, Section 257, Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or
series of stock, which stock, or depository receipts in
respect thereof, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving
corporation as provided in subsections (f) or (g) of Section
251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms
of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of
stock or depository receipts at the effective date of the
merger or consolidation will be either listed on a national
securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares
or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of
this title is not owned by the parent corporation immediately
prior to the merger, appraisal rights shall be available for
the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
of the assets of the corporation. If the certificate of
<PAGE> 88
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this
section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record
date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a
separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228 or 253 of this title, the surviving or
resulting corporation, either before the effective date of the
merger or consolidation or within 10 days thereafter, shall
notify each of the stockholders entitled to appraisal rights
of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of
the constituent corporation, and shall include in such notice
a copy of this section. The notice shall be sent by certified
or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of the notice,
demand in writing from the surviving or resulting corporation,
the appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period of delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the offices
of the Register in Chancery in which the petition was filed a duly verified
list containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The Register in Chancery,
if so ordered by the Court, shall give notice of the time and place fixed for
the hearing of such petition by registered or certified mail to the surviving
or resulting corporation
<PAGE> 89
and to the stockholders shown on the list at the addresses therein stated.
Such notice shall also be given by 1 or more publications at least 1 week
before the day of the hearing, in a newspaper of general circulation published
in the City of Wilmington, Delaware or such publication as the Court deems
advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the surviving
or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section and who have
become entitled to appraisal rights. The Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any stockholder fails to comply with such direction, the Court may dismiss
the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
In determining such fair value, the Court shall take into account all relevant
factors. In determining the fair rate of interest, the Court may consider all
relevant factors, including the rate of interest which the surviving or
resulting corporation would have had to pay to borrow money during the pendency
of the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name appears
on the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in the
circumstances. Upon application of a stockholder, the Court may order all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting corporation.
<PAGE> 90
PROXY PRELIMINARY COPIES
SEABOARD OIL CO.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE
The undersigned hereby appoints E. E. Runyan, Gary B. Gilliam and
Robert L. Marolda, and each of them, Proxies, with full power of substitution,
to vote all shares of the undersigned in Seaboard Oil Co. (the "Company") which
the undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders to be held on September ___, 1996 at 9:00 a.m., local
time, and at any adjournments thereof, on the matters set forth in the Notice
of Annual Meeting of Stockholders and Proxy Statement dated _____________,
1996, a copy of which the undersigned hereby acknowledges having received, as
follows:
(1) The Agreement and Plan of Merger (the "Merger Agreement")
among Seaboard Acquisition Partners, Inc. ("SAP"), Seaboard
Midland, Inc. and the Company dated June 28, 1996 pursuant to
which a wholly owned subsidiary of SAP will merge with and
into the Company, and stockholders of the Company (other than
SAP or persons who perfect their dissenters' rights under
Delaware law) will receive $9.75 in cash for each share of
Common Stock of the Company all as more fully described in the
accompanying Proxy Statement and in the Merger Agreement, a
copy of which is attached to the Proxy Statement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(2) ELECTION OF DIRECTORS
For all nominees listed below (except as indicated to the
contrary)
[ ]
WITHHOLD AUTHORITY
to vote for all nominees listed below
[ ]
E. E. Runyan, Edward E. Runyan, Robert L. Marolda, Robert L.
Hollis, Gary B. Gilliam, and Edward P. Bliss
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name on the space
provided below)
-------------------------------------------------------------
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<PAGE> 91
(3) In their discretion, upon any other matter which may properly
come before the meeting or any adjournment thereof.
This Proxy will be voted in accordance with authority granted or
withheld with respect to each item. IF NO DIRECTION IS INDICATED, THIS PROXY
WILL BE VOTED "FOR" ITEM (1). IF AUTHORITY TO VOTE IS NOT WITHHELD ON ITEM
(2), THIS PROXY WILL BE VOTED "FOR" EACH NOMINEE SHOWN IN ITEM (2).
This Proxy should be dated, signed by the Stockholder exactly as his
name appears on this Proxy, and returned promptly in the enclosed envelope.
PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO INDICATE, AND JOINT OWNERS
SHOULD EACH SIGN.
Dated: ___________________________, 1996.
Signed:
-------------------------------------
-------------------------------------
PLEASE FURNISH RESIDENCE ADDRESS:
-------------------------------------
(number and street)
-------------------------------------
-------------------------------------
(city) (state) (zip)
To help us in our planning, please check here if you expect to attend the
meeting: ______. Number of people in your party: _______.
PROXIES MUST BE SIGNED AND DATED TO BE VALID
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