<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only
(as permitted by Rule 14a-6(e)(2)).
[ ] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
MAVERICK TUBE CORPORATION
------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common shares of Prudential Steel Ltd.
(including associated stock purchase rights)
---------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
31,660,198 shares
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
31,660,198 -- Number of Prudential shares and options, multiplied by
US$13.27 -- Average of the high and low prices reported on The
Toronto Stock Exchange for Prudential common shares
(C$19.80) on July 6, 2000, adjusted to a U.S. dollar
equivalent (exchange rate = .67)
(4) Proposed maximum aggregate value of transaction:
US$420,130,827.46
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(5) Total fee paid:
US$84,026
---------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
LOGO
Notice of Special Meeting of Stockholders of
Maverick Tube Corporation
To Be Held , 2000
and
Joint Management Information Circular
and Proxy Statement
with Respect to an Arrangement Involving
Maverick Tube Corporation
and
Prudential Steel Ltd.
, 2000
<PAGE>
LOGO
, 2000
To Our Stockholders:
We invite you to participate in a special meeting of the stockholders of
Maverick Tube Corporation to be held at , St. Louis,
Missouri at 10:00 a.m. (St. Louis time) on , 2000.
On June 11, 2000, Maverick agreed to combine with Prudential Steel Ltd., one
of Canada's largest manufacturers of steel tubular products used in energy and
industrial applications. We cannot complete the combination unless the holders
of a majority of the outstanding Maverick common stock entitled to vote at the
special meeting approve the issuance of Maverick common stock to be issued in
connection with the transaction. At the special meeting, we will also ask our
stockholders to consider an amendment to our certificate of incorporation to
increase the number of authorized shares of our common stock.
The Maverick board unanimously recommends that stockholders vote in favor of
both proposals.
The agreement between Maverick and Prudential contemplates that Prudential
shareholders will exchange each of their Prudential shares for 0.52 of an
exchangeable share of Maverick Tube (Canada) Ltd., a wholly-owned Canadian
subsidiary of Maverick. Each exchangeable share will have economic and voting
rights equivalent to one share of Maverick common stock and may be exchanged
for one share of Maverick common stock at any time. Upon consummation of the
transaction, former Prudential shareholders will effectively own approximately
47% of the outstanding Maverick common stock. The transaction also requires
approval by the shareholders and optionholders of Prudential. Details of this
business combination are contained in the joint management information circular
and proxy statement being delivered with this letter. We encourage you to read
the enclosed material carefully.
Each company has scheduled a special shareholders' meeting on
, 2000. We invite you to attend our meeting, details of
which are included in the enclosed Notice of Special Meeting. Regardless of the
number of shares you own or whether you plan to attend the meeting, it is
important that your shares be represented and voted. Voting instructions are
included.
On behalf of your board of directors, I thank you for your support and urge
you to vote FOR approval of the stock issuance and the amendment to our
certificate of incorporation.
Sincerely,
Gregg Eisenberg
Chairman of the Board, President and
Chief Executive Officer
Mailing Date , 2000
<PAGE>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held , 2000
TO THE STOCKHOLDERS:
A special meeting of Stockholders of Maverick Tube Corporation will be held
on , , 2000 at 10:00 a.m. (St.
Louis time) at , St. Louis, Missouri for the following
purposes:
1. To approve the issuance of shares of Maverick's common stock, par
value $.01 per share, in connection with the combination of Maverick and
Prudential Steel Ltd.;
2. To amend Maverick's certificate of incorporation to increase the
number of authorized shares of Maverick's common stock from 40,000,000 to
80,000,000; and
3. To transact any other business which may be properly brought before
the meeting.
If proposal 1 is not approved by our stockholders, proposal 2 will not be
implemented, notwithstanding that it may have been approved by our
stockholders.
Only stockholders of record at the close of business on
, 2000 are entitled to notice of, and to vote at, the
meeting and any adjournment thereof.
Your vote is important. Please complete, sign, date and return your proxy
card in the enclosed envelope promptly, or authorize the individuals named on
your proxy card to vote your shares by calling the toll-free telephone number
or using the Internet as described in the instructions included with your proxy
card.
By Order of the Board of Directors,
Barry R. Pearl
Secretary
, 2000
<PAGE>
Notice of Special Meeting of Shareholders and Optionholders of
Prudential Steel Ltd.
To Be Held , 2000
and
Notice of Petition
and
Joint Management Information Circular
and Proxy Statement
with Respect to an Arrangement Involving
Maverick Tube Corporation
and
Prudential Steel Ltd.
, 2000
<PAGE>
[Letterhead of Prudential Steel Ltd.]
, 2000
Dear Shareholders and Optionholders:
You are cordially invited to attend a special meeting of the shareholders
and optionholders of Prudential Steel Ltd. to be held at [a.m./p.m.]
(Calgary time) on , 2000 at ,
Calgary, Alberta, Canada.
On June 11, 2000, Prudential agreed to combine with Maverick Tube
Corporation, a leading United States producer of steel tubular products used in
energy and industrial applications. At the meeting, you will be asked to
approve an arrangement that will combine the business of Prudential with that
of Maverick. Maverick stockholders will meet on the same day to consider the
approval of the issuance of Maverick common stock in connection with the
transaction.
If the transaction is completed, each of the Prudential common shares will
be exchanged for 0.52 of an exchangeable share of Maverick Tube (Canada) Ltd.,
a wholly-owned Canadian subsidiary of Maverick. Each exchangeable share will be
exchangeable for one share of Maverick common stock at any time. The
exchangeable shares will have economic and voting rights equivalent to those of
Maverick common stock. On , 2000, the exchangeable shares were
conditionally approved for listing on The Toronto Stock Exchange. Holding
exchangeable shares rather than Maverick common stock may appeal to Prudential
shareholders resident in Canada and the U.S. for tax and investment reasons,
which are summarized in the joint management information circular and proxy
statement.
The Prudential board of directors unanimously recommends that shareholders
and optionholders vote in favor of the arrangement that will give effect to the
transaction.
We have included with this joint management information circular and proxy
statement, a form of proxy and a form of letter of transmittal for Prudential
shareholders to enable you to receive exchangeable share certificates. Please
review the joint management information circular and proxy statement carefully
as it has been prepared to help you make an informed decision.
We hope you will be able to attend the special meeting. However, if you are
unable to attend the special meeting in person, we urge you to complete the
enclosed form of proxy and return it, not later than the times specified in the
Notice of Special Meeting of Shareholders and Optionholders, in the postage-
paid envelope provided.
Yours truly,
PRUDENTIAL STEEL LTD.
J. Donald Wilson
President and Chief Executive
Officer
<PAGE>
PRUDENTIAL STEEL LTD.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND OPTIONHOLDERS
Notice is hereby given that a special meeting of the shareholders and
optionholders of Prudential Steel Ltd. ("Prudential") will be held at
[a.m./p.m.] (Calgary time) on , 2000 at
, Calgary, Alberta, Canada for the following purposes:
1. To consider, pursuant to an Interim Order of the Court of Queen's
Bench of Alberta dated , 2000 and, if deemed
advisable, to pass, with or without variation, a special resolution to
approve an arrangement under Section 186 of the Business Corporations Act
(Alberta), all as more particularly described in the accompanying Joint
Management Information Circular and Proxy Statement; and
2. To transact such further or other business as may properly come
before the special meeting or any adjournment or adjournments thereof.
Each person who is a holder of record of Prudential common shares or
Prudential options at the close of business on , 2000 is
entitled to notice of, and to attend and vote at, the special meeting and any
adjournment or postponement thereof, provided that to the extent a person has
transferred any Prudential common shares after the record date and the
transferee of the shares establishes that the transferee owns the shares and
demands not later than ten days before the special meeting to be included in
the list of holders eligible to vote at the special meeting, the transferee
will be entitled to vote the shares at the special meeting. Holders of
Prudential common shares and options will vote as a single class at the
Prudential special meeting.
Pursuant to the Interim Order, a copy of which is attached as Annex C to the
Joint Management Information Circular and Proxy Statement, shareholders and
optionholders have been granted the right to dissent in respect of the
arrangement. If the arrangement becomes effective, a dissenting shareholder or
optionholder will be entitled to be paid the fair value of the common shares or
options held by such holder if the Corporate Secretary of Prudential or the
Chairman of the special meeting shall have received from such dissenting holder
before the special meeting a written objection to the resolution in respect of
the arrangement and the dissenting holder shall have otherwise complied with
the provisions of section 184 of the Business Corporations Act (Alberta), as
modified by the Interim Order. The dissent right is described in the
accompanying Joint Management Information Circular and Proxy Statement, and the
full text of section 184 of the Business Corporations Act (Alberta) is attached
as Annex J to the Joint Management Information Circular and Proxy Statement.
Failure to strictly comply with the requirements set forth in section 184 of
the Business Corporations Act (Alberta), as modified by the Interim Order, may
result in the loss of any right of dissent. Persons who are beneficial owners
of common shares registered in the name of a broker, custodian, nominee or
other intermediary who wish to dissent should be aware that only the registered
holders of such shares are entitled to dissent. Accordingly, if you are such a
beneficial owner of common shares desiring to exercise your right of dissent,
you must make arrangements for the common shares beneficially owned by you to
be registered in your name prior to the time the written objection to the
resolution in respect of the arrangement is required to be received by
Prudential or, alternatively, make arrangements for the registered holder of
your common shares to dissent on your behalf.
Shareholders and optionholders are urged to complete, sign, date and return
the enclosed proxy promptly in the envelope provided and mail it to or deposit
it with at . To be effective, proxies must be
received by , not later than [a.m./p.m.] (Calgary
time) on , 2000, or, if the special meeting is adjourned,
not later than 24 hours (excluding Saturdays, Sundays and holidays) before the
time of the special meeting, or any adjournment or postponement thereof.
DATED at Calgary, Alberta,
, 2000.
By Order of the Board of Directors.
Norman E. Hall
Vice President, Legal and Business
Affairs
<PAGE>
Action No.
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
IN THE MATTER OF SECTION 186 OF THE BUSINESS CORPORATIONS ACT,
S.A. 1981, c.B-15, AS AMENDED
AND IN THE MATTER OF AN ARRANGEMENT PROPOSED BY
PRUDENTIAL STEEL LTD. INVOLVING
PRUDENTIAL STEEL LTD., ITS SHAREHOLDERS
AND OPTIONHOLDERS, MAVERICK TUBE CORPORATION AND
MAVERICK TUBE (CANADA) LTD.
NOTICE OF PETITION
NOTICE IS HEREBY GIVEN that a Petition has been filed with the Court of
Queen's Bench of Alberta, Judicial District of Calgary, by Prudential Steel
Ltd. ("Prudential") with respect to a proposed arrangement under Section 186 of
the Business Corporations Act, S.A. 1981, c.B-15, as amended, involving
Prudential, its shareholders and optionholders, Maverick Tube Corporation
("Maverick") and Maverick Tube (Canada) Ltd., which arrangement is described in
greater detail in the Joint Management Information Circular and Proxy Statement
of Prudential and Maverick dated , 2000 accompanying this Notice of
Petition.
AND NOTICE IS FURTHER GIVEN that the said Petition will be heard before the
presiding Chambers Justice at the Court House, 611-4th Street S.W., Calgary,
Alberta, Canada, on the day of , 2000 at [a.m./p.m.] (Calgary time) or
as soon thereafter as counsel may be heard.
At the hearing of the Petition, Prudential intends to seek the following:
(i) a declaration that the terms and conditions of the arrangement are
fair to the persons affected;
(ii) an order approving the arrangement pursuant to the provisions of
Section 186 of the Business Corporations Act (Alberta);
(iii) a declaration that the arrangement will, upon the filing of
Articles of Arrangement under the Business Corporations Act (Alberta), be
effective under Alberta law in accordance with its terms; and
(iv) such other further orders, declarations and directions as the Court
may deem just.
Any securityholder of Prudential or other interested party desiring to
support or oppose the Petition may appear at the time of the hearing in person
or by counsel for that purpose, provided such securityholder or other
interested party files with the Court and serves upon Prudential, on or before
, 2000, a Notice of Intention to Appear, together with any evidence or
materials which are to be presented to the Court, setting out such
securityholder's or interested party's address for service by ordinary mail and
indicating whether such securityholder or interested party intends to support
or oppose the Petition or make submissions. Service on Prudential is to be
effected by delivery to the solicitors for Prudential at the addresses set
forth below.
AND NOTICE IS FURTHER GIVEN that, at the hearing and subject to the
foregoing, securityholders and any other interested person will be entitled to
make representations as to, and the Court will be requested to consider, the
fairness of the arrangement. If you do not attend, either in person or by
counsel, at that time, the Court may approve or refuse to approve the
arrangement as presented, or may approve it subject to such terms and
conditions as the Court shall deem fit, without any further notice.
<PAGE>
AND NOTICE IS FURTHER GIVEN that the Court, by an Interim Order dated ,
2000 has given directions as to the calling and holding of the special meeting
of the securityholders of Prudential for the purpose of such securityholders
voting upon the special resolution to approve the arrangement and, in
particular, has directed that Prudential shareholders and optionholders shall
have the right to dissent under the provisions of Section 184 of the Business
Corporations Act (Alberta) upon compliance with the terms of the Interim Order.
AND NOTICE IS FURTHER GIVEN that a copy of the said Petition and other
documents in the proceedings will be furnished to any shareholder or
optionholder of Prudential or other interested party requesting the same by the
undermentioned solicitors for Prudential upon written request delivered to such
solicitors as follows:
Bennett Jones LLP
4500 Bankers Hall East
855--2nd Street S.W.
Calgary, Alberta
T2P 4K7
Attention: Mr. James G. Smeltzer
DATED at the City of Calgary, in the Province of Alberta, this day of
, 2000.
PRUDENTIAL STEEL LTD.
Norman E. Hall
Vice President, Legal and Business
Affairs
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION............................... 1
Questions For Maverick Stockholders And Prudential Shareholders And
Optionholders.......................................................... 1
Additional Questions For Prudential Shareholders And Optionholders...... 3
SUMMARY................................................................... 5
Overview of the Transaction............................................. 5
The Companies........................................................... 6
The Combined Company.................................................... 6
Reasons for the Transaction............................................. 7
Opinions of Financial Advisors.......................................... 8
Recommendations to Shareholders......................................... 8
What Prudential Shareholders Will Receive in the Transaction............ 9
What Prudential Optionholders Will Receive in the Transaction........... 9
Comparative Per Share Market Price Information.......................... 10
Listing of Maverick Common Stock and Exchangeable Shares................ 10
Who Can Vote at the Meetings............................................ 10
Shareholder Votes Required.............................................. 10
Dissent Rights.......................................................... 10
Interests of Prudential Officers and Directors.......................... 11
Accounting Treatment.................................................... 11
Regulatory Approvals.................................................... 11
Conditions to the Consummation of the Transaction....................... 11
Termination of the Combination Agreement................................ 12
Termination Fees........................................................ 12
No Solicitation......................................................... 13
The Transaction Documents............................................... 13
Tax Consequences of the Transaction..................................... 14
Exchange Rate of Canadian and U.S. Dollars.............................. 14
Comparative Per Share Market Price Data................................. 15
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA........................... 15
Comparative Per Share Data.............................................. 15
Summary Unaudited Pro Forma Combined Financial Data..................... 17
Summary Historical Consolidated Financial Data of Maverick Under U.S.
GAAP................................................................... 18
Summary Historical Consolidated Financial Data of Prudential Under
Canadian GAAP.......................................................... 18
Summary Historical Consolidated Financial Data of Prudential Under U.S.
GAAP................................................................... 19
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS................ 19
RISK FACTORS.............................................................. 21
Risks Relating to the Combination....................................... 21
Risks Relating to the Operations of the Combined Company................ 22
INFORMATION ABOUT THE MEETINGS AND VOTING................................. 27
The Maverick Special Meeting--Information For Maverick Stockholders..... 27
The Prudential Special Meeting--Information For Prudential Shareholders
and Optionholders...................................................... 28
DESCRIPTION OF THE TRANSACTION............................................ 31
Overview of the Transaction............................................. 31
Background.............................................................. 31
Reasons for the Transaction............................................. 36
Recommendations of the Boards of Directors.............................. 40
Opinion of RBC DS....................................................... 40
Opinion of Deutsche Bank................................................ 44
Transaction Mechanics and Description of Exchangeable Shares............ 50
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Delivery of Maverick Common Stock....................................... 59
The Combination Agreement............................................... 59
Dissenting Shareholders' and Optionholders' Rights...................... 64
Anticipated Accounting Treatment........................................ 66
Business Combination Costs.............................................. 66
Procedures for Transfer by Prudential Shareholders and Prudential
Optionholders.......................................................... 66
Stock Exchange Listings................................................. 67
Eligibility for Investment in Canada.................................... 67
Regulatory Matters...................................................... 68
Resales of Exchangeable Shares and Maverick Common Stock................ 68
Ongoing Canadian Reporting Requirements................................. 70
Interests of Certain Persons in the Transaction......................... 71
CERTAIN FINANCIAL AND OTHER INFORMATION ABOUT THE COMPANIES............... 72
Maverick................................................................ 72
Prudential.............................................................. 73
The Combined Company.................................................... 74
Maverick Tube (Canada) Ltd.............................................. 75
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 76
INFORMATION ABOUT THE SHARE CAPITAL OF MAVERICK AND MAVERICK CANADA....... 84
Maverick Share Capital.................................................. 84
Maverick Canada Share Capital........................................... 87
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 89
INFORMATION ABOUT TAX CONSIDERATIONS...................................... 95
Canadian Federal Income Tax Considerations To Prudential Shareholders... 95
Canadian Federal Income Tax Considerations To Prudential Optionholders.. 101
United States Federal Income Tax Considerations To Prudential
Shareholders........................................................... 102
AMENDMENT OF MAVERICK'S CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF MAVERICK'S COMMON STOCK FROM 40,000,000 TO
80,000,000............................................................... 110
CERTAIN LEGAL AND OTHER INFORMATION....................................... 112
Auditors, Transfer Agent and Registrar.................................. 112
Legal Matters........................................................... 112
Where You Can Find More Information..................................... 112
DOCUMENTS INCORPORATED BY REFERENCE....................................... 113
</TABLE>
<TABLE>
<C> <S> <C>
ANNEX A Form of Arrangement Resolution
ANNEX B Combination Agreement
ANNEX C Interim Order of the Court
ANNEX D Form of Plan of Arrangement
ANNEX E Share Capital and Other Provisions
ANNEX F Form of Support Agreement
ANNEX G Form of Voting and Exchange Trust Agreement
ANNEX H Opinion of RBC Dominion Securities Inc.
ANNEX I Opinion of Deutsche Bank Securities Inc.
</TABLE>
2
<PAGE>
<TABLE>
<C> <S> <C>
ANNEX J Section 184 of the ABCA...................................................
ANNEX K Additional Information:
Prudential Information:
Notice of Meeting and Information Circular for Annual and Special
Meeting of Shareholders held on May 1, 2000.
Renewal Annual Information Form dated May 15, 2000.
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Audited Financial Statements for the years ended December 31, 1999,
1998 and 1997, and unaudited Financial Statements for the three-month
periods ended March 31, 2000 and March 31, 1999.
Maverick Information:
Business of Maverick.
Management and Principal Stockholders.
Audited Financial Statements for the Years Ended September 30, 1999,
1998 and 1997.
Unaudited Financial Statements for the Six Month Periods ended March
31, 2000 and 1999.
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
</TABLE>
UNLESS OTHERWISE INDICATED, ALL DOLLAR AMOUNTS IN THIS JOINT MANAGEMENT
INFORMATION CIRCULAR AND PROXY STATEMENT ARE EXPRESSED IN U.S. DOLLARS.
3
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Questions For Maverick Stockholders And Prudential Shareholders And
Optionholders
Q: Why do Maverick and Prudential want to combine their businesses?
A: Maverick and Prudential are both leading producers of tubular steel products
used in energy and industrial applications and share similar business
philosophies. We believe that the proposed combination will complement each
of our existing businesses. By combining the businesses of both companies,
we will create:
. the largest North American producer of welded oil country tubular goods
for the energy industry in terms of total ton capacity and, based on pro
forma data for the twelve-month period ended December 31, 1999, total
tons shipped; and
. a major supplier of line pipe for the energy industry and hollow
structural sections to industrial markets.
We expect the combined entity, with its stronger balance sheet and larger
size, will have increased access to capital markets and enhanced purchasing
power with its suppliers. We also expect that by integrating the best
manufacturing, sales and service practices of the constituent companies,
the combined entity will be able to compete more effectively in the
marketplace.
Q: Who will manage the combined company after the combination?
A: We have structured the combination as a merger of equals, reflecting the
proportionate ownership of the Maverick and Prudential stockholders in the
combined company following the consummation of the combination. The combined
company, which will retain the name "Maverick Tube Corporation" and be
headquartered in Chesterfield, Missouri, will be managed by an 11-member
board of directors to include six members from the Maverick board and five
members from the Prudential board. We expect that the operations of
Prudential will continue as a separate subsidiary of Maverick following the
combination, utilizing the Prudential name and associated goodwill, and
generally will continue to be operated by current Prudential management.
Q: When and where are the shareholder meetings?
A: Both meetings will take place on ,
, 2000. The Maverick special meeting will be held at
10:00 a.m. (St. Louis time) at , St. Louis, Missouri.
The Prudential special meeting will be held at [a.m./p.m.] (Calgary
time) at , Calgary, Alberta.
Q: What do I need to do now?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible, so that your shares may
be represented at your meeting. Maverick stockholders may also complete
proxies by calling the toll-free telephone number or using the Internet as
described in the instructions included with your proxy card. If you sign and
send in your proxy and do not indicate how you want to vote, your proxy will
be counted as a vote in favor of the transaction or the Maverick stock
issuance and amendment to its certificate of incorporation, as the case may
be. You may also choose to attend your meeting and vote your shares in
person. If you are a shareholder or optionholder of Prudential, your proxy
must be received by 5:00 p.m. on , 2000 to be
effective.
Q: What do I do if I want to change my vote?
A: Send in a later-dated signed proxy card to your company's Secretary, or
attend your meeting in person and vote. You may also revoke your proxy by
sending a notice of revocation to your company's Secretary at the address
under "Summary--The Companies" on page 6.
1
<PAGE>
Q: If my shares of stock are held in "street name" by my broker, will my broker
vote my shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. Without instructions, your shares will not be voted. You should
instruct your broker to vote your shares, following the directions provided
by your broker.
Q: What votes are required to complete the transaction?
A: The transaction requires the approval of the holders of at least two-thirds
of the Prudential shares and options voting as a single class at the
Prudential special meeting. The issuance of the Maverick common stock in
connection with the transaction requires the approval of a majority of the
outstanding shares of Maverick common stock entitled to vote on that
proposal.
Q: What are the other material conditions to consummation of the transaction?
A: The transaction is subject to the receipt of required governmental and
regulatory approvals, including approval under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (United States), and approval of the plan
of arrangement giving effect to the transaction by the Court of Queen's
Bench of Alberta. In addition, the transaction is subject to the receipt of
a letter at closing from the independent auditors of each of Maverick and
Prudential. The letter from Maverick's independent auditors must concur with
the conclusion of Maverick's management as to the appropriateness of
pooling-of-interests accounting treatment under U.S. GAAP if the transaction
is closed and consummated in accordance with the combination agreement. The
letter from Prudential's independent auditors must concur with the
conclusion of Prudential's management that Prudential is eligible to enter
into a combination that qualifies for pooling-of-interests accounting
treatment under U.S. GAAP. The transaction is also subject to other
customary closing conditions.
Q: When do you expect the transaction to be completed?
A: We are working toward completing the transaction as quickly as possible. We
hope to complete the transaction by September 30, 2000.
Q: Who do I call if I have more questions?
A: For questions about voting and proxies, Maverick stockholders may call:
MacKenzie Partners, Inc.
(800) 322-2885
(212) 929-5550 (banks and brokers only)
For other information, Maverick stockholders may contact:
Maverick Tube Corporation
Phone (636) 733-1600
Fax (636) 733-1671
For questions about voting, proxies or completing the letter of
transmittal, Prudential shareholders and optionholders may call:
1-800- (Canada and U.S.)
(403) (outside Canada and U.S. call collect)
For other information, Prudential shareholders and optionholders may
contact:
Norman E. Hall
Vice President, Legal and Business Affairs
Phone: (403) 267-0300
Fax: (403) 265-3426
E-mail: [email protected]
2
<PAGE>
Additional Questions For Prudential Shareholders And Optionholders
Q: Why is Prudential entering into this transaction?
A: Prudential believes the transaction is in the best interest of Prudential
shareholders and optionholders. The benefits of the transaction include:
. 0.52 of an exchangeable share represents a significant premium over the
trading price of Prudential common shares immediately prior to the
announcement of the combination;
. Prudential expects the combined company to have a larger asset base and
greater geographical diversity of operations and markets;
. Prudential expects the combined company to have a larger market
capitalization and better access to capital and financial markets;
. Prudential expects the shares of the combined company to have a greater
public float and liquidity;
. the transaction is structured to provide a tax deferral opportunity for
most Canadian resident Prudential shareholders and, more likely than not,
a tax deferral for U.S. holders of Prudential common shares; and
. Prudential expects the combined company to benefit from the strong
leadership of directors and senior management from both Prudential and
Maverick. In addition, the existing management of Prudential generally
will continue to manage the Canadian operations of the combined company.
Q: What will I receive as a result of this transaction?
A: Prudential shareholders (other than dissenting shareholders) will receive
0.52 of an exchangeable share issued by Maverick Tube (Canada) Ltd., a
wholly-owned Canadian subsidiary of Maverick, for each Prudential common
share. Each Prudential option will be exchanged for an option to acquire
0.52 of a share of Maverick common stock at an exercise price equal to its
current exercise price divided by 0.52, expressed in U.S. dollars.
Q: What are the exchangeable shares?
A: Each exchangeable share has economic and voting rights equivalent to one
share of Maverick common stock. Holders of exchangeable shares will be
entitled to:
. exchange their shares for Maverick common stock at any time on a one-for-
one basis;
. vote indirectly through a voting trust arrangement at meetings of
Maverick stockholders;
. receive dividends, if any, on the same basis as Maverick stockholders;
and
. receive the benefits of Maverick's shareholder rights plan.
Q: Will the exchangeable shares be listed on a stock exchange?
A: Yes. On , 2000, The Toronto Stock Exchange
conditionally approved the listing of the exchangeable shares.
Q: Why would I continue to hold exchangeable shares?
A: We will implement the exchangeable share structure to provide tax deferral
opportunities for most Canadian resident Prudential shareholders, and more
likely than not to provide tax deferral to U.S. holders of Prudential common
shares. As long as they remain listed on a Canadian stock exchange, the
exchangeable shares will qualify as an investment and will not be foreign
property for RRSP, RRIF, RESP and other savings and pension plans.
Q: How do I exchange my exchangeable shares for Maverick common stock?
A: You may exchange your exchangeable shares as soon as we complete the
transaction if you check the relevant box on the Prudential letter of
transmittal to indicate that you wish to exchange your
3
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exchangeable shares immediately. If you want to exchange your exchangeable
shares at a later date, you must endorse and deposit your exchangeable
share certificate, duly endorsed, with CIBC Mellon Trust Company, along
with other required documents. If your exchangeable shares are held in
"street name" your broker will handle the exchange at your request.
Q: How long will it take to receive Maverick common stock?
A: It will take approximately three business days to receive your certificate
representing Maverick common stock following deposit of your exchangeable
share certificate, duly endorsed, with CIBC Mellon Trust Company.
4
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SUMMARY
The following is a summary of certain information contained elsewhere in
this joint proxy statement. The information contained in this summary is
qualified in its entirety by and should be read in conjunction with the more
detailed information contained in this joint proxy statement, including the
Annexes, and the documents incorporated herein by reference.
Unless the context otherwise requires:
"Deutsche Bank" refers to Deutsche Bank Securities Inc., financial
advisor of Maverick;
"GAAP" refers to generally accepted accounting principles;
"joint proxy statement" means this Joint Management Information Circular
and Proxy Statement;
"Maverick" refers to Maverick Tube Corporation and its subsidiaries
prior to the combination of Maverick and Prudential;
"Maverick Canada" refers to Maverick Tube (Canada) Ltd., a wholly-owned
Canadian subsidiary of Maverick formed for the purpose of issuing the
exchangeable shares to Prudential shareholders in the transaction;
"Prudential" refers to Prudential Steel Ltd. and its subsidiaries prior
to the combination of Maverick and Prudential;
"Raymond James" refers to Raymond James & Associates, Inc., financial
advisor of Maverick;
"RBC DS" refers to RBC Dominion Securities Inc., financial advisors of
Prudential; and
"We," "our," or "us" generally refers to Maverick and its subsidiaries
on a pro forma combined basis after giving effect to the combination of
Maverick and Prudential but can refer to Maverick or Prudential, on a stand
alone basis, where the context indicates clearly.
Overview of the Transaction
The transaction will combine the businesses of Maverick and Prudential,
which we believe complement each other, to create:
. the largest North American producer of welded oil country tubular goods
for the energy industry in terms of total ton capacity and, based upon
pro forma data for the twelve-month period ended December 31, 1999, total
tons shipped;
. and a major supplier of line pipe for the energy industry and hollow
structural sections to industrial markets.
We will implement the transaction through a share exchange under a plan of
arrangement.
Upon completion of the proposed transaction:
. Prudential will become an indirect wholly-owned subsidiary of Maverick;
. Prudential shareholders will cease to be shareholders of Prudential and
(other than dissenting shareholders) will receive, for each Prudential
common share, 0.52 of an exchangeable share of Maverick Canada;
. each exchangeable share will have economic and voting rights equivalent
to one share of Maverick common stock and will be exchangeable, at the
option of the holder, for one share of Maverick common stock; and
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<PAGE>
. each outstanding option to purchase a Prudential common share will be
exchanged for an option to purchase 0.52 of a share of Maverick common
stock at an exercise price equal to its current exercise price divided by
0.52, expressed in U.S. dollars.
See "Description of the Transaction--Transaction Mechanics and Description of
Exchangeable Shares" on page 50.
The Companies
(see page 72)
Maverick. Maverick is one of the largest U.S. manufacturers of steel tubular
products used in energy and industrial applications. Energy related products
consist of oil country tubular goods and line pipe which are used in the
exploration, development, production and transportation of oil and natural gas.
Industrial products consist of hollow structural sections, standard pipe and
piling pipe, which are used in non-residential and commercial construction,
agriculture and fabrication, and cold drawn mechanical tubing which is used
primarily in the manufacture of hydraulic and pneumatic cylinders. Maverick's
principal executive offices are located at 16401 Swingley Ridge Road, Suite
700, Chesterfield, Missouri 63017, and its telephone number is (636) 733-1600.
Prudential. Prudential is one of the largest Canadian manufacturers of steel
tubular products used in energy and industrial applications. Energy related
products consist of tubular goods and line pipe, both of which are used in the
exploration, development and production of oil and natural gas. Prudential's
industrial products consist primarily of hollow structural sections and
standard pipe used in the non-residential and commercial construction industry
as well as the agricultural, mining and fabrication sectors. Prudential also
produces pipe for other pipe manufacturers under conversion agreements.
Prudential's principal executive offices are located at Suite 1800, 140-4th
Avenue S.W., Calgary, Alberta, Canada T2P 3N3 and its telephone number is (403)
267-0300.
The Combined Company
(see page 74)
The combined company will be:
. the largest North American producer of welded oil country tubular goods
for the energy industry in terms of total ton capacity and, based upon
pro forma data for the twelve-month period ended December 31, 1999, total
tons shipped; and
. a major supplier of line pipe for the energy industry and hollow
structural sections to industrial markets.
The combined company will retain the name "Maverick Tube Corporation" and
will be headquartered in Chesterfield, Missouri, with Canadian operations
headquartered in Calgary, Alberta and operating under the Prudential name. The
11-member board of directors of the combined company will include six members
from the current Maverick board of directors and five members from the current
Prudential board of directors.
At March 31, 2000, on a pro forma combined basis, the combined company had:
. total assets of approximately $366.9 million;
. total stockholders' equity of approximately $199.0 million;
. debt of approximately $59.4 million;
. 10 tube mills and five facilities located in the U.S. and Canada, with
the capacity to produce approximately 1.5 million tons of tubular
products annually;
. approximately 33.6 million outstanding shares of common stock (including
Maverick stock issuable upon exchange of the exchangeable shares); and
6
<PAGE>
. approximately 2,000 employees in the U.S. and Canada.
For the three year period ended September 30, 1999 for Maverick and the
three year period ended December 31, 1999 for Prudential, on a pro forma
combined basis, the combined company had:
. average annual revenues of approximately $414.5 million; and
. average annual operating cash flow of approximately $30.7 million.
See "Unaudited Pro Forma Combined Condensed Financial Statements" on page 76.
Reasons for the Transaction
(see page 36)
Maverick. The Maverick board of directors has unanimously approved the
combination of Maverick and Prudential. In reaching this determination, the
Maverick board consulted with Maverick's management, as well as its financial
and legal advisers, and considered the following material factors:
. The anticipated business advantages of the combination, including:
. The complementary fit of the two companies;
. The enhanced geographic diversity of the combined company, which will
allow it to serve Maverick's U.S. and Canadian markets and Prudential's
Canadian and U.S. markets in a more effective and efficient manner;
. The increased flexibility afforded by combining the manufacturing
facilities of the two companies to permit greater opportunity for
optimal capacity utilization;
. The strong management team of Prudential to manage the combined
company's Canadian operations;
. The ability to utilize the best manufacturing, sales and service
practices of each constituent company to more efficiently supply the
marketplace;
. The enhanced purchasing power of the combined company, which Maverick
believes will occur because of the greater steel and other raw material
requirements of the combined company;
. The attractiveness to many Maverick and Prudential customers of having
access to a broader line of product offerings through the greater
manufacturing capabilities of the combined company;
. The immediate increase, which Maverick believes will occur as a result
of the transaction, to earnings and operating cash flow per share,
excluding one-time transaction costs; and
. A stronger balance sheet, with a pro forma percentage of debt to equity
of 22.8% as of March 31, 2000, and larger absolute size, resulting in
benefits such as increased access to capital and financial markets,
which Maverick anticipates will lower the future costs of equity and
debt transactions.
. The benefits to Maverick stockholders of increasing the number of
publicly-traded shares of Maverick, which we expect will also result in
corresponding increases in market capitalization, trading volume and
institutional interest in Maverick's business and securities.
The Maverick board of directors also considered the opinion of Deutsche
Bank, financial advisor to Maverick, delivered orally on June 10, 2000 and
subsequently confirmed in writing as of that date, to the effect that, based on
and subject to the factors and assumptions set forth in the opinion, the
exchange ratio of 0.52 exchangeable shares for each Prudential common share was
fair, from a financial point of view, to Maverick. See "Description of the
Transaction--Opinion of Deutsche Bank" on page 44.
The Maverick board of directors also considered potential disadvantages of
the transaction. See "Description of the Transaction--Reasons for the
Transaction--Maverick's Reasons for the Transaction" on page 36.
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<PAGE>
Prudential. The Prudential board of directors has unanimously approved the
combination of Maverick and Prudential. In reaching its determination, the
Prudential board consulted with Prudential's management, as well as its
financial and legal advisers, and considered the following material factors:
. The consideration offered of 0.52 of an exchangeable share, each of which
is the economic equivalent of one share of Maverick common stock,
represents a significant premium over the trading price of Prudential
common shares immediately prior to the announcement of the combination;
. Prudential expects the combined company to have a larger asset base and
greater geographical diversity of operations and markets;
. Prudential expects the combined company to have a larger market
capitalization and better access to capital and financial markets;
. Prudential expects the shares of the combined company to have a greater
public float and liquidity;
. The structure of the combination provides a tax deferral opportunity for
most Prudential shareholders resident in Canada, and is more likely than
not to provide tax deferral for U.S. holders of Prudential common shares;
and
. Prudential expects the combined company to benefit from the strong
leadership of directors and senior management from both Prudential and
Maverick. In addition, the existing management of Prudential generally
will continue to manage the Canadian operations of the combined company.
The Prudential board of directors also considered the opinion of RBC DS,
delivered orally to the Prudential board on June 11, 2000 and subsequently
confirmed in writing as of that date that, based upon and subject to the
matters set forth in the opinion, the exchange ratio of 0.52 of an exchangeable
share for each Prudential common share was fair from a financial point of view
to the Prudential shareholders. See "Description of the Transaction--Opinion of
RBC DS" on page 40.
The Prudential board of directors also considered potential disadvantages to
the transaction. See "Description of the Transaction--Reasons for the
Transaction--Prudential Reasons for the Transaction--Potential Risks" on page
39.
In view of the variety of factors considered in their evaluations of the
combination, neither the Maverick nor the Prudential board of directors found
it practicable to and did not quantify or otherwise assign relative strengths
to the specific factors considered. For potential risk factors related to the
transaction considered at various times by the two companies, see "Risk
Factors" on page 21.
Opinions of Financial Advisors
(see pages 40 and 44)
In deciding to approve the transaction, each board of directors considered
the opinion of its financial advisor. Prudential received an opinion from RBC
DS delivered orally on June 11, 2000 and subsequently confirmed in writing as
of that date as to the fairness of the terms of the transaction to holders of
Prudential common shares from a financial point of view. Maverick received an
opinion from Deutsche Bank delivered orally on June 10, 2000 and subsequently
confirmed in writing as of that date,to the effect that, based on and subject
to the factors and assumptions set forth in the opinion, the exchange ratio was
fair, from a financial point of view, to Maverick. These opinions are attached
as Annexes H and I, respectively. We encourage you to read these opinions.
Recommendations to Shareholders
(see page 40)
To Maverick stockholders:
The Maverick board believes that the transaction is fair to its stockholders
and in their best interest and unanimously recommends that its stockholders
vote FOR the issuance of Maverick common stock pursuant to the transaction and
the increase in the number of authorized shares.
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<PAGE>
To Prudential shareholders and optionholders:
The Prudential board believes that the transaction is fair to its
shareholders and optionholders and in their best interest and unanimously
recommends that shareholders and optionholders vote FOR the approval of the
arrangement to give effect to the transaction.
What Prudential Shareholders Will Receive in the Transaction
(see page 50)
In the transaction, Prudential shareholders (other than dissenting
shareholders) will receive 0.52 of an exchangeable share of Maverick Canada for
each Prudential common share. We structured the exchangeable shares to be the
economic equivalent of Maverick common stock, and the holders of exchangeable
shares will have the following principal rights:
. The right to exchange the exchangeable shares for shares of Maverick
common stock on a one-for-one basis at any time;
. The right to receive dividends, if any, on a per share equivalent basis,
in amounts (or property in the case of non-cash dividends) which are the
same, and which are payable at the same time, as dividends declared on
Maverick common stock;
. The right to vote, indirectly through a trust arrangement, on a per share
equivalent basis, at all stockholder meetings at which holders of shares
of Maverick common stock are entitled to vote;
. The right to participate, on a pro rata basis with the holders of
Maverick common stock, in the distribution of assets of Maverick through
the mandatory exchange of exchangeable shares for shares of Maverick
common stock; and
. The right to the benefits under the Maverick shareholder rights plan.
The exchangeable shares will, in effect, have no separate economic or voting
rights in respect of Maverick Canada (other than limited class voting rights
under the Business Corporations Act (Alberta) and the right to vote on any
change in the fundamental terms of the exchangeable shares themselves or the
related terms in the support agreement and the voting and exchange trust
agreement described elsewhere in this joint proxy statement, in which cases,
the exchangeable shares may be subject to automatic redemption). Prudential
shareholders will generally only be able to maintain any deferral of
recognition of gain or loss on their exchangeable shares for Canadian federal
income tax and U.S. federal income tax purposes for as long as they hold
exchangeable shares. An automatic redemption of the exchangeable shares will
occur following the fifth anniversary of the consummation of the arrangement
and may under specified circumstances occur earlier. See "Information About the
Share Capital of Maverick and Maverick Canada--Maverick Canada Share Capital--
Exchangeable Shares" on page 87 and "Information About Tax Considerations" on
page 95.
Based on the number of Prudential common shares outstanding on June 9, 2000,
the former Prudential shareholders will effectively own the equivalent of
approximately 16,463,300 shares of Maverick common stock, or the equivalent of
approximately 47% of the outstanding Maverick common stock. Maverick will not
issue any fractional exchangeable shares or Maverick common shares; rather,
Prudential shareholders will receive a cash payment instead of the fractional
share.
What Prudential Optionholders Will Receive in the Transaction
(see page 56)
In the transaction, each option to acquire a Prudential common share will be
exchanged for an option to acquire 0.52 of a share of Maverick common stock at
an exercise price equal to its current exercise price divided by 0.52 and
expressed in U.S. dollars.
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<PAGE>
Comparative Per Share Market Price Data
(see page 15)
Maverick common stock is currently listed on the Nasdaq National Market and,
on , 2000 Maverick applied to list its common stock on the New York
Stock Exchange effective upon the consummation of the transaction. Prudential
common shares are listed on The Toronto Stock Exchange. On June 9, 2000, the
last full trading day for Maverick and Prudential before the public
announcement of the transaction, Maverick common stock closed at $30.75 on the
Nasdaq National Market and Prudential common shares closed at C$16.00 on The
Toronto Stock Exchange.
Listing of Maverick Common Stock and Exchangeable Shares
(see page 67)
On , 2000, Maverick applied to list its shares of common stock,
including those issuable upon the exchange of the exchangeable shares, on the
New York Stock Exchange. On , 2000, Maverick Canada received conditional
approval to list the exchangeable shares on The Toronto Stock Exchange.
Who Can Vote at the Meetings
(see page 27)
Maverick. Only record holders of Maverick common stock at the close of
business on , 2000 are entitled to notice of and to vote at the
Maverick special meeting. On , 2000, shares of Maverick
common stock were outstanding. Each share will have one vote on each matter at
the Maverick special meeting.
Prudential. Only registered holders of Prudential common shares and
Prudential options at the close of business on , 2000 are entitled
to notice of and to vote at the Prudential special meeting. Transferees of
Prudential common shares after that date who comply with the procedures
described in the Notice of Special Meeting of Shareholders and Optionholders
accompanying this joint proxy statement are also entitled to vote. On
, 2000, Prudential common shares and Prudential options
exerciseable into Prudential common shares were outstanding. Each
Prudential common share and Prudential option will have one vote on each matter
at the Prudential special meeting and common shareholders and optionholders
will vote as one class.
Shareholder Votes Required
(see pages 27 and 30)
Maverick. The issuance of Maverick common stock and the amendment to
Maverick's certificate of incorporation to increase the number of authorized
common shares require the approval of stockholders holding a majority of the
outstanding shares of Maverick common stock entitled to vote at the special
meeting.
Prudential. Approval of the transaction requires two-thirds of the votes
cast by holders of Prudential common shares and options, voting as a single
class.
Dissent Rights
(see page 64)
The holders of Prudential common shares and options have the right to
dissent and be paid the judicially determined fair value of their shares or
options. The holders of Maverick common stock do not have any right to an
appraisal of the value of their shares in connection with the transaction.
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<PAGE>
Interests of Prudential Officers and Directors
(see page 71)
When you consider the recommendation of the Prudential board of directors
that Prudential shareholders and optionholders vote in favor of the
transaction, you should be aware that a number of Prudential directors and
officers have interests in the transaction that may differ from those of
Prudential shareholders and optionholders generally.
Accounting Treatment
(see page 66)
Maverick and Prudential expect the transaction to qualify as a pooling-of-
interests under U.S. GAAP, which means that we will treat our companies as if
they had always been combined for accounting and financial reporting purposes.
Prudential will use its reasonable best efforts to obtain a letter at closing
from its independent auditors concurring with the conclusion of Prudential's
management that the company is eligible to enter into a combination that
qualifies for pooling-of-interests accounting treatment under U.S. GAAP.
Maverick will use its reasonable best efforts to obtain a letter at closing
from its independent auditors concurring with the conclusion of Maverick's
management as to the appropriateness of pooling-of-interests accounting
treatment under U.S. GAAP if the transaction is closed and consummated in
accordance with the combination agreement.
Regulatory Approvals
(see page 68)
The arrangement requires approval by the Court of Queen's Bench of Alberta.
In addition, we cannot complete the transaction until the applicable waiting
period expires under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and we receive the required rulings and orders under the Canadian
provincial securities legislation. On June 26, 2000 and ,
2000, Maverick and Prudential, respectively, filed applications under the Hart-
Scott Rodino Antitrust Improvements Act of 1976, as amended, and will file
under Canadian provincial securities legislation and expect to receive all
required regulatory approvals promptly.
Conditions to the Consummation of the Transaction
(see page 59)
The consummation of the transaction depends upon meeting a number of
conditions, including:
. the approval of the issuance of Maverick common stock;
. the approval of the arrangement by the Prudential shareholders and
optionholders;
. the approval of the arrangement by the Alberta Court of Queen's Bench;
. the receipt of all required consents and regulatory approvals;
. the absence of any law or court order prohibiting the transaction;
. the representations and warranties of the parties set out in the
combination agreement being materially accurate as of the closing;
. performance by the parties of their obligations under the combination
agreement;
. the listing of the exchangeable shares on The Toronto Stock Exchange or
another recognized Canadian stock exchange;
. obtaining the required rulings and orders under Canadian provincial
securities legislation;
11
<PAGE>
. the listing of the shares of Maverick common stock on the New York Stock
Exchange (or on the Nasdaq National Market, if the Maverick common stock
is refused or not qualified for listing on the New York Stock Exchange);
. the receipt of a letter at closing from Maverick's independent auditors
concurring with the conclusions of Maverick's management as to the
appropriateness of pooling-of-interests accounting treatment under U.S.
GAAP if the transaction is closed and consummated in accordance with the
combination agreement; and
. the receipt of a letter from Prudential's independent auditors concurring
with the conclusion of Prudential's management that Prudential is
eligible to enter into a combination that qualifies for pooling-of-
interests accounting treatment under U.S. GAAP.
Each party has the right to waive the conditions (except for the requisite
shareholder and regulatory approvals) to its obligations under the combination
agreement.
Termination of the Combination Agreement
(see page 62)
Either Maverick or Prudential can terminate the combination agreement if any
of the following occurs:
. there has been a material breach of the combination agreement by the
other party, subject to notice and cure provisions;
. all closing conditions have not been satisfied or waived by December 31,
2000;
. the required approvals of Maverick stockholders or Prudential
shareholders and optionholders, voting as a class, are not obtained at
the respective shareholder meetings; or
. a law or court order prohibits the transaction.
Maverick can terminate the combination agreement if any of the following
occurs:
. the Prudential board withdraws or modifies adversely to Maverick its
recommendation or fails to reaffirm its recommendation upon request by
Maverick or after a competing acquisition proposal is announced; or
. the Maverick board accepts, recommends, approves or implements an
acquisition proposal in compliance with the combination agreement.
Prudential can terminate the combination agreement if:
. the Maverick board withdraws or modifies adversely to Prudential its
recommendation or fails to reaffirm its recommendation upon request by
Prudential; or
. the Prudential board accepts, recommends, approves or implements a
proposal superior to this transaction in compliance with the combination
agreement.
Termination Fees
(see page 63)
Prudential must pay Maverick a termination fee of $3 million in cash if:
. Maverick terminates the combination agreement because of a material
breach by Prudential that is not cured; or
. Maverick or Prudential terminates the combination agreement because
Prudential shareholders and optionholders, voting as a class, do not
approve the transaction.
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Prudential must pay Maverick a termination fee of $11 million in cash if:
. an acquisition proposal by a third party in respect of Prudential is
publicly announced, Maverick or Prudential terminates the combination
agreement because Prudential shareholders and optionholders, voting as a
class, do not approve the transaction and, within nine months of the
termination, Prudential accepts an acquisition proposal or consummates an
acquisition transaction.
Prudential must pay Maverick a termination fee of $14 million in cash if:
. Maverick terminates the combination agreement because the Prudential
board withdraws or modifies adversely its recommendation to Maverick
stockholders, or fails to reaffirm its recommendation when requested by
Maverick to do so or after an acquisition proposal for Prudential is
announced; or
. Prudential terminates the combination agreement in order to accept a
superior acquisition proposal.
Maverick must pay Prudential a termination fee of $3 million in cash if:
. Prudential terminates the combination agreement because of a material
breach by Maverick that is not cured; or
. Maverick or Prudential terminates the combination agreement because
Maverick stockholders do not approve the issuance of Maverick common
stock.
Maverick must pay Prudential a termination fee of $11 million in cash if:
. an acquisition proposal by a third party in respect of Maverick is
publicly announced, Maverick or Prudential terminates the combination
agreement because Maverick stockholders do not approve the transaction
and, within nine months of the termination, Maverick accepts an
acquisition proposal or consummates an acquisition transaction.
Maverick must pay Prudential a termination fee of $14 million in cash if:
. Prudential terminates the combination agreement because the Maverick
board withdraws or modifies adversely its recommendation to Prudential
shareholders, or fails to reaffirm its recommendation when requested by
Prudential to do so or after an acquisition proposal for Maverick is
announced; or
. Maverick terminates the combination agreement in order to accept an
acquisition proposal.
No Solicitation
(see page 60)
Neither Maverick nor Prudential may solicit or encourage any competing
acquisition proposals. However, if a third party proposal is made, which in the
case of Prudential, is a superior acquisition proposal, the Maverick or
Prudential board of directors, as the case may be, may enter into discussions
and negotiations with, and provide information to, the party making the
acquisition proposal. Maverick has the right to match any superior acquisition
proposal made to Prudential.
The Transaction Documents
We have included the combination agreement and the form of plan of
arrangement as Annexes B and D to this joint proxy statement. We encourage you
to read these agreements as they are the principal legal documents that govern
the transaction.
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Tax Consequences of the Transaction
(see page 95)
In the opinion of Prudential's Canadian counsel, the transaction structure
will provide a tax deferral for most Canadian resident holders of Prudential
common shares through the exchange of Prudential common shares for exchangeable
shares of Maverick Canada. This tax deferral will continue as long as you
continue to hold the exchangeable shares. You should note that Maverick can
require the exchange of the exchangeable shares for Maverick common stock after
five years or, under specified circumstances, sooner, which would end your tax
deferral. In addition, so long as the exchangeable shares are listed on a
prescribed Canadian stock exchange, they will qualify as an investment and will
not be foreign property for RRSP, RRIF, RESP and other savings and pension
plans.
In the opinion of Prudential's U.S. tax counsel, it is more likely than not
that U.S. holders of Prudential common shares that exchange their Prudential
common shares for exchangeable shares will not recognize gain or loss on the
exchange, except as described in "Information About Tax Considerations--United
States Federal Income Tax Considerations To Prudential Shareholders" on page
102. There is however, no direct authority addressing the proper treatment of
the transaction for U.S. federal income tax purposes, and, therefore, that
conclusion is subject to significant uncertainty.
Exchange Rate of Canadian and U.S. Dollars
On July 5, 2000, the exchange rate for one Canadian dollar expressed in U.S.
dollars based on the noon buying rate of the Federal Reserve Bank of New York
was $0.6708.
For each period, the following table provides the high and low exchange
rates for one Canadian dollar expressed in U.S. dollars, the average of these
exchange rates on the last day of each month during the period, and the
exchange rate at the end of the period, based upon the noon buying rate in New
York City for cable transfers in Canadian dollars, as certified for customer
purposes by the Federal Reserve Bank of New York:
<TABLE>
<CAPTION>
Three-Month
Period Ended Twelve-Month Period
March 31, Ended December 31,
------------ -----------------------
2000 1999 1998 1997
------------ ------- ------- -------
<S> <C> <C> <C> <C>
High................................. $0.6969 $0.6925 $0.7105 $0.7487
Low.................................. 0.6790 0.6535 0.6341 0.6945
Average.............................. 0.6878 0.6732 0.6748 0.7222
Period End........................... 0.6879 0.6925 0.6504 0.6999
</TABLE>
On July 5, 2000, the exchange rate for one U.S. dollar expressed in Canadian
dollars based on the noon spot rate of the Bank of Canada was C$1.4909.
For each period, the following table provides the high and low exchange
rates for one U.S. dollar expressed in Canadian dollars, the average of these
exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based upon the noon spot rate of the
Bank of Canada:
<TABLE>
<CAPTION>
Six-Month
Period Ended Twelve-Month Period Ended
March 31, September 30,
------------ --------------------------
2000 1999 1998 1997
------------ -------- -------- --------
<S> <C> <C> <C> <C>
High.............................. C$1.4949 C$1.5578 C$1.5765 C$1.3995
Low............................... 1.4341 1.4505 1.3714 1.3306
Average........................... 1.4631 1.5030 1.4500 1.3700
Period End........................ 1.4535 1.4700 1.5259 1.3820
</TABLE>
14
<PAGE>
Comparative Per Share Market Price Data
The following table sets forth the high and low sales prices and aggregate
volume of Maverick common stock, traded under the symbol "MAVK" on the Nasdaq
National Market, and of Prudential common shares, traded under the symbol "PTS"
on The Toronto Stock Exchange, for the periods indicated. The quotations are as
reported in published financial sources.
<TABLE>
<CAPTION>
Maverick High Low Volume
-------- ------ ------ ----------
<S> <C> <C> <C>
Fiscal 1997
Quarter ended December 31....................... $8.25 $5.625 11,641,294
Quarter ended March 31.......................... 9.50 6.125 12,520,924
Quarter ended June 30........................... 19.375 8.75 26,375,638
Quarter ended September 30...................... 41.75 17.125 25,596,766
Fiscal 1998
Quarter ended December 31....................... 50.75 20.313 33,921,217
Quarter ended March 31.......................... 25.75 14.625 37,764,480
Quarter ended June 30........................... 18.375 10.563 18,793,293
Quarter ended September 30...................... 11.25 5.375 14,710,636
Fiscal 1999
Quarter ended December 31....................... 8.938 5.156 14,703,454
Quarter ended March 31.......................... 7.313 5.50 12,579,686
Quarter ended June 30........................... 15.25 5.688 24,789,196
Quarter ended September 30...................... 22.00 11.875 15,553,632
Fiscal 2000
Quarter ended December 31....................... 26.75 16.125 16,804,670
Quarter ended March 31.......................... 32.438 18.50 16,627,118
April........................................... 32.438 23.063 3,603,155
May............................................. 36.50 28.50 4,586,254
June............................................ 35.375 25.00 11,165,615
July 1 through July 5........................... 29.25 26.00 334,864
</TABLE>
<TABLE>
<CAPTION>
Prudential High Low Volume
---------- ------ ------ ----------
<S> <C> <C> <C>
1997
Quarter ended March 31.......................... C$9.33 C$7.00 9,888,420
Quarter ended June 30........................... 12.67 8.50 7,184,850
Quarter ended September 30...................... 24.67 12.25 16,027,440
Quarter ended December 31....................... 24.63 13.15 15,001,600
1998
Quarter ended March 31.......................... 16.85 10.10 8,504,900
Quarter ended June 30........................... 17.90 9.75 14,683,800
Quarter ended September 30...................... 11.95 5.50 7,969,000
Quarter ended December 31....................... 9.15 5.90 4,986,900
1999
Quarter ended March 31.......................... 7.70 4.70 4,731,100
Quarter ended June 30........................... 9.50 6.75 7,159,600
Quarter ended September 30...................... 14.75 8.25 7,701,500
Quarter ended December 31....................... 14.70 10.30 5,301,300
2000
Quarter ended March 31.......................... 16.50 12.45 6,997,900
April........................................... 16.00 13.25 1,821,100
May............................................. 18.20 15.00 1,938,600
June............................................ 22.60 15.50 13,625,600
July 1 through July 5........................... 21.55 20.00 190,800
</TABLE>
On June 9, 2000, the last full trading day for Maverick and Prudential
before the public announcement of the transaction, Maverick common stock closed
at $30.75 on the Nasdaq National Market and Prudential common shares closed at
C$16.00 on The Toronto Stock Exchange. On July 5, 2000, the last closing price
of Maverick common stock was $26.125 and on July 5, 2000, the last closing
price of Prudential common shares was C$20.00.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
Comparative Per Share Data
The following table sets forth historical per common share data for Maverick
and Prudential and unaudited pro forma and equivalent pro forma combined per
common share data after giving effect to the proposed transaction under the
pooling-of-interests method of accounting at the exchange ratio of 0.52 of an
exchangeable share for each Prudential common share. As a result of the
differing year-ends of Maverick and Prudential, results of operations for
dissimilar year-ends have been combined. Maverick's result of operations for
its fiscal year ended September 30, 1999, 1998 and 1997 have been combined with
Prudential's results of operations for the years ended December 31, 1999, 1998
and 1997, respectively, and the pro forma combined results are reported as
September 30, 1999, 1998 and 1997. Maverick's results of operations for the six
months ended March 31, 2000 have been combined with Prudential's results of
operation for the six months ended March 31, 2000. Basic and diluted earnings
(loss) per common share and cash dividends per common share are presented for
the six months ended March 31, 2000 and for each of the three years in the
period ended September 30, 1999. Book value per common share is presented as of
March 31, 2000 and payout ratio is presented as of March 31, 2000 and September
30, 1999, 1998 and 1997.
15
<PAGE>
The data should be read in conjunction with the selected historical
consolidated financial data and the unaudited pro forma combined financial
statements included in this joint proxy statement and the separate historical
consolidated financial statements of Maverick and Prudential, including the
notes thereto, incorporated by reference or included in this joint proxy
statement. See "Documents Incorporated by Reference" on page 113. Prudential's
historical data have been adjusted to conform to U.S. GAAP and are expressed in
U.S. dollars. The unaudited pro forma combined financial data are not
necessarily indicative of the operating results or financial position that
would have occurred had the transaction been consummated at the beginning of
the earliest period presented and should not be construed as indicative of
future operations.
Historical--Maverick
<TABLE>
<CAPTION>
Six Months For the Year Ended
Ended September 30,
March 31, -------------------
2000 1999 1998 1997
---------- ------ ----- -----
<S> <C> <C> <C> <C>
Basic earnings per common share(a).............. $(0.06) $(0.68) $0.74 $0.99
Diluted earnings per common share(a)............ (0.06) (0.68) 0.73 0.97
Cash dividends per common share(c).............. 0 0 0 0
Book value per common share(b).................. 6.39 5.15 5.83 5.05
</TABLE>
Historical--Prudential--U.S. GAAP and U.S.$
<TABLE>
<CAPTION>
For the Year
Six Months Ended
Ended December 31,
March 31, -----------------
2000 1999 1998 1997
---------- ----- ----- -----
<S> <C> <C> <C> <C>
Basic net earnings per common share(a)............ $0.27 $0.10 $0.26 $1.02
Diluted net earnings per common share(a).......... 0.27 0.10 0.26 1.01
Cash dividends per common share(c)................ 0.07 0.13 0.14 0.15
Book value per common share(b).................... 3.01 2.88 2.74 2.81
</TABLE>
Consolidated Pro Forma per Common Share Data
<TABLE>
<CAPTION>
For the Years
Six Months Ended
Ended September 30,
March 31, -------------------
2000 1999 1998 1997
---------- ------ ----- -----
<S> <C> <C> <C> <C>
Basic earnings (loss) per common share(d)........ $0.22 $(0.19) $0.62 $1.49
Diluted earnings (loss) per common share(d)...... 0.21 (0.19) 0.61 1.46
Cash dividends per common share(e)............... 0 0 0 0
Payout ratio(e).................................. 0 0 0 0
Book value per common share...................... 5.93
</TABLE>
Consolidated Equivalent Pro Forma per Common Share Data(f)
<TABLE>
<CAPTION>
For the Years
Six Months Ended
Ended September 30,
March 31, -------------------
2000 1999 1998 1997
---------- ------ ----- -----
<S> <C> <C> <C> <C>
Basic earnings (loss) per common share........... $0.11 $(0.10) $0.32 $0.77
Diluted earnings (loss) per common share......... 0.11 (0.10) 0.32 0.76
Cash dividends per common share.................. 0 0 0 0
Book value per common share...................... 3.08
</TABLE>
--------
(a) The historical basic earnings (loss) per common share is based upon the
weighted average number of common shares of Maverick and Prudential
outstanding for each period. The historical diluted earnings
16
<PAGE>
(loss) per common share is based upon the weighted average number of common
shares and equivalent common shares outstanding for each period.
(b) The historical book value per common share is computed by dividing
stockholders' equity by the number of shares of common stock outstanding at
the end of each period.
(c) Maverick neither declared nor paid a dividend during any of the periods
presented.
(d) The unaudited pro forma earnings (loss) per common share data are based
upon the weighted average number of common shares and equivalent common
shares outstanding of Maverick and Prudential for each period at the
exchange ratio of 0.52 of an exchangeable share for each Prudential common
share.
(e) The unaudited pro forma payout ratio assumes that Maverick will continue
its current policy of not paying cash dividends.
(f) The unaudited equivalent pro forma per common share data are calculated by
multiplying the pro forma per common share data by the exchange ratio of
0.52.
Summary Unaudited Pro Forma Combined Financial Data
The following table sets forth summary unaudited pro forma combined
financial data which are presented to give effect to the combination of
Prudential and Maverick under the pooling-of-interests method of accounting. As
a result of the differing year-ends of Maverick and Prudential, results of
operations for dissimilar year-ends have been combined. Maverick's result of
operations for its fiscal year ended September 30, 1999, 1998 and 1997 have
been combined with Prudential's results of operations for the years ended
December 31, 1999, 1998 and 1997, respectively, and are reported as September
30, 1999, 1998 and 1997. Maverick's results of operations for the six months
ended March 31, 2000 have been combined with Prudential's results of operation
for the six months ended March 31, 2000. The income statement data for each of
the three years in the period ended September 30, 1999 and the six months ended
March 31, 2000 assume that the transaction had been consummated on October 1,
1996. The balance sheet data assume that the transaction had been consummated
on March 31, 2000.
The unaudited pro forma combined financial data do not reflect any cost
savings or other synergies which may result from the transaction and are not
necessarily indicative of the results of operations or the financial position
which would have occurred had the transaction been consummated on October 1,
1996, nor are they necessarily indicative of future results of operations or
financial position. The unaudited pro forma combined financial data are
presented in accordance with U.S. GAAP in U.S. dollars. The unaudited pro forma
combined financial data should be read in conjunction with the historical
consolidated financial statements of Maverick and Prudential, including the
notes thereto, incorporated by reference in this joint proxy statement and the
unaudited pro forma combined financial statements contained elsewhere herein.
<TABLE>
<CAPTION>
For the Years Ended
Six Months September 30,
Ended March 31, ---------------------------
2000 1999 1998 1997
--------------- -------- -------- --------
(In thousand, except per share amounts)
<S> <C> <C> <C> <C>
Income Statement Data
Net sales........................ $266,333 $314,418 $383,918 $545,296
Gross profit (loss).............. 26,592 18,744 52,435 92,378
Income (loss) before income
taxes........................... 12,629 (8,906) 29,895 71,124
Basic earnings (loss) per common
share........................... 0.22 (.19) 0.62 1.49
Diluted earnings (loss) per
common share.................... 0.21 (.19) 0.61 1.46
Balance Sheet Data
Total assets..................... 366,861
Long-term debt less current
maturities...................... 7,112
Revolving credit facility........ 51,582
Stockholders' equity............. 199,008
</TABLE>
17
<PAGE>
Summary Historical Consolidated Financial Data of Maverick Under U.S. GAAP
The following table sets forth summary historical consolidated financial
data for Maverick as of and for each of the five years in the period ended
September 30, 1999 and as of and for the six months ended March 31, 2000 and
1999.
The data have been derived from, and should be read in conjunction with, the
audited consolidated financial statements and other financial information,
which are contained in Maverick's Annual Report for the year ended September
30, 1999, and the unaudited consolidated interim financial information, which
are contained in Maverick's Quarterly Report on Form 10-Q for the six months
ended March 31, 2000, including the notes thereto, incorporated by reference or
which are included in this joint proxy statement in Annex K. See "Certain Legal
and Other Information--Where You Can Find More Information" on page 112 and
"Documents Incorporated by Reference" on page 113.
<TABLE>
<CAPTION>
Six Months
Ended March 31, For the Years Ended September 30,
----------------- ---------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- ------- -------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net sales............. $140,870 $75,515 $172,417 $265,389 $291,060 $204,182 $167,896
Gross profit (loss)... 6,826 (109) 2,855 33,351 38,257 22,140 8,031
Income (loss) before
income taxes......... (1,783) (9,443) (16,171) 16,805 22,224 9,420 (2,334)
Basic earnings (loss)
per common share..... (.06) (.39) (.68) .74 .99 .51 (.16)
Diluted earnings
(loss) per common
share................ (.06) (.39) (.68) .73 .97 .50 (.16)
Balance Sheet Data
Total assets.......... 233,776 136,737 160,148 156,885 162,004 125,556 106,494
Long-term debt less
current maturities... 7,112 7,850 7,518 8,226 8,879 11,901 18,045
Revolving credit
facility............. 44,000 22,000 31,000 27,400 10,000 13,250 15,000
Stockholders' equity.. 114,034 84,012 79,646 90,063 77,868 57,247 49,503
</TABLE>
Summary Historical Consolidated Financial Data of Prudential Under Canadian
GAAP
The following table sets forth summary historical consolidated financial
data for Prudential as of and for each of the five years in the period ended
December 31, 1999 and as of and for the three months ended March 31, 2000 and
1999. The summary historical consolidated financial data have been presented in
Canadian dollars under Canadian GAAP.
The data set forth should be read in conjunction with the consolidated
financial statements and related notes included in Annex K.
<TABLE>
<CAPTION>
Three Months
Ended March 31, For the Years Ended December 31,
------------------- -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net sales............. C$ 95,297 C$ 40,978 C$210,945 C$175,656 C$352,021 C$242,934 C$176,958
Net income (loss)..... 7,825 1,351 4,813 12,886 42,800 21,556 9,624
Basic earnings per
common share......... 0.26 0.04 0.16 0.43 1.42 0.72 0.32
Diluted earnings per
common share......... 0.25 0.04 0.16 0.42 1.39 0.70 0.32
Balance Sheet Data
Total assets.......... 209,258 148,140 186,117 154,315 174,512 121,807 111,047
Revolving credit
facility............. 11,020 5,213 14,529 9,387 0 0 21,820
Stockholders' equity.. 133,403 128,150 127,090 128,311 121,380 83,538 65,801
</TABLE>
18
<PAGE>
Summary Historical Consolidated Financial Data of Prudential Under U.S. GAAP
The following table sets forth summary historical consolidated income
statement data of Prudential for each of the three years in the period ended
December 31, 1999 and for the three months ended March 31, 2000 and 1999, and
balance sheet data as at December 31, 1999 and 1998 and March 31, 2000. The
summary historical consolidated financial data have been presented in Canadian
dollars and adjusted to U.S. GAAP.
The data set forth should be read in conjunction with the consolidated
financial statements and related notes included in Annex K.
<TABLE>
<CAPTION>
Three Months
Ended March 31, For the Years Ended December 31,
----------------- -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- --------- --------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net sales............. C$95,297 C$40,978 C$210,945 C$175,656 C$352,021 C$242,934 C$176,958
Net income (loss)..... 7,877 930 4,628 11,736 42,800 21,556 9,624
Basic earnings per
common share......... 0.26 0.03 0.15 0.39 1.42 0.72 0.32
Diluted earnings per
common share......... 0.25 0.03 0.15 0.39 1.39 0.70 0.32
</TABLE>
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------- -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets.......... C$207,975 C$146,569 C$184,782 C$153,165 C$174,512 C$121,807 C$111,047
Revolving credit
facility............. 11,020 5,213 14,529 9,387 0 0 21,820
Stockholders' equity.. 132,120 126,579 125,755 127,161 121,380 83,538 65,801
Common stock
outstanding.......... 30,239 30,236 30,239 30,236 30,213 30,051 30,000
</TABLE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this document and in the public
documents that are incorporated by reference, which represent our expectations
or beliefs about future events and financial performance. You can identify
these statements by forward-looking words such as "expect," "believe,"
"anticipate," "goal," "plan," "intend," "estimate," "may," "will" or similar
words. Forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions, including:
the volatility in the level of oil and gas drilling activity;
. steel price volatility;
. currency exchange rates;
. domestic and foreign competitive pressures;
. fluctuations in industry-wide inventory levels;
. the presence or absence of governmentally imposed trade restrictions;
. asserted and unasserted claims; and
19
<PAGE>
. those other risks and uncertainties described under "Risk Factors" and
elsewhere in this document and in Maverick's other filings with the
Securities and Exchange Commission and Prudential's other filings with
the Canadian securities administrators.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this document might not occur. In addition, actual results
could differ materially from those suggested by the forward-looking statements.
Accordingly, you should not place undue reliance on forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
. The sections of this document which contain forward-looking statements
include:
. "Questions and Answers About the Transaction";
. "Summary";
. "Summary Historical and Pro Forma Financial Data";
. "Risk Factors";
. "Description of the Transaction";
. "Certain Financial and Other Information about the Companies";
. "Unaudited Pro Form Combined Condensed Financial Statements";
. Prudential Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in Annex K; and
. Maverick Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in Annex K or incorporated by reference.
For all these statements, we claim the protection of the safe harbor for
forward-looking statements contained in the United States Private Securities
Litigation Reform Act of 1995, as amended.
20
<PAGE>
RISK FACTORS
In deciding how to vote on the combination, you should consider the
following factors:
Risks Relating to the Combination
No Assurance of Successful Combination of Maverick and Prudential Can be
Given.
In evaluating the terms of the transaction, Maverick and Prudential each
analyzed their respective businesses and made certain assumptions concerning
their respective future operations. A key assumption was that the transaction
would result in a combined entity with operating results in 2001 and beyond
substantially better than those recently experienced by either of the
constituent companies. There can be no assurance, however, that such operating
results will be achieved.
Loss of Pooling-of-Interests Accounting Treatment Would Harm the Financial
Results of the Combined Company.
If, following the closing, the combination does not qualify for pooling-of-
interests accounting treatment for financial reporting purposes, the future
reported earnings of the combined company would be adversely affected because
the combined company would be required to record and amortize goodwill and
other intangible assets resulting from the combination. This accounting
treatment would have the effect of reducing operating income, which may harm
the trading price of Maverick common stock following the combination.
Adverse Income Tax Consequences to Prudential U.S. Shareholders are Possible.
It is more likely than not that the arrangement will qualify as a:
. transfer that meets the requirements of Section 351 of the U.S. Code; or
. "reorganization" within the meaning of Section 368(a) of the U.S. Code
with respect to U.S. holders of Prudential common shares who receive
exchangeable shares pursuant to the arrangement.
There is, however, no direct authority addressing the proper treatment of
the arrangement for U.S. federal income tax purposes and, therefore, such
conclusion is subject to significant uncertainty. If the arrangement fails to
qualify as a transfer meeting the requirements of Section 351 of the U.S. Code
and fails to qualify as a reorganization, a U.S. holder of Prudential common
shares who receives exchangeable shares pursuant to the arrangement would
recognize gain or loss. The gain or loss would equal to the difference between
the fair market value of the exchangeable shares and that holder's tax basis in
the Prudential common shares.
Potential Future Sale of Shares of Maverick Common Stock Could Affect Its
Market Price.
Some of the current Prudential shareholders may want to liquidate their
investment in the combined company following the combination. The sale of a
significant number of shares of Maverick common stock by these shareholders
could have a negative impact upon the stock price of the Maverick common stock,
particularly in the short term.
Our Future Operating Results May Fluctuate, Which Could Result in a Lower
Price for Our Common Stock.
We cannot assure you that the market price of the common stock of Maverick
will not, following the closing, decline below the levels currently prevailing.
The market price of our common stock may be adversely affected by numerous
factors, including:
. actual or anticipated fluctuations in our operating results;
21
<PAGE>
. changes in financial estimates by securities analysts; and
. general market conditions and other factors.
Our future operating results may fluctuate significantly depending upon a
number of factors, including the level of oil and gas drilling activity and
general industry conditions. See "--Risks Relating to the Operations of the
Combined Company" below.
Risks Relating to the Operations of the Combined Company
Fluctuations In Oil And Natural Gas Drilling Activity Could Adversely Affect
Us Because We Sell A Significant Portion Of Our Products To The Energy
Industry.
The principal products of Maverick and Prudential consist of oil country
tubular goods and line pipe. Sales of these products to the energy industry
constitute the most significant source of our revenues. In fact, on a pro forma
basis, revenues of the combined company from the sale of oil country tubular
goods and line pipe to the energy industry accounted for approximately 71%, 75%
and 82% of our pro forma total sales for 1999, 1998 and 1997, respectively.
Demand for these products depends primarily upon the number of oil and natural
gas wells being drilled, completed and worked over in the United States and
Canada and the depth and drilling conditions of these wells. The level of these
activities is primarily dependent on current and anticipated oil and natural
gas prices. Many factors affect these prices, such as the supply and demand for
oil and natural gas, general economic conditions and global weather patterns.
As a result, the future level and volatility of oil and natural gas drilling
activity is uncertain.
The Volatility And Cyclical Nature Of Steel Prices May Adversely Affect Our
Business.
Purchased steel currently represents slightly more than two-thirds of the
cost of goods sold for both Maverick and Prudential. As a result, the steel
industry, which is highly volatile and cyclical in nature, affects our business
both positively and negatively. Numerous factors, most of which are beyond our
control, drive the cycles of the steel industry and influence steel prices.
Some of these factors are:
. general economic conditions;
. industry capacity utilization;
. import duties and other trade restrictions; and
. currency exchange rates.
Change in steel prices can affect the pricing and/or gross margin levels of
our products. With respect to industrial products, we would seek to recover any
increase in steel costs by attempting to increase the price of our products.
However, increases in the prices of our products often do not fully compensate
for steel price increases and generally lag several months behind increases in
steel prices. Prices of energy products move in conjunction with demand for
those products and are unrelated to changes in steel costs. This could result
in an inability to recover steel cost increases on those products during poor
energy market conditions. Consequently, we typically have a limited ability to
recover increases in steel costs.
Exchange Rate Fluctuations Will Have a Direct Impact on Our Results of
Operations.
Although our financial results will be reported in U.S. dollars, a
significant portion of our sales and operating costs will be denominated in
Canadian dollars. Consequently, we will be exposed to cash flow and earnings
volatility as a result of fluctuations in relative currency values. Significant
fluctuations may adversely affect our results of operations. In particular, our
results of operations may be adversely affected by a significant strengthening
of the U.S. dollar against the Canadian dollar.
Prudential currently enters into forward contracts from time to time for the
purchase of U.S. dollars to reduce its exposure to Canada-U.S. exchange
fluctuations on materials and supplies denominated in U.S. funds.
22
<PAGE>
To reduce the impact of currency fluctuations, we may continue a U.S. exchange
rate management program for our Canadian operations. However, we cannot give
any assurance that this program will effectively avoid adverse effects as a
result of currency fluctuations.
The Level Of Imports Of Oil Country Tubular Goods Into The U.S. and Canadian
Markets, Which Has Been reduced by Trade Relief Now in Place, Impacts Demand
and Pricing For Our Products.
The level of imports of oil country tubular goods, which has varied
significantly over time, affects the U.S. and Canadian oil country tubular
goods markets. High levels of imports reduce the volume sold by domestic
producers and tend to suppress selling prices, both of which could have an
adverse impact on our business. We believe that United States and Canadian
import levels are affected by, among other things:
. U.S., Canadian and overall world demand for oil country tubular goods;
. the trade practices of and government subsidies to foreign producers; and
. the presence or absence of antidumping and countervailing duty orders.
Antidumping and countervailing duty orders require special duties to be
imposed in amounts designed to offset unfair pricing and government
subsidization, respectively. In the United States, once an order is in place,
each year foreign producers, importers, domestic producers and other parties
may request an "administrative review" to determine the duty rates to be
applied to imports during subsequent years, as well as the duty deposit rates
for future imports from the companies covered by the review. In addition, a
company that did not ship to the United States during the original period
examined by the U.S. government may request a "new shipper review" to obtain
its own duty rate on an expedited basis.
U.S. antidumping and countervailing duty orders may be revoked as a result
of periodic "sunset reviews." An individual exporter may also obtain
revocation as to itself under certain circumstances. On June 22, 2000, the
U.S. International Trade Commission voted to sunset the antidumping and
countervailing orders against oil country tubular goods imports from Canada
and Taiwan. This action could result in increased competition from imports
from these countries that could have a material adverse effect on our U.S.
business. The U.S. government is scheduled to conduct sunset reviews of the
orders covering Argentina, Italy, Japan, Korea and Mexico beginning in July
2000. These reviews are expected to conclude in July 2001. If the orders
covering imports from Argentina, Italy, Japan, Korea and Mexico are revoked in
full or in part or the duty rates lowered, we could be exposed to increased
competition from imports that could have a material adverse effect on our U.S.
business.
Since 1986, imports of certain oil country tubular goods into Canada from
the U.S., Korea, Japan and Germany have been restricted by the existence of
antidumping and countervailing duty orders. The Canada Customs and Revenue
Agency will initiate the sunset review process on these orders in September
2000 with a decision expected by July 2001. If the orders covering imports
from the U.S., Korea, Japan and Germany are revoked in full or in part or the
duty rates lowered, we could be exposed to increased competition from imports
from these countries that could have a material adverse effect on our Canadian
business.
Industry Inventory Levels Affect Our Sales and Net Income.
Industry inventory levels of our products, particularly oil country tubular
goods, can change significantly from period to period. These changes can have
a direct adverse effect on the demand for new production of energy and
industrial products when customers draw from inventory rather than purchase
new products. We believe that industry-wide oil country tubular goods
inventory is at or below normal levels in relation to current demand.
Additionally, months of supply of inventory, which defines the level of
inventory in terms of monthly consumption, also appears to be in line with
current demand. Material increases in months of supply of inventory can have
an adverse impact on us.
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Maverick's Plans for the New Large-Diameter Facility May Not Be Successful.
An important part of Maverick's growth strategy is and will continue to be
its ability to successfully expand its current product lines, offer new product
lines and enter new markets. We are devoting significant resources to this
strategy. To this end, Maverick is currently constructing a new large-diameter
facility that will produce products with larger diameters than it currently
manufactures. Opening the new facility may expose us to risks including:
. intense competition in the larger diameter product lines;
. the current industry-wide overcapacity in these product lines; and
. potential unforeseen or higher than expected costs.
Any of these risks could adversely affect or prevent the success of the new
facility.
Maverick's Cold Drawn Tubing Business May Not Be Successful.
Maverick's recent entry into the cold drawn tubing market has required
capital expenditures of approximately $15.2 million as of March 31, 2000.
Maverick has not generated a profit to date in this market and we cannot assure
you that it will be successful in achieving significant sales levels or
profitability in the cold drawn tubing market.
Prudential's Longview Facility May Not Generate Profits.
In 1997, Prudential expanded into the U.S. market with the construction of a
tubular manufacturing facility in Longview, Washington. The Longview facility
commenced operations in December 1998. As anticipated, in fiscal 1999 the
Longview facility experienced a loss due to operations start-up and market
development issues. The Longview facility has not generated a profit to date
and we cannot assure you that it will be successful in achieving sales levels
or profitability for the Longview facility.
We May Lose Business to Competitors Who are Larger than Us or Who Produce
Their Own Steel.
Some of our competitors are larger and have greater financial and marketing
resources and business diversification. These companies may be better able than
the combined company to successfully endure downturns in either the energy or
industrial sectors. Also, many of these larger competitors are integrated steel
producers who make their own raw materials rather than purchase their raw
materials in the open market. During periods of strong steel demand, we may be
at a competitive disadvantage to these integrated competitors. As a result, we
may lose business to any of these competitors. The oil country tubular goods
and structural product markets are largely commodity in nature and as a result,
price competition is of particular importance.
We Will Depend on a Few Suppliers for a Significant Portion of Our Steel, and
a Loss of One or More Significant Suppliers Could Affect Our Ability to
Produce Our Products.
In fiscal 1999, Maverick purchased in excess of 90% of the steel for its
Arkansas facilities from a single supplier and 80% of the steel for its Texas
facility from three suppliers. In fiscal 1999, Prudential purchased in excess
of 80% of the steel for its Canadian operations from two Canadian suppliers.
The loss of any of these suppliers or interruption of production at one or more
of the suppliers could have a material adverse effect on our business,
financial condition and results of operations.
Seasonal Fluctuations Which Affect Our Customers May Affect Demand For Our
Products.
Maverick and Prudential, as well as the oil country tubular goods industry
in general, have historically experienced seasonal fluctuations in demand for
their products. For instance, weather conditions during the first
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half of the calendar year normally make drilling operations more difficult.
For this reason, domestic drilling activity and the corresponding demand for
our oil country tubular goods generally will be lower during the first and
second calendar quarters, as compared with the third and fourth calendar
quarters. We also will experience seasonal fluctuations in demand for our
industrial products. However, the timing of these fluctuations may differ from
fluctuations experienced in the oil country tubular goods market.
We Depend on a Few Distributors for a Significant Portion of Our Net Sales of
Oil Country Tubular Goods, and a Loss of One or More Significant Distributors
Could Affect Our Ability to Sell Our Products.
In fiscal 1997, National Oilwell Supply, Inc., Master Tubular, Inc. and two
other distributors accounted for 25% of Maverick's net sales. In fiscal 1998,
National Oilwell alone accounted for 14% of Maverick's net sales. In fiscal
1999, McJunkin Appalachian Oilfield Supply Company and Sooner Pipe & Supply
Corp., which was formed in June 1999 as a result of a combination of National
Oilwell and other distributors, accounted for 26% of Maverick's net sales. The
loss of any of these distributors could have a material adverse effect on our
business, financial condition and results of operations.
In fiscal 1999, four distributors accounted for approximately 48% of the
Canadian revenues of Prudential. The loss of any of these distributors could
have a material adverse effect on our business, financial condition or results
of operations.
The Operations of the End Users of Our Products Expose Us to Potential
Product Liability and Environmental Claims.
Drilling for oil and natural gas involves a variety of risks that can
result in significant losses. Actual or claimed defects in our products may
give rise to claims against us for these losses. The transportation of oil and
gas through line pipe also involves risks. A failure of line pipe may give
rise to environmental liabilities and claims against us for losses. The use of
structural tubing can also involve risks. Actual or claimed defects in these
pipe and tubing products can also expose us to claims for damages. We maintain
insurance coverage against potential product liability claims in amounts which
we believe to be adequate. We have not historically incurred material product
liability costs, nor have we experienced difficulties in obtaining or
maintaining adequate product liability insurance coverage. However, we may
incur product liability in excess of our insurance coverage or incur other
uninsured costs, and we may not be able to maintain adequate insurance
coverage levels in the future.
Compliance with and Changes to Environmental and Safety Laws Regulating the
Operation of Our Business Could Adversely Affect Our Performance.
Our businesses are, and our combined business will continue to be, subject
to numerous U.S. and Canadian local, state and federal laws and regulations
concerning environmental and safety matters. We cannot assure you that future
changes and compliance within these laws and regulations will not have a
material adverse effect on our operations.
Prudential's Canadian Operations are Subject to Collective Bargaining
Agreements.
Prudential has a collective bargaining agreement expiring December 31, 2000
with the United Steelworkers of America, Local Union 7226, covering
approximately 450 employees at its Calgary facilities. This agreement
generally covers wages, healthcare benefits and retirement plans, seniority,
job classes and certain work rules. While Prudential believes its present
labor relations to be good, there can be no assurance that the collective
bargaining agreement will be renewed upon expiration or that a new collective
bargaining agreement on terms acceptable to us will be established.
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Provisions in Our Corporate Documents and Delaware Law Could Delay or Prevent
a Change in Control of the Combined Company.
The existence of some provisions in Maverick's corporate documents and
Delaware law could delay or prevent a change in control of the combined
company, even if that change might be beneficial to our stockholders. Our
certificate of incorporation and bylaws contain provisions that may make
acquiring control of the combined company difficult, including:
. provisions limiting the rights to call special meetings of our
stockholders;
. provisions regulating the ability of our stockholders to bring matters
for action at annual meetings of our stockholders;
. a provision prohibiting action by stockholders by written consent; and
. the authorization to issue and set the terms of preferred stock by
Maverick's board of directors.
In addition, we have adopted a stockholder rights plan that would cause
extreme dilution to any person or group who would attempt to acquire a
significant interest in the combined company without advance approval of
Maverick's board of directors. Moreover, Delaware law would impose
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our outstanding common stock.
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INFORMATION ABOUT THE MEETINGS AND VOTING
The Maverick Special Meeting--Information For Maverick Stockholders
Solicitation and Voting of Proxies. The accompanying Maverick proxy is
solicited on behalf of the Maverick board for use at the Maverick special
meeting, to be held at , Chesterfield,
Missouri, on , 2000 at 10:00 a.m. (St. Louis time). Only
holders of record of Maverick common stock at the close of business on
, 2000 will be entitled to vote at the Maverick special
meeting. On , 2000, there were
shares of Maverick common stock outstanding and entitled to vote. Each share
entitles the holder to one vote on all matters presented at the Maverick
special meeting. A majority of the shares, present in person or by proxy, will
constitute a quorum for the transaction of business. Abstentions and broker
non-votes will be considered to be represented for purposes of a quorum. This
joint proxy statement and the accompanying form of proxy were first mailed to
Maverick stockholders on or about , 2000.
Revocability of Proxy. If you have given a proxy you may revoke it at any
time before it is exercised at the Maverick special meeting, by:
. delivering to the secretary of Maverick by any means, including
facsimile, a written notice stating that the proxy is revoked;
. signing and so delivering a proxy bearing a later date; or
. attending the Maverick special meeting and voting in person (although
attendance at the Maverick special meeting will not, by The Toronto Stock
Exchange, revoke your proxy).
Expenses of Proxy Solicitation. Maverick will pay the expenses of soliciting
proxies to be voted at the Maverick special meeting. Following the original
mailing of the proxies and other soliciting materials, Maverick and/or its
agents also may solicit proxies by mail, telephone, facsimile or in person.
Following the original mailing of the proxies and other soliciting materials,
Maverick will request brokers, custodians, nominees and other record holders of
shares to forward copies of the proxy and other soliciting materials to persons
for whom they hold such shares and to request authority for the exercise of
proxies. In such cases, Maverick, upon the request of the record holders, will
reimburse the record holders for their reasonable expenses. Maverick has
retained MacKenzie Partners, Inc. to aid in the solicitation of proxies and
verify records related to the solicitation at a maximum fee of $15,000.00 plus
expenses.
Voting Rights. You are entitled to one vote for each Maverick share held as
of the record date. Stockholder approval of the issuance of Maverick common
stock pursuant to the transaction is required by the rules of the Nasdaq
National Market. The approval requires the affirmative vote of a majority of
votes cast on the proposal, either in person or by proxy, at the Maverick
special meeting, assuming a majority of the shares of Maverick common stock
entitled to vote are represented at the special meeting, provided that the
total votes cast on the proposal represent over 50% of the outstanding shares
of Maverick common stock entitled to vote on the proposal. Approval of the
amendment to the Maverick certificate of incorporation requires the affirmative
vote of the holders of the majority of the outstanding shares of Maverick
common stock.
Maverick will count abstentions in tabulations of votes cast. Therefore, an
abstention will have the same effect as a vote against the proposal. Under
Delaware case law, broker non-votes (shares which are present at the meeting
and for which a broker or nominee has received no instruction by the beneficial
owner as to how the owner wishes the shares to be voted) are counted for
purposes of determining whether a quorum is present at the meeting but are not
counted for purposes of determining whether a proposal has been approved. Thus,
a broker non-vote will have the same effect as a negative vote with regard to
the proposal to amend the Maverick certificate of incorporation to increase the
authorized common stock. Broker non-votes will not count "for" or "against"
with respect to the issuance of shares of Maverick common stock in connection
with the transaction and will not be considered as shares represented at the
meeting for purposes of determining whether the total votes cast on that
proposal represented more than 50% of the outstanding shares.
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Auditors. Ernst & Young LLP, independent public accountants, have served as
the independent auditors of Maverick since March 1991. Representatives of Ernst
& Young LLP plan to attend the Maverick special meeting and will be available
to answer questions. Its representatives will also have an opportunity to make
a statement at the meeting if they so desire, although Maverick does not expect
any statement will be made.
Electronic Proxy Voting. Registered Maverick stockholders can vote their
shares:
. via a toll-free telephone call from the U.S. or Canada;
. via the Internet; or
. by mailing their signed proxy card.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to vote their shares and to
confirm that their instructions have been properly recorded. Maverick has been
advised by counsel that the procedures which have been put in place are
consistent with the requirements of applicable law. Specific instructions to be
followed by any registered stockholder interested in voting via telephone or
the Internet are set forth on the enclosed proxy card.
Discretionary Authority. The accompanying Maverick proxy confers
discretionary authority to vote upon any other matters properly brought before
the meeting which were not known to the Maverick board a reasonable time prior
to this solicitation.
Maverick Stockholder Proposals. Stockholder proposals to be considered for
inclusion in the proxy statement of Maverick to be issued in connection with
the 2001 annual meeting of Maverick stockholders must be mailed to Barry R.
Pearl, Corporate Secretary, Maverick Tube Corporation, 16401 Swingley Ridge
Road, Seventh Floor, Chesterfield, Missouri 63017 and must be received by the
Corporate Secretary on or before , [2000].
Stockholder proposals submitted outside of the procedures set forth above,
including nominations for directors, must be mailed to Barry R. Pearl,
Corporate Secretary, at the address above and must be received by the Corporate
Secretary on or before , [2000]. If a proposal is
received after that date, Maverick's proxy for the 2001 annual meeting may
confer discretionary authority to vote on such matter without any discussion of
the matter in the proxy statement for the 2001 annual meeting.
The Prudential Special Meeting--Information For Prudential Shareholders and
Optionholders
Solicitation and Voting of Proxies. The accompanying Prudential proxy is
solicited on behalf of the Prudential board of directors for use at the
Prudential special meeting. The solicitation of proxies will be primarily by
mail but proxies may also be solicited personally or by telephone by regular
employees of Prudential without special compensation. The cost of solicitation
will be borne by Prudential. Prudential may also pay brokers or nominees
holding Prudential common shares in their names or in the names of their
principals for their reasonable expenses in sending solicitation material to
their principals. Prudential has retained to aid in the
solicitation of proxies and verify records related to the solicitation, for a
fee of approximately C$ .
Only registered Prudential shareholders and Prudential optionholders at the
close of business on , 2000 will be entitled to vote at
the Prudential special meeting, subject to the provisions of Alberta law
regarding transfers of Prudential common shares after the Prudential record
date. Shareholders and optionholders will vote together as one class. See the
"Notice of Special Meeting of Shareholders and Optionholders" accompanying this
joint proxy statement. At the close of business on the Prudential record date,
there were Prudential common shares outstanding and
Prudential options outstanding in respect of an additional
Prudential common shares.
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A quorum of Prudential shareholders and Prudential optionholders at the
Prudential special meeting will be present if the holders of not less than 5%
of the Prudential common shares entitled to vote at the meeting are present,
either in person or by duly appointed proxy.
To be effective, proxies must be received by not
later than 5:00 p.m. (Calgary time) on , 2000, or, if the
Prudential special meeting is adjourned, not later than 24 hours (excluding
Saturdays, Sundays and holidays) before the time of the Prudential special
meeting or any adjournment or postponement thereof.
Advice to Beneficial Holders of Prudential Common Shares. The information
set forth in this section is important to Prudential shareholders who do not
hold their Prudential common shares in their own name (referred to in this
joint proxy statement as "beneficial shareholders"). Beneficial shareholders
should note that only proxies deposited by shareholders whose names appear on
the records of Prudential as the registered shareholders can be recognized and
acted upon at the special meeting. If Prudential common shares are listed in an
account statement provided to a Prudential shareholder by a broker, then in
almost all cases those shares will not be registered in the shareholder's name
on the records of Prudential. Such shares will more likely be registered under
the name of the shareholder's broker or a nominee of that broker. In Canada,
the vast majority of these shares are registered under the name of CDS & Co.
(the registration name for the Canadian Depository for Securities), which acts
as nominee for many Canadian brokerage firms. In the United States, shares are
often registered under the name of CEDE & Co. (the registration name for The
Depository Trust Company), which acts as nominee for many U.S. brokerage firms.
Shares held by brokers or their nominees can only be voted (for or against
resolutions) upon the instructions of the beneficial shareholder.
Applicable regulatory policy requires brokers to seek voting instructions
from beneficial shareholders in advance of shareholders' meetings. Every
intermediary/broker has its own mailing procedures and provides its own return
instructions, which should be carefully followed by beneficial shareholders in
order to ensure that their common shares are voted at the special meeting.
Often the form of proxy supplied to a beneficial shareholder by his/her broker
is identical to the form of proxy provided by Prudential to the registered
shareholders. However, its purpose is limited to instructing the registered
shareholder how to vote on behalf of the beneficial shareholder. The majority
of brokers now delegate responsibility for obtaining instructions from clients
to Independent Investor Communications Corporation ("IICC") in Canada and ADP
Proxy Services in the United States. IICC and ADP Proxy Services typically
prepare a machine-readable proxy form, mail those forms to the beneficial
shareholders and ask beneficial shareholders to return the proxy forms to IICC
or ADP Proxy Services. IICC or ADP Proxy Services then tabulate the results of
all instructions received and provide appropriate instructions respecting the
voting of shares at the special meeting.
A beneficial shareholder receiving a proxy form from IICC or ADP Proxy
Services cannot use that proxy to vote common shares directly at the special
meeting--the proxy must be returned to IICC or ADP Proxy Services well in
advance of the special meeting in order to have the common shares represented
by such proxy voted.
Appointment of Proxy and Discretionary Authority. As a Prudential
shareholder or Prudential optionholder you have the right to appoint a person
who need not be a shareholder or optionholder of Prudential, other than persons
designated in the form of proxy accompanying this joint proxy statement, as
nominee to attend and act for and on your behalf at the Prudential special
meeting. You may exercise this right by inserting the name of the person you
appoint in the blank space provided on the form of proxy.
The form of proxy accompanying this joint proxy statement confers
discretionary authority upon the proxy nominees with respect to amendments or
variations to the matters identified in the accompanying notice of the
Prudential special meeting and other matters which may properly come before the
Prudential special meeting.
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Your Prudential common shares and Prudential options represented by proxies
at the Prudential special meeting will be voted in accordance with your
instructions where you have specified a choice with respect to any matter to be
voted upon. In the absence of any specification, your Prudential common shares
and Prudential options will be voted FOR the matter or matters proposed in this
joint proxy statement.
Management of Prudential knows of no matters to come before the Prudential
special meeting other than the matters referred to in the accompanying notice
of the Prudential special meeting. However, if any other matters that are not
now known to management should properly come before the Prudential special
meeting, the shares and options represented by proxies in favor of management
nominees will be voted on such matters in accordance with the best judgment of
the proxy nominee.
Revocation of Proxies. Proxies given by Prudential shareholders or
Prudential optionholders for use at the Prudential special meeting may be
revoked at any time prior to their use. A Prudential shareholder or Prudential
optionholder giving a proxy may revoke the proxy (1) by instrument in writing
executed by the shareholder or optionholder or by his or her attorney
authorized in writing, or, if the shareholder is a corporation, under its
corporate seal by an officer or attorney thereof duly authorized indicating the
capacity under which such officer or attorney is signing, and deposited either
at the registered office of Prudential (as set forth in this joint proxy
statement) or with Trust Company at
, at any time up to and including 5:00 p.m. (Calgary
time) on the last business day preceding the day of the Prudential special
meeting, or any adjournment or postponement thereof, or with the chairman of
the Prudential special meeting on the day of such Prudential special meeting or
adjournment or postponement thereof, (2) by a duly executed proxy bearing a
later date or time than the date or time of the proxy being revoked, (3) by
voting in person at the Prudential special meeting (although attendance at the
Prudential special meeting will not in and of itself constitute a revocation of
a proxy), or (4) in any other manner permitted by law.
Required Votes. Prudential shareholders and Prudential optionholders are
entitled to one vote for each share or option held. The special resolution, in
the form of Annex A, in respect of the proposed arrangement set forth in full
in Annex D, must be approved by the affirmative vote of not less than two-
thirds of the aggregate of the votes cast by the holders of Prudential common
shares and the holders of Prudential options, voting together as a single
class, present (in person or by proxy) and entitled to vote at the Prudential
special meeting.
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DESCRIPTION OF THE TRANSACTION
Overview of the Transaction
Upon completion of the proposed transaction:
. Prudential will become an indirect wholly-owned subsidiary of Maverick;
. Prudential shareholders will cease to be shareholders of Prudential and
(other than dissenting shareholders) will receive, for each Prudential
common share, 0.52 of an exchangeable share of Maverick Canada;
. each exchangeable share will have economic and voting rights equivalent
to one share of Maverick common stock and will be exchangeable, at the
option of the holder, for one share of Maverick common stock; and
. each outstanding option to purchase a Prudential common share will be
exchanged for an option to purchase 0.52 of a share of Maverick common
stock at an exercise price equal to its current exercise price divided by
0.52, expressed in U.S. dollars.
Background
In November 1999, Gregg Eisenberg, the Chairman of the Board, President and
Chief Executive Officer of Maverick, called Donald Wilson, the President and
Chief Executive Officer of Prudential, to express Maverick's interest in
discussing the combination of Maverick and Prudential. Mr. Eisenberg, along
with other members of Maverick's management team, had concluded that the
prevailing economic conditions favored a transaction utilizing Maverick common
stock. Mr. Wilson agreed that he and Mr. Eisenberg meet in Dallas, Texas in
early January.
On January 7, 2000, Messrs. Eisenberg and Wilson met in Dallas to discuss a
possible combination of Maverick and Prudential based upon a stock for stock
exchange. Following this meeting, Maverick's management and advisors held
several discussions regarding this possible transaction, the potential exchange
ratios and acceptable criteria for an initial valuation of Prudential.
On January 31, 2000, Mr. Eisenberg, Barry Pearl, Maverick's Vice President,
Chief Financial Officer and Secretary and T. Scott Evans, Maverick's Vice
President of Commercial Operations, met with Mr. Wilson and Doug McIntosh (the
retiring Chief Operating Officer of Prudential) to discuss a possible
transaction. This discussion was general in nature regarding the potential
benefits of combining the businesses of both companies from an operational and
financial point of view and the benefits to their respective stockholders. At
the conclusion of the meeting, Mr. Eisenberg agreed to present the concept of a
business combination between Maverick and Prudential to the Maverick board of
directors and, if authorized by the Maverick board, to pursue discussions
further and express in writing Maverick's interest. Mr. Wilson agreed to review
the idea of a potential business combination with the Prudential board of
directors.
On February 22, 2000, the Maverick board of directors met at its regular
quarterly meeting and were advised of the preliminary discussions that had
taken place between Maverick's and Prudential's senior management. The Maverick
board discussed the prospect of, and the possible salient terms of, a business
combination between the two companies. Following full discussion of the
potential transaction, including its basic structure, the Maverick board
unanimously authorized Mr. Eisenberg to pursue further discussions with
Prudential. The Maverick board also reviewed and approved the form of a letter
to be forwarded to Mr. Wilson expressing Maverick's interest in pursuing a
transaction with Prudential.
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Later, on the same day as the Maverick board meeting, Mr. Eisenberg
forwarded to Mr. Wilson Maverick's letter expressing its interest and outlining
the material terms of a proposed transaction. The letter included the following
proposals:
. an exchange ratio of 0.5 to 1, and the assumption by Maverick of
Prudential's outstanding stock options;
. the listing of Maverick's common stock on the New York Stock Exchange to
be effective concurrently with the closing of the transaction;
. the structure of the transaction to provide tax deferral opportunities
for Prudential's Canadian shareholders;
. the accounting for the transaction as a pooling-of-interests under U.S.
GAAP; and
. the make-up of the board of the combined company to reflect the
proportionate interests of each constituent company's stockholders in the
combined company.
On March 2, 2000, the Prudential board of directors met at its regular
quarterly meeting, at which time Mr. Wilson presented to the directors the
Maverick proposal and summarized the preliminary discussions that had taken
place between Maverick and Prudential. The Prudential board of directors
established a special committee, consisting of certain of its board members, to
evaluate Maverick's interest and proposal regarding a potential business
combination.
On March 7, 2000, Mr. Wilson sent a letter to Mr. Eisenberg advising that
the board of directors of Prudential had discussed the Maverick proposal, that
Prudential was continuing to review the proposal, and that Mr. Wilson hoped to
be able to respond more directly in approximately two weeks. In a telephone
discussion on March 7, 2000, Mr. Wilson advised Mr. Eisenberg that Prudential
had formed the special committee of its board of directors.
On March 10, 2000, Mr. Eisenberg sent a further letter to Mr. Wilson to
assist the Prudential special committee in its review, by reiterating the
rationale of a proposed combination of the companies and elaborating on how
Maverick envisioned the integration of both companies. The letter indicated
that Maverick believed the resulting entity would be the premier North American
tubular manufacturer and significantly increase shareholder value for all
interested parties. Maverick viewed the proposed combination as a merger of
equals, with both companies continuing as independent operating entities and
the senior management of both companies staying in place and working together
to manage the operating divisions of the new entity. Maverick requested the
opportunity to make a formal presentation to Prudential.
On March 17, 2000, the Prudential special committee met with Macleod Dixon,
who were retained as special legal counsel by the committee, and RBC DS, who
were retained as financial advisors to Prudential by the special committee. In
addition to a review of the mandate of the committee and the legal duties and
responsibilities generally of the committee, the special committee received
advice of RBC DS with respect to the Maverick proposal. RBC DS reviewed the
current capital markets and the oilfield sector and provided a market
assessment of Prudential and Maverick as well as a preliminary business
assessment of Prudential. The special committee members reviewed Prudential's
business plan and the opportunities presented by the business plan, other
possible transaction candidates and alternative courses of action.
On March 23, 2000, the Prudential special committee met again with legal
counsel and RBC DS to review additional information which had been requested
from RBC DS and to form a recommendation to the board of directors in response
to the Maverick proposal. The Prudential special committee unanimously agreed
to recommend to the Prudential board of directors that Prudential continue to
pursue its current business plan with the objective of realizing on the
opportunities before it and not, at that time, pursue the Maverick proposal.
The committee based its recommendation on various matters, including:
.the business prospects for Prudential on its own;
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.a concern that any shortfall in Maverick's earnings from estimates for
2001 or from the market's expectation of Maverick's earnings could have a
significant downward effect on Maverick's share price, particularly in
view of Maverick's then trading multiple;
.a perceived significant transaction completion risk due to the long period
of time necessary to obtain shareholder and regulatory approvals to a
transaction; and
.advice received by the special committee from its financial and legal
advisors.
The special committee further agreed to recommend that it be authorized to
conduct additional analysis of Prudential's business plan and prospects and to
further investigate alternative courses of action for Prudential. The special
committee communicated this recommendation to the Prudential board of directors
at a meeting held on the same day and the board adopted the recommendation.
On March 27, 2000, Mr. Eisenberg received a letter dated March 24, 2000,
from Mr. Wilson and Dennis Flanagan, a Prudential director and Chairman of the
special committee, stating that Prudential was not currently interested in
pursuing a business combination and that Prudential intended to pursue its
current business plan. Mr. Eisenberg then requested an explanation of
Prudential's position with regard to the proposed business combination.
By letter dated March 30, 2000, Prudential formally engaged RBC DS as its
financial advisor for the purpose of considering the Maverick proposal and
other possible transactions.
In response to Mr. Eisenberg's request for an explanation, on April 3, 2000,
a conference call among Messrs. Eisenberg, Pearl, Wilson and Flanagan was held.
Messrs. Wilson and Flanagan expressed the concerns of the Prudential special
committee as to Maverick's ability to generate and sustain sufficient earnings
in the future to support its then current share price and the transation risks
resulting from the length of time required to complete a transaction. Messrs.
Eisenberg and Pearl expressed disappointment in the unwillingness of
Prudential's management to pursue the potential transaction in greater depth,
stressing the significant advantages to the Prudential securityholders in
effecting a business combination along the lines being discussed.
On April 17, 2000, Maverick engaged Deutsche Bank and Raymond James to
advise it on the alternatives available to Maverick in pursuing a transaction
with Prudential.
After conferring with the directors of Maverick, on April 19, 2000, Mr.
Eisenberg sent a letter to the Prudential board reiterating on a formal basis
the possible business combination as proposed in Maverick's February 22, 2000
letter, including an exchange ratio of 0.5 to 1. In the letter, Mr. Eisenberg
expressed to the Prudential board of directors Maverick's willingness to
consider alternative forms of consideration and the potential to increase the
consideration to the Prudential shareholders if Maverick had an opportunity to
review non-public information and assess the Prudential business plan. Mr.
Eisenberg also expressed Maverick's willingness to disclose its offer to the
shareholders of Prudential if Prudential was not willing to negotiate with
Maverick.
On April 20, 2000, the Prudential special committee met to consider Mr.
Eisenberg's letter. The committee discussed Maverick's willingness to
communicate its offer directly to Prudential's shareholders and the timing of
the annual meeting of shareholders of Prudential called for May 1, 2000, and
noted that the letter did not address the issues raised with Maverick regarding
the proposal. The committee also noted that further discussions with Maverick
would enable Prudential to obtain additional information regarding Maverick and
explore solutions to Prudential's concerns with the original proposal, and
would also provide Prudential with time to consider alternative transactions.
The Prudential special committee's consensus was to recommend to the board of
directors that Prudential agree to further talks with Maverick. Following this
meeting, Mr. Wilson called Mr. Eisenberg, acknowledging receipt of the April
19, 2000 letter and advising Mr. Eisenberg that the Prudential board of
directors would meet on April 24, 2000 to further consider Maverick's proposal.
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On April 24, 2000, the Prudential board of directors met with its legal
counsel and financial advisors and received the recommendation of the special
committee as well as advice from their legal counsel and financial advisors.
After discussion, the board accepted the recommendation of the special
committee and authorized the committee to discuss and, if warranted, negotiate
with Maverick to determine whether the special committee could recommend to the
Prudential board for approval a transaction with Maverick as being fair and in
the best interests of Prudential and its shareholders.
Following this meeting, Messrs. Wilson and Flanagan called Mr. Eisenberg to
inform him that the Prudential board of directors had authorized the special
committee to meet with Maverick's representatives to discuss Maverick's
proposed business combination. Mr. Eisenberg suggested that both companies,
along with their legal and financial advisors, meet as soon as possible to
discuss a potential business combination between the two companies. The parties
agreed to meet on May 8, 2000 in Calgary, Alberta.
On May 1, 2000 the Prudential board of directors met at its regular
quarterly meeting, at which time the Prudential special committee updated the
Prudential board of directors on the telephone call following the April 24,
2000 board of directors meeting and the agreement of the parties to meet on May
8, 2000 in Calgary, Alberta. On May 4, 2000, the Prudential special committee
met to discuss the agenda for the meeting on May 8, 2000.
The parties met at the law offices of Bennett Jones LLP, Prudential's
Canadian counsel, in Calgary, Alberta on May 8, 2000. Mr. Wilson and the
members of the Prudential special committee, together with representatives of
RBC DS and Bennett Jones LLP represented Prudential at this meeting. Messrs.
Eisenberg and Pearl, together with representatives of Deutsche Bank, Raymond
James, and Gallop, Johnson, Neuman, L.C., Maverick's U.S. counsel, represented
Maverick at the meeting. Maverick presented to the Prudential representatives
detailed information regarding the overall business environment for energy and
industrial businesses, Maverick's manufacturing and other operational
capabilities, its historical performance and its recent earnings performance.
Maverick's financial advisors presented preliminary materials prepared by
Deutsche Bank and Raymond James regarding the valuation of Maverick's common
stock and the advisors' analysis of the proposed business combination. At the
conclusion of this meeting, Prudential representatives indicated that they
would discuss in further detail the information provided to them and respond to
Maverick by Friday, May 12. Following this meeting, the Prudential
representatives met to organize the analysis and review of the information
received from Maverick and its representatives.
On May 11, 2000, the Prudential special committee met to receive a
preliminary report from RBC DS regarding the information Maverick provided at
the May 8 meeting. The Prudential special committee agreed that the information
responded to the special committee's earlier concerns and that Prudential
should proceed with mutual due diligence. Later that day, the Prudential board
of directors accepted the special committee's recommendations and Prudential's
decision was communicated to Maverick.
On May 16, 2000, the Maverick board met with Maverick management and legal
and financial advisors to be updated on the progress of the proposed business
combination with Prudential. Mr. Eisenberg advised the Maverick board of
directors as to the status of discussions, and that while Prudential had not
responded to the exchange ratio offered by Maverick, both companies were
prepared to move forward with discussions and commence a full scale due
diligence review. Representatives of Deutsche Bank and Raymond James then
presented to the Maverick board a detailed analysis of the business
combination. Following this presentation, a discussion ensued regarding the
potential benefits of the proposed business combination to Maverick and its
stockholders. Maverick's management and professional advisors also discussed
certain risks to Maverick in implementing a business combination with
Prudential, including the possible termination of Canadian trade law protection
which could have a negative impact on pricing for oil country tubular goods
sold in Canada.
On May 19, 2000, Prudential entered into a confidentiality agreement with
Maverick relating to a limited due diligence review to be conducted by
Prudential on Maverick. On May 23, 2000, representatives of
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Maverick, including Messrs. Eisenberg, Pearl and Evans, and Maverick's
financial advisors, met in Chicago with representatives of Prudential,
including Messrs. Wilson, McIntosh and Frederick N. Rea, the Vice President and
Chief Financial Officer of Prudential, and Prudential's financial advisors, to
review certain financial information provided by Maverick, pursuant to
Prudential's request.
On May 29, 2000, the Prudential special committee met with its legal counsel
and financial advisors, as well as representatives of management, to discuss
the results of the due diligence review conducted on Maverick. Management of
Prudential provided their views and representatives of RBC DS presented a
financial analysis of Maverick based upon its analysis of information received
through the due diligence process and an analysis of possible alternative
transactions. The committee discussed the alternatives available to Prudential
at that time, and concluded that it should proceed to the next step of
discussions with Maverick, on the basis that Prudential required an appropriate
confidentiality agreement and would in due course wish to negotiate some
changes in the terms of the proposed transaction. The board of directors of
Prudential met later that day, together with financial advisors and legal
counsel and representatives of Prudential's management. The Prudential board
received the views of management regarding Maverick and the report of RBC DS on
the due diligence review of Maverick and the alternatives available to
Prudential, as well as the recommendation of the special committee that the
parties should conduct full mutual due diligence and that Prudential should
continue to pursue the transaction. The Prudential board accepted this
recommendation of the special committee. Later that day, Mr. Wilson and Mr.
Flanagan, on behalf of Prudential, informed Mr. Eisenberg that the Prudential
special committee had met and determined to move forward with negotiations
toward a proposed business combination. In that regard, Prudential's
representatives suggested that both parties enter into a mutual confidentiality
agreement so that each party could conduct a full scale thorough due diligence
review of the other party.
After executing the mutual confidentiality agreement on May 31, 2000, each
party supplied the other party with a list of required due diligence materials.
In that regard, both parties instructed their respective counsel to begin
preparation of the combination agreement and other required documents.
Additional discussions and exchanges of data occurred over the next several
days.
On June 1, 2000, the parties met again in Chicago to continue due diligence
discussions and negotiation of certain terms of the proposed business
combination. During the week of June 5, 2000, the parties continued their due
diligence review.
On June 8, 2000, the Prudential special committee met to discuss with its
financial advisors and legal counsel the status of the negotiations with
Maverick. RBC DS provided its analysis with respect to the exchange ratio,
collars, termination fees and other financial provisions of the combination
agreement. The special committee discussed the best means of protecting value
for the Prudential shareholders. Messrs. Wilson and Flanagan communicated the
Prudential special committee position on these matters to Mr. Eisenberg by
telephone following the special committee meeting.
On June 9, 2000, the Maverick board met to be advised of the status of the
negotiations with Prudential. Maverick's financial advisors again presented to
the Maverick board their financial analyses, which had not changed
significantly from the preliminary analyses previously discussed with the
Maverick board. Maverick's U.S. counsel summarized the proposed structure of
the transaction and the various matters the directors would be required to
consider in connection with the transaction. Mr. Eisenberg suggested to the
directors that, because the exchange ratio had not yet been agreed upon, the
Maverick board meeting be adjourned until the next day, June 10, 2000, at which
time he expected that agreement on the exchange ratio and the other aspects of
the proposed transaction would be achieved.
Later on June 9, 2000, Messrs. Eisenberg, Wilson and Flanagan agreed to a
fixed exchange ratio of 0.52 to 1, the amount of the termination fees and other
material aspects of the proposed combination agreement.
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On June 10, 2000, the Maverick board met with senior management of Maverick
and Maverick's financial advisors and legal counsel to review the proposed
transaction. Maverick's management made presentations regarding Prudential and
the proposed transaction. Deutsche Bank reviewed the financial aspects of the
transaction and orally delivered its opinion, subsequently confirmed in writing
as of that date, to the effect that, subject to the factors and assumptions set
forth in the opinion, the exchange ratio of 0.52 exchangeable shares for each
Prudential common share was fair, from a financial point of view, to Maverick.
The material terms of the legal documents to be entered by Maverick were
reviewed. After discussion and consideration of the factors described under "--
Reasons for the Transaction--Maverick's Reasons for the Transaction" below, the
Maverick board unanimously approved the transaction.
On June 10, 2000, the Prudential special committee met with legal counsel to
finalize the recommendation of the committee to the board of directors
regarding the transaction with Maverick. The committee reviewed the final
negotiated terms of the transaction and discussed the alternatives that might
be available to Prudential. The committee concluded that, subject to
satisfactory advice from the auditors as to the transaction being accounted for
on a pooling-of-interests basis and to satisfactory fairness opinion from RBC
DS with respect to the transaction, it unanimously recommended acceptance of
the proposed transaction with Maverick.
On June 11, 2000, the Prudential board met with the senior management of
Prudential and Prudential's financial and auditing advisors and legal counsel
to review the proposed transaction. Prudential's management made presentations
regarding Maverick and the proposed transaction. RBC DS reviewed the financial
aspects of the transaction and orally delivered its opinion that, as of that
date, the terms of the transaction were fair to Prudential shareholders from a
financial point of view. Prudential's auditors advised the board that they were
not currently aware of any reason why the transaction could not be accounted
for on a pooling-of-interests basis. The material terms of the legal
documentation to be entered into by Prudential were reviewed. After discussion
and consideration of the factors described on page 38 under "--Reasons for the
Transaction--Prudential's Reasons for the Transaction," the Prudential board
unanimously approved the transaction.
On the afternoon of June 11, 2000, Maverick and Prudential executed the
combination agreement and publicly announced the transaction.
Reasons for the Transaction
Maverick's Reasons for the Transaction. The Maverick board of directors
considered the following material factors in unanimously approving the
combination.
Anticipated Business Advantages.
Synergistic Integration of Operations. Maverick believes that Prudential
is a well-managed, low cost producer of high quality products, having
business philosophies that are similar to those of Maverick. Consequently,
and because the businesses of the two companies are substantially similar,
Maverick believes that the two companies can effectively integrate the best
manufacturing, sales and service practices of each constituent company into
the combined company. The integration will allow the combined company to
more efficiently supply the marketplace.
Market Diversification. Maverick believes that its combination with
Prudential will provide enhanced geographic diversity for the companies.
The diversity will allow the combined company to serve both Maverick's U.S.
markets and Prudential's Canadian and U.S. markets in a more effective and
efficient manner.
Enhanced Purchasing Power. Maverick believes that the combined company,
with capacity to produce 1.5 million tons of tubular products annually,
will benefit from the enhanced purchasing power resulting from the combined
company's significantly greater steel and other raw material requirements.
Manufacturing Flexibility. Maverick believes that Prudential's
manufacturing facilities in Calgary, Canada and Longview, Washington,
complement Maverick's existing manufacturing facilities in Hickman,
Arkansas and Conroe, Texas and will permit greater flexibility for optimal
plant capacity utilization.
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Strong Organization. Maverick believes that Prudential's management,
technical, operational and administrative personnel provide an excellent
base on which to build the combined company's Canadian operations.
Broader Product Line Offering. Maverick believes that by bringing the
manufacturing capabilities of Maverick and Prudential together, the
combined company will be positioned to offer a broader line of product
offerings to its customers.
Immediate Earnings and Cash Flow Accretion. Maverick believes that the
earnings and operating cash flow of the combined company, excluding one-
time transaction related charges, will result in immediate increased
earnings and operating cash flow on a per share basis.
Strong Balance Sheet. The stronger balance sheet, with a pro forma
percentage of debt to equity of 22.8% as of March 31, 2000 and larger
absolute size of the combined company should provide the combined company
with increased access to capital and financial markets, which should lower
the future costs of equity and debt transactions.
Anticipated Advantages to Stockholders. The transaction will increase the
number of publicly traded shares of Maverick, which should benefit the Maverick
stockholders as a result of the expected corresponding increases in market
capitalization, trading volume and institutional interest in Maverick's
business and securities.
Presentation of Maverick Management; Advice of Financial Advisor. The
Maverick board of directors considered and evaluated management's presentation
of information with respect to, among other things:
. the results and scope of Maverick's due diligence review of Prudential;
. the historical profitability levels and cost structure of Prudential;
. the growth prospects for oil and gas drilling in Canada;
. Prudential's asset quality; and
. the possible cost saving opportunities available to the combined company.
Maverick also considered the financial presentation by Deutsche Bank and
Raymond James and Deutsche Bank's opinion delivered orally on June 10, 2000 and
subsequently confirmed in writing as of that date to the effect that, subject
to the factors and assumptions set forth in the opinion, the exchange ratio of
0.52 exchangeable shares for each Prudential common share was fair, from a
financial point of view, to Maverick. See "--Opinion of Deutsche Bank" on page
44.
Potential Risks. The Maverick board of directors recognized that there are
risks associated with the acquisition of Prudential. These factors are
discussed more fully on page 21 under "Risk Factors," and include
. that some of the potential benefits described above may not be realized
or that there may be significant costs associated with realizing those
benefits;
. that Prudential's financial results may be less than estimated by
Maverick in its determination of Prudential's value;
. the effect of the termination or reduction of the benefits of the current
Canadian trade protection laws, which could negatively impact pricing for
certain products manufactured by Prudential;
. the effect of union representation at Prudential's Calgary, Alberta
facilities; and
. the liquidation of a significant number of shares of Maverick common
stock following the consummation of the combination by Canadian investors
who historically have not owned Maverick stock.
The foregoing discussion describes the material information and factors
considered by the Maverick board of directors. In view of the variety of
factors considered in connection with its evaluation of the transaction, the
Maverick board did not find it practicable or necessary to and did not quantify
or otherwise assign relative
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weights to the specific factors considered in reaching its determination. In
addition, individual members of the Maverick board may have given different
weights to different factors.
The Maverick board of directors viewed all of the factors described above,
other than those identified under "Potential Risks", as favorable to its
approval and recommendation of the transaction. Although the Maverick board
recognized the matters described under "Potential Risks" as negative factors in
its evaluation of the transaction, the Maverick board concluded that the
potential benefits of the transaction substantially outweighed these possible
risks, although no assurance can be given in this regard.
Prudential's Reasons for the Transaction. The Prudential board of directors
considered the following material factors in unanimously approving the
combination.
Premium to Trading Price. The consideration offered represents a significant
premium over the trading price of Prudential common shares immediately prior to
the announcement of the combination.
Interest in Larger Entity with More Diversified Holdings. Prudential expects
the combined company to have a larger asset base and greater geographical
diversity of operations and markets.
Larger Market Capitalization. Prudential expects the combined company to
have a larger market capitalization and better access to capital and financial
markets.
Greater Liquidity. Prudential expects the shares of the combined company to
have a greater public float and liquidity.
Tax Deferral. The structure of the combination provides a tax deferral
opportunity for most Prudential shareholders resident in Canada and the
transaction is more likely than not to provide tax deferral to U.S. holders of
Prudential common shares.
Management. Prudential expects the combined company to benefit from the
strong leadership of directors and senior management from both Prudential and
Maverick. In addition, the existing management of Prudential generally will
continue to manage the Canadian operations of the combined company.
Ability to Consider Competing Offers. The combination agreement does not
preclude the initiation of competing offers by other potential bidders. If
another offer is received by Prudential, the Prudential board may consider and
accept it if the offer is financially superior to the Maverick transaction and
the offeror has demonstrated that the funds or other consideration necessary
for the offer are available. The Prudential board may only accept the superior
offer if it has concluded in good faith that acceptance of such offer is
necessary for the board to act in a manner consistent with its fiduciary duties
under applicable law. Before accepting the superior offer, Prudential must give
Maverick five days' notice. Maverick has the right to match any superior offer.
Prudential may only consider and accept a superior offer before the transaction
with Maverick is approved by the Prudential shareholders and optionholders. If
a superior offer is accepted by the Prudential board, Prudential is required to
pay Maverick a cash termination fee of U.S. $14 million. As of the date of this
joint proxy statement, Prudential has not received any competing offers.
Dissent Rights. Under the arrangement, the Prudential shareholders and
Prudential optionholders have the right to dissent and receive the fair value
of the Prudential shares and options in cash.
In reaching its determination, the Prudential board of directors also
considered and evaluated information presented by the management of Prudential
with respect to the transaction. In this regard, the Prudential board
considered, among other things:
. information concerning the results of operations, performance, financial
condition and prospects of and the opportunities available to Maverick,
Prudential and the combined company, and the risks involved on a company-
by-company basis;
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. the asset quality, manufacturing facilities and cost structure of
Maverick's and Prudential's businesses;
. the results and scope of the due diligence review conducted by
Prudential's management and RBC DS with respect to Maverick's business
and operations;
. information with respect to recent and historical trading prices and
trading multiples of Maverick common stock and Prudential common shares;
. information with respect to recent and historical drilling activity
levels and a range of potential future drilling activity levels and the
impact of these levels on demand for the combined company's products;
. information with respect to recent and historical prices and a range of
potential future price trends of steel;
. the terms of the combination agreement and the exchangeable shares, with
a view, among other things, to assuring that holding an exchangeable
share would be the economic equivalent of holding Maverick common stock;
. the presentation by and the opinion of RBC DS, with respect to the
fairness from a financial point of view of the terms of the transaction
to holders of Prudential common shares; and
. the presentation by and the legal advice of Bennett Jones LLP, Canadian
counsel to Prudential, with respect to the board's fiduciary duties and
obligations in considering the transaction.
Potential Risks. Prudential recognized that there are risks associated with
the combination with Maverick. Many of these factors are discussed more fully
on page 21 under "Risk Factors," and include
. that Maverick's financial results may be less than estimated by
Prudential in its determination of Maverick's value;
. that Maverick's financial results may be less than anticipated by the
market in the current trading price of Maverick's stock;
. that the market may not continue to apply the earnings multiple currently
reflected in the trading prices of Maverick's stock, particularly if
Maverick's financial results are less than anticipated by the market;
. the historical volatility of the trading price of Maverick common stock;
. that some of the potential benefits described above may not be realized
or that there may be significant costs associated with realizing those
benefits; and
. the liquidation of a significant number of shares of Maverick common
stock following the consummation of the combination by Canadian investors
who historically have not owned Maverick stock; and
. the effect of any delay in start-up of Maverick's new large-diameter pipe
and tubing products mill currently under construction in Hickman,
Arkansas.
The Prudential board realized that there are risks associated with the
transaction, including that some of the potential benefits set forth above may
not be realized or that there may be significant costs associated with
realizing such benefits. The Prudential board also considered factors such as
the relative volatility of both companies' stock prices. These factors are
discussed more fully in this joint proxy statement on page 21 under "Risk
Factors". However, the Prudential board believes that the factors in favor of
the transaction outweigh the risks and potential disadvantages, although there
can be no assurance in this regard.
Based on all of these matters, and such other matters as the members of the
Prudential board deemed relevant, the Prudential board unanimously approved the
combination agreement.
The foregoing discussion of the information and factors considered and given
weight by the Prudential board is not intended to be exhaustive but is believed
to include all material factors considered by the Prudential board. In
addition, in reaching the determination to approve and recommend the
combination agreement, the Prudential board did not assign any relative or
specific weights to the foregoing factors which were considered, and individual
directors may have given differing weights to different factors.
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Recommendations of the Boards of Directors
Maverick. The Maverick board believes that the transaction is advisable and
in the best interest of Maverick stockholders. The Maverick board unanimously
recommends that the Maverick stockholders vote to approve the issuance of
Maverick common stock pursuant to the transaction and the amendment to
Maverick's certificate of incorporation to increase Maverick's authorized
common stock.
Prudential. The Prudential board of directors believes that the transaction
is advisable and in the best interest of the Prudential shareholders and
Prudential optionholders. The Prudential board unanimously recommends that the
Prudential shareholders and Prudential optionholders vote to approve the
arrangement.
In reaching the conclusions stated above, the boards of directors of
Maverick and Prudential considered a number of factors including certain
advantages and disadvantages of proceeding with the transaction. For a
discussion of these considerations, See "--Reasons for the Transaction" on page
36.
Opinion of RBC DS
The special committee of the Prudential board of directors retained RBC DS
to act as a financial adviser in connection with evaluating Prudential's stand-
alone and strategic transaction alternatives and as financial advisor to
provide advice and assistance to the special committee in evaluating the
proposed combination of Maverick and Prudential and to provide an opinion with
respect to the fairness of the arrangement from a financial point of view to
the Prudential shareholders. RBC DS verbally advised the special committee on
June 11, 2000 that the terms of the arrangement were fair to the Prudential
shareholders from a financial point of view. RBC DS has delivered to the
special committee its written opinion dated June 11, 2000, a copy of which is
attached to this joint proxy statement as Appendix H and incorporated herein by
reference. Prudential shareholders are urged to, and should, read the full text
of the RBC DS opinion for a complete description of the factors considered, the
assumptions made and the limitations on the review undertaken by RBC DS in
rendering its opinion.
The RBC DS opinion addresses only the fairness of the arrangement from a
financial point of view and does not constitute a recommendation to any
Prudential shareholder as to how to vote at the Prudential special meeting. The
summary of the RBC DS opinion set forth in this joint proxy statement is
qualified in its entirety by reference to the full text of such opinion.
In connection with rendering its opinion, RBC DS reviewed and relied upon,
among other things:
1. the Combination Agreement;
2. audited financial statements of Prudential for the five years ended
December 31, 1999;
3. audited financial statements of Maverick for the five years ended
September 30, 1999;
4. the unaudited interim report of Prudential for the three months ended
March 31, 2000;
5. the unaudited interim reports of Maverick for the three months ended
December 31, 1999 and March 31, 2000;
6. annual reports of Prudential for each of the two years ended December
31, 1998 and December 31, 1999;
7. annual reports of Maverick for each of the two years ended September
30, 1998 and September 30, 1999;
8. the Notice of Annual Meetings of Shareholders and Management
Information Circulars of Prudential for each of the two years ended
December 31, 1998 and December 31, 1999;
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9. the Notice of Annual Meetings of Stockholders and Proxy Statement of
Maverick for the two years ended September 30, 1998 and September 30, 1999;
10. annual information forms of Prudential for each of the two years
ended December 31, 1998 and December 31, 1999;
11. form 10-K of Maverick for each of the two years ended September 30,
1998 and September 30, 1999;
12. historical segmented financial statements of Prudential by division
for the five years ended December 31, 1999;
13. historical segmented financial statements of Maverick by division
for the three years ended September 30, 1999;
14. internal management budget of Prudential on a consolidated basis and
segmented by division for the year ending December 31, 2000;
15. unaudited projected financial statements for Prudential on a
consolidated basis prepared by management of Prudential for the years
ending December 31, 1999 through December 31, 2003;
16. unaudited projected financial statements for Maverick on a
consolidated basis and segmented by division prepared by management of
Maverick for the years ending September 30, 1999 through September 30,
2002;
17. discussions with senior management of Prudential and Maverick;
18. Prudential's current strategic and operating plans;
19. discussions with both Prudential's and Maverick's auditors and legal
counsel;
20. public information relating to the business, operations, financial
performance and stock trading history of Prudential, Maverick and other
selected public companies considered by us to be relevant;
21. public information with respect to other transactions of a
comparable nature considered by us to be relevant;
22. public information regarding the oilfield services and tubular goods
manufacturing industries;
23. discussions with Maverick's financial advisors;
24. representations contained in certificates addressed to us, dated as
of the date hereof, from senior officers of Prudential as to the
completeness and accuracy of the information upon which the RBC DS opinion
is based;
25. representations contained in certificates addressed to us, dated as
of the date hereof, from senior officers of Maverick as to the completeness
and accuracy of the information upon which the RBC DS opinion is based; and
26. such other corporate, industry and financial market information,
investigations and analyses as RBC DS considered necessary or appropriate
in the circumstances.
RBC DS has not, to the best of its knowledge, been denied access by
Prudential or Maverick to any information requested by RBC DS.
RBC DS relied upon and assumed the completeness, accuracy and fair
presentation of all of the financial and other information obtained by it from
public sources and provided by senior management of Prudential, Maverick and
their respective consultants and advisers. The RBC DS opinion is conditional
upon the completeness, accuracy and fair presentation of such information. RBC
DS was not able to review a draft joint proxy statement before rendering its
opinion as one had not been prepared at that time. However, RBC DS has
subsequently reviewed this joint proxy statement. RBC DS has not attempted to
verify independently the completeness, accuracy or fair presentation of such
information. The RBC DS opinion is rendered on the basis
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of securities markets, economic, financial and general business conditions
prevailing as at the date of the RBC DS opinion and the condition and
prospects, financial and otherwise, of Prudential, Maverick and their
respective subsidiaries and affiliates, as they were reflected in the
information and documents reviewed and as they were represented to RBC DS in
discussions with the management of Prudential and Maverick. In its analyses and
in preparing the RBC DS opinion, RBC DS made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of RBC DS or any party involved
in the arrangement.
RBC DS' opinion and analyses were only one of many factors considered by the
Prudential special committee in its evaluation of the arrangement and should
not be viewed as determinative of the views of the special committee or
management with respect to the proposed transaction.
The following is a summary of the material financial analyses used by RBC DS
in connection with providing its opinion to the Prudential board of directors.
(a) Discounted Cash Flow Analysis. RBC DS performed a discounted cash flow
("DCF") analysis of Prudential for the years 2000 to 2005 based upon
Prudential's business plan and its projections for 2000 and 2001. RBC
DS used commercially available forecasts for drilling activity, steel
prices, and foreign exchange rates as well as consensus estimates from
certain equity research analysts and RBC DS' internal estimates. RBC DS
calculated a terminal value for Prudential's projected free cash flows
using a terminal earnings before interest, taxes, depreciation and
amortization ("EBITDA") multiple approach and a growth rate into
perpetuity approach. In deriving a terminal value based upon the
terminal EBITDA multiple approach, RBC DS applied a range of 5.5x to
6.5x to Prudential's projected 2005 EBITDA. In deriving a terminal
value based upon the growth rate into perpetuity approach, RBC DS
applied a range of growth rates of 1.5% to 2.5% to the terminal year
free cash flow. RBC DS calculated a net present value of Prudential's
projected free cash flows for the years 2000 to 2005 using discount
rates ranging from 10% to 12%. Based upon this analysis, and taking
into account certain sensitivity analyses including, among other
things, changes in drilling activity forecasts, steel price forecasts,
pricing realizations, and Canadian/U.S. exchange rate fluctuations, RBC
DS noted that the DCF analysis generated results lower than the price
per Prudential common share proposed under the arrangement.
(b) Precedent Transaction Multiples Analysis. RBC DS analyzed certain
information with respect to several precedent transactions in the
Canadian oil services industry since 1996. However, there have been no
significant precedent transactions involving oilfield country tubular
goods producers ("OCTG producers") in this time. Such analysis
indicated, among other things, that: (i) equity value per share as a
multiple of last twelve months ("LTM") earnings ranged from
approximately 17.2x to 49.3x; (ii) equity value per share as a multiple
of LTM cash flow per share ranged from approximately 7.6x to 12.7x; and
(iii) enterprise value as a multiple of LTM EBITDA ranged from
approximately 6.3x to 11.9x. RBC DS noted that the multiples implied by
the price per Prudential common share proposed under the arrangement
are consistent with the multiples of precedent transactions.
(c) Comparable Public Company Analysis. RBC DS reviewed Prudential's public
market trading multiples compared to other Canadian oil service
companies and North American OCTG producers. RBC DS relied primarily
upon the market trading multiples derived from other OCTG producers as
the companies in this group were deemed to have, for the purposes of
RBC DS' analysis, operations similar to those of Prudential. With
respect to these companies, RBC DS considered the equity value per
share as a multiple of earnings per share, and cash flow per share
estimated 2001 (based upon Institutional Brokers Estimate System
("I/B/E/S") 2001 earnings per share estimates). Such analyses
indicated, among other things, that: (i) the equity value per share, as
a multiple of 2001 estimated earnings per share ranged from
approximately 12.8x to 23.3x; and (ii) the equity value per share as a
multiple of 2001 estimated cash flow per share ranged from
approximately 8.2x to 16.4x. RBC DS noted that the multiples implied by
the price per Prudential common share proposed under the arrangement
are consistent with the multiples of comparable public companies. Due
to the cyclicality
42
<PAGE>
of the oil services industry and the tendency for multiples in the
sector to increase in expanding markets, RBC DS also reviewed
Prudential's historical equity value per share to earnings per share
multiple during the "top half of the cycle". These multiples were then
applied to Prudential's projected 2000 earnings per share and cash flow
per share estimates by Prudential's management and I/B/E/S. RBC DS noted
that the multiples implied by the price per Prudential common share
proposed under the arrangement are consistent with the multiples of the
"top half of the cycle".
(d) Recent Trading Levels of Prudential Common Shares. Under the
arrangement, Prudential shareholders will receive 0.52 of an
exchangeable share of Maverick Canada for each Prudential common share.
Based upon the closing price of Maverick common stock on the Nasdaq
National Market of $30.75 and the Noon Spot Rate of C$1.4763/U.S. $ on
June 9, 2000, the last trading day immediately prior to the date of the
RBC DS opinion and the announcement by Maverick of its intention to
acquire 100% of the Prudential common shares, the consideration offered
under the arrangement represents a price per Prudential common share of
C$23.61. The price per Prudential common share of C$23.61 represents a
premium of approximately 47.5% to the C$16.00 closing market price of
the Prudential common shares on The Toronto Stock Exchange on June 9,
2000, and a premium of approximately 39.4% to the weighted average
closing price of Prudential common shares for the twenty trading days
up to, and including, June 9, 2000. RBC DS noted that this premium is
consistent with the average premium for similar transactions in the oil
services industry.
(e) Pro forma Analysis of the Transaction. Based upon certain analyst
equity research forecasts of calendar 2000 and 2001 earnings and cash
flow for Prudential and Maverick, the arrangement, if completed, would
be accretive to Maverick's forecast earnings per share and cash flow
per share in 2000 (excluding one-time costs related to the transaction)
and 2001. Further, RBC DS considered and analyzed the potential post
announcement trading price of the Maverick common stock. Consideration
was given to the several factors including:
. the pro forma accretion to Maverick's earnings per share in 2001;
. the amount of new Maverick stock being issued in aggregate and
relative to its float;
. Maverick's research and investor following;
. the liquidity of Maverick's float relative to Prudential's;
. the strategic reasons for the transaction;
. the research community's expectation for a transaction of this
nature; and
. current market conditions.
From this analysis, RBC DS considered that the market price of Maverick
common stock would be an appropriate indicator of the value of the
share consideration offered to Prudential shareholders under the
arrangement.
(f) Historical Exchange Ratio Analysis. RBC DS reviewed the implied
historical exchange ratios of the closing prices of Prudential common
shares and Maverick common stock on June 9, 2000 and over the trading
day intervals of twenty days, thirty days, ninety days and one year
ended June 9, 2000. Such implied historical exchange ratio was 0.35 on
June 9, 2000 and averaged 0.34 for the twenty days, 0.34 for the thirty
days, 0.37 for the ninety days and 0.43 for the one year ended June 9,
2000. RBC DS noted that the arrangement would provide Prudential
shareholders with a higher exchange ratio than the aforementioned
implied historical exchange ratios.
RBC DS believes that its analyses must be considered as a whole and that
selecting portions of the analyses or the factors considered by it, without
considering all factors and analyses together, could create a misleading view
of the process underlying the RBC DS opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Any attempt to do so could lead to undue
emphasis on any particular factor or analysis. The RBC DS opinion is not to be
construed as a recommendation to Prudential shareholders as to how to vote at
the special meeting.
43
<PAGE>
RBC DS is one of Canada's largest investment banking firms, with operations
in all facets of corporate and government finance, corporate banking, mergers
and acquisitions, equity and fixed income sales and trading and investment
research. The RBC DS opinion represents the opinion of RBC DS and the form and
content thereof have been approved for release by a committee of its managing
directors, each of whom is experienced in merger, acquisition, divestiture and
fairness opinion matters.
RBC DS was formally engaged by the Prudential special committee pursuant to
the terms of an engagement agreement dated as of March 30, 2000. As defined in
such engagement agreement, RBC DS is to be paid a fee based upon the total
equity transaction value at the close of the arrangement. Based upon the value
of the consideration per Prudential common share as of the date of the RBC DS
opinion, the terms of the engagement agreement provide that RBC DS is to be
paid a fee of approximately C$5.4 million for its services as financial adviser
if the arrangement is completed and C$1.5 million if the arrangement is not
completed. In addition, Prudential has agreed to reimburse RBC DS for any
reasonable out-of-pocket expenses, including the fees and disbursements of
legal counsel, and to indemnify RBC DS and certain related persons in certain
circumstances. In connection with its engagement, RBC DS was not requested to,
and did not, solicit third party indications of interest in the possible
acquisition of all, or a part, of Prudential.
Opinion of Deutsche Bank
Deutsche Bank has acted as financial advisor to Maverick in connection with
the proposed business combination of Maverick and Prudential. At the June 10,
2000 meeting of the Maverick board of directors, Deutsche Bank delivered its
oral opinion, subsequently confirmed in writing as of that date, to the
Maverick board of directors to the effect that, as of the date of such opinion,
based upon and subject to the assumptions made, matters considered and limits
of the review undertaken by Deutsche Bank, the exchange ratio established in
the Maverick/Prudential combination agreement was fair, from a financial point
of view, to Maverick.
Deutsche Bank's opinion is directed to the Maverick board of directors to
assist it in connection with its consideration of the proposed transaction and
relates only to the fairness to Maverick, from a financial point of view, of
the exchange ratio established in the Maverick/Prudential combination
agreement. Deutsche Bank's opinion does not constitute a recommendation to any
stockholder of Maverick as to how to vote with respect to the transaction, does
not relate to any other aspect of the transaction, is not an opinion as to the
fairness of the transaction to Prudential or its shareholders and does not
constitute a recommendation to Prudential or its shareholders as to the
transaction or as to how Prudential shareholders should vote with respect to
the transaction. The full text of Deutsche Bank's written opinion, dated June
10, 2000, which sets forth, among other things, the assumptions made, matters
considered and limits on the review undertaken by Deutsche Bank in connection
with the opinion, is attached as Annex I to this joint proxy statement and is
incorporated herein by reference. Maverick stockholders are urged to read the
opinion in its entirety. The summary of the opinion set forth in this joint
proxy statement is qualified in its entirety by reference to the full text of
such opinion.
In connection with Deutsche Bank's role as financial advisor to Maverick,
and in arriving at its opinion, Deutsche Bank has among other things:
. reviewed certain publicly available financial and other information
concerning Maverick and Prudential including, without limitation,
analysts' forecasts and certain internal analyses and other information
furnished to it by Maverick and Prudential;
. discussed with the members of the senior managements of Maverick and
Prudential the businesses and prospects of their respective companies and
the joint prospects of a combined company;
. reviewed the reported prices and trading activity for the Maverick common
stock and the Prudential common shares;
. compared certain financial and stock market information for Maverick and
Prudential with similar information for selected other companies whose
securities are publicly traded;
44
<PAGE>
. reviewed the financial terms of certain recent business combinations
which it deemed comparable in whole or in part;
. reviewed the terms of the combination agreement and ancillary documents
in the form of the drafts dated June 9, 2000; and
. performed such other studies and analyses and considered such other
factors as it deemed appropriate.
In preparing its opinion, Deutsche Bank did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning
Maverick or Prudential, including, without limitation, any financial
information, forecasts or projections, considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, Deutsche
Bank assumed and relied upon the accuracy and completeness of all such
information. Deutsche Bank did not conduct a physical inspection of any of the
properties or assets, and did not prepare or obtain any independent evaluation
or appraisal of any of the assets or liabilities of Maverick or Prudential.
With respect to the financial forecasts and projections made available to
Deutsche Bank and used in its analyses, Deutsche Bank has assumed that they
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of Maverick as to the matters they
cover. In rendering its opinion, Deutsche Bank expressed no view as to the
reasonableness of such forecasts and projections or the assumptions on which
they are based including, but not limited to, factors impacting the estimates
of market demand, sales and product margins for each of Prudential and
Maverick. Deutsche Bank did not express any opinion as to the prices at which
the exchangeable shares or the Maverick common stock will be traded in the
future, including following consummation of the transaction. The Deutsche Bank
opinion was necessarily based upon economic, market and other conditions as in
effect on, and the information made available to Deutsche Bank as of, the date
of such opinion and Deutsche Bank undertook no obligation to update its
opinion to reflect any developments occurring after the date of the opinion.
For purposes of rendering its opinion, Deutsche Bank assumed that, in all
respects material to its analysis:
. the combination agreement would be entered into in substantially the form
of the draft dated June 9, 2000;
. the representations and warranties of Maverick and Prudential contained
in the combination agreement and ancillary documents are true and
correct;
. Maverick and Prudential will each perform all of the covenants and
agreements to be performed by it under the combination agreement and
ancillary documents and all conditions to the obligations of each of
Maverick and Prudential to consummate the transaction will be satisfied
without any waiver thereof;
. all material governmental, regulatory or other approvals and consents
required in connection with the consummation of the transaction will be
obtained; and
. in connection with obtaining any necessary governmental, regulatory or
other approvals and consents, or any amendments, modifications or waivers
to any agreements, instruments or orders to which either Maverick or
Prudential is a party or is subject or by which it is bound, no
limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect
on Maverick or Prudential or materially reduce the contemplated benefits
of the transaction to Maverick.
In addition, the management of Maverick has informed Deutsche Bank and
accordingly, for purposes of rendering its opinion Deutsche Bank has assumed,
that the transaction will constitute a tax-free reorganization or exchange
under the Internal Revenue Code of 1986, as amended, and that the transaction
will be accounted for as a pooling of interests.
Set forth below is a brief summary of certain financial analyses performed
by Deutsche Bank in connection with its opinion and reviewed with the Maverick
board of directors at its meeting on June 10, 2000.
45
<PAGE>
Historical Stock Performance. Deutsche Bank reviewed and analyzed recent and
historical market prices for Maverick common stock and Prudential common
shares.
Analysis of Selected Publicly Traded Companies. Deutsche Bank compared
certain financial information and commonly used valuation measurements relating
to Maverick and Prudential with the following groups of companies involved in
the oilfield services industry:
<TABLE>
<CAPTION>
US Oilfield Services Companies Canadian Oilfield Services Companies
------------------------------ ------------------------------------
<S> <C>
BJ Services.......................... Bonus Resource Services
Grant Prideco........................ CenAlta Energy Services
Lone Star Technologies............... Enerflex Systems
NS Group............................. Ensign Resource Service Group
Smith International.................. Plains Energy Services
Varco International.................. Precision Drilling
Weatherford International............ Trican Well Service
</TABLE>
With respect to Maverick, Deutsche Bank's analysis of publicly traded
companies was based on its review of the foregoing US oilfield services
companies. With respect to Prudential, Deutsche Bank's analysis of publicly
traded companies was based on its review of the foregoing Canadian oilfield
services companies. Financial information and valuation measurements reviewed
by Deutsche Bank included, among other things:
. common equity market valuation as of June 9, 2000, except as set forth
below for Precision Drilling and Plains Energy Services;
. operating performance;
. ratios of common equity market value as adjusted for debt and cash
("Enterprise Value") to estimated 2000 and 2001 earnings before interest
expense, income taxes and depreciation and amortization ("EBITDA"); and
. ratios of common equity market capitalization ("Equity Value") to
estimated 2000 and 2001 net income.
To estimate the trading multiples for the selected US and Canadian oilfield
services companies, Deutsche Bank used publicly available information
concerning historical and projected financial performance including consensus
estimates reported by the Institutional Brokers Estimate System ("I/B/E/S").
I/B/E/S is a data service that monitors and publishes compilations or earnings
estimates by selected research analysts regarding companies of interest to
institutional investors. To avoid the share price fluctuation due to the
attempted takeover of Plains Energy Services by Precision Drilling, the stock
prices used for each of these companies were those of May 5, 2000, the last
trading day prior to the announcement of that attempted takeover. The following
tables set forth the trading multiples calculated by Deutsche Bank:
<TABLE>
<CAPTION>
Enterprise Value to Estimated EBITDA
-------------------------------------
2000E 2001E
------------------ ------------------
<S> <C> <C>
Maverick(1)........................... 20.9x 10.5x
Prudential(2)......................... 8.1 6.3
Selected US Oilfield Services
Companies
Range............................... 13.1x-28.9x 7.5x-18.8x
Median.............................. 17.3x 11.4x
Selected Canadian Oilfield Services
Companies
Range............................... 4.8x-11.0x 3.9x-8.8x
Median.............................. 7.7x 6.4x
</TABLE>
--------
(1) Projections from Maverick management; adjusted to December 31 year end.
(2) Projections from Maverick management.
46
<PAGE>
<TABLE>
<CAPTION>
Equity Value to Estimated Net Income
-------------------------------------
2000E 2001E
------------------ ------------------
<S> <C> <C>
Maverick(1)........................... 50.3x 19.0x
Prudential(2)......................... 14.7 9.2
Selected US Oilfield Services
Companies
Range............................... 32.0x-61.0x 17.8x-32.4x
Median.............................. 48.3x 24.0x
Selected Canadian Oilfield Services
Companies
Range............................... 11.0x-24.2x 9.2x-19.1x
Median.............................. 15.8x 13.8x
</TABLE>
--------
(1) Projections from Maverick management; adjusted to December 31 year end.
(2) Projections from Maverick management.
None of the companies utilized as a comparison is identical to Maverick or
Prudential. Accordingly, Deutsche Bank believes the analysis of publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in Deutsche Bank's opinion,
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies.
Analysis of Selected Precedent Transactions. Deutsche Bank reviewed the
financial terms of several proposed, pending or completed mergers and
acquisition transactions since May 1997 involving companies in Canadian
oilfield services industry. The selected transactions reviewed were:
<TABLE>
<CAPTION>
Canadian Oilfield Services Transactions
------------------------------------------------------------------
Date
Acquiror Target Announced
------------------ ---------------------- -------------
<S> <C> <C> <C>
Precision Drilling Plains Energy Services May 2000
Precision Drilling Computalog Ltd. May 1999
Precision Drilling Inter-Tech Drilling April 1998
EVI, Inc. Taro Industries November 1997
National Oilwell Dreco Energy May 1997
</TABLE>
For each of these selected transactions, Deutsche Bank calculated, among
other metrics:
. Enterprise Value as a multiple of latest-twelve months ("LTM") EBITDA;
and
. Equity Value as a multiple of LTM net income.
The following table sets forth these transaction multiples calculated by
Deutsche Bank:
<TABLE>
<CAPTION>
Enterprise Value to Equity Value to
LTM EBITDA LTM Net Income
------------------- ---------------
<S> <C> <C>
Selected Canadian Oilfield Services
Companies
Range............................ 6.3x-19.6x 20.1x-68.1x
Median........................... 10.5x 40.8x
</TABLE>
Deutsche Bank believes that none of the Canadian oilfield services transactions
is directly comparable to the proposed business combination between Maverick
and Prudential. Moreover, because the reasons for, and circumstances
surrounding, each of the precedent selected transactions analyzed were so
diverse and due to the inherent differences between the operations and
financial conditions of Prudential and the companies involved in the selected
transactions and because of the volatility of the oilfield services business
cycle, Deutsche Bank believes that a comparable transaction analysis is not
simply mathematical. Rather, it involves complex considerations and qualitative
judgments, reflected in Deutsche Bank's opinion, concerning differences between
the characteristics of these transactions and the Maverick/Prudential business
combination that could affect the value of the subject companies and businesses
and Prudential.
47
<PAGE>
Historical Exchange Ratio Analysis. Deutsche Bank reviewed the historical
ratio of the daily per share market closing prices of Prudential common shares
divided by the corresponding prices of Maverick common stock for 6 months, 1
year, 2 years, 3 years, 4 years and 5 years prior to the close of business on
June 9, 2000. The following table illustrates Deutsche Bank's review:
<TABLE>
<CAPTION>
Average Exchange
Period Ratio
------ ----------------
<S> <C>
6 month average.......................................... 0.38
1 year average........................................... 0.43
2 year average........................................... 0.55
3 year average........................................... 0.53
4 year average........................................... 0.55
5 year average........................................... 0.56
</TABLE>
Contribution Analysis. Deutsche Bank analyzed the relative contributions of
Maverick and Prudential to the pro forma income statement of the combined
company, based on Maverick management's projections for the companies. This
analysis showed that on a pro forma basis (excluding the effect of any
synergies that may be realized as a result of the business combination) the
relative contributions of Maverick and Prudential would be as follows:
<TABLE>
<CAPTION>
Maverick Prudential
-------- ----------
<S> <C> <C>
Revenue
1999.................................................. 58.6% 41.4%
2000P................................................. 55.6 44.4
2001P................................................. 58.2 41.8
2002P................................................. 59.7 40.3
EBITDA
1999.................................................. 0.0%(1) 100.0%(1)
2000P................................................. 41.5 58.5
2001P................................................. 48.8 51.2
2002P................................................. 50.5 49.5
Net Income
1999.................................................. 0.0%(1) 100.0%(1)
2000P................................................. 32.9 67.1
2001P................................................. 45.2 54.8
2002P................................................. 48.4 51.6
</TABLE>
--------
(1) Maverick had EBITDA of $(2.4) million and net income of $(7.7) million for
the year ended December 31, 1999.
Deutsche Bank believes that contribution to net income is a more appropriate
measure of relative contribution than contribution to net revenues or EBITDA.
Deutsche Bank noted that shareholders of Maverick are to retain a 53.0%
economic interest in the combined company.
Discounted Cash Flow Analysis. Deutsche Bank performed a discounted cash
flow analysis for both Maverick and Prudential. Deutsche Bank calculated the
discounted cash flow values for each of Maverick and Prudential as the sum of
the net present values of (i) the estimated future cash flow that Maverick and
Prudential, as the case may be, will generate for the calendar years 2001
through 2005, plus (ii) the value of Maverick or Prudential, as the case may
be, at the end of such period. The estimated future cash flows for Maverick and
Prudential were based on projections for the years 2001 through 2005 developed
by Maverick management. The terminal values of Maverick and Prudential were
calculated based on estimated 2005 EBITDA and a range of EBITDA exit multiples
of 8.0x, 9.0x, 10.0x and 11.0x in the case of both Maverick
48
<PAGE>
and Prudential. Deutsche Bank used discount rates ranging from 12.0% to 14.0%
in the case of both Maverick and Prudential. Deutsche Bank used such discount
rates based on its judgment of the estimated weighted average cost of capital
for each of Maverick and Prudential, and used such multiples based on its
review of the selected comparable US and Canadian oilfield services companies.
This analysis indicated a range of values as follows:
<TABLE>
<CAPTION>
Implied Per
Share
Equity
Values(1)
-------------
<S> <C>
Maverick.................................................... $25.00-$34.00
Prudential ................................................. 15.00- 19.00
</TABLE>
--------
(1) All figures in US dollars.
Pro Forma Financial Effects. Deutsche Bank analyzed certain pro forma
effects of the Maverick/Prudential business combination. Based on such
analysis, Deutsche Bank computed the resulting accretion to Maverick's earnings
per share estimates for the calendar years ending 2001 and 2002, without taking
into account potential synergies Maverick and Prudential could achieve if the
combination were consummated. Such analysis was based on projections developed
by Maverick management. Deutsche Bank's analysis indicated the following
approximate pro forma financial effects on Maverick's earnings per share:
<TABLE>
<CAPTION>
Accretion to Earnings Per Share 2001 2002
------------------------------- ---- ----
<S> <C> <C>
Maverick...................................................... 18.2% 10.7%
</TABLE>
The foregoing summary describes the analyses and factors that Deutsche Bank
deemed material in its presentation to Maverick's board of directors, but is
not a comprehensive description of all analyses performed and factors
considered by Deutsche Bank in connection with preparing its opinion. The
preparation of a fairness opinion is a complex process involving the
application of subjective business judgment in determining the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances and, therefore, is not readily susceptible to
summary description. Deutsche Bank believes that its analyses must be
considered as a whole and that considering any portion of such analyses and of
the factors considered without considering all analyses and factors could
create a misleading view of the process underlying the opinion. In arriving at
its fairness determination, Deutsche Bank did not assign specific weights to
any particular analyses.
In conducting its analyses and arriving at its opinions, Deutsche Bank
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling Deutsche Bank to provide its
opinion to Maverick's board of directors as to the fairness to Maverick of the
exchange ratio under the arrangement pursuant to the Maverick/Prudential
combination agreement. The analyses do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold, which are inherently subject to uncertainty. In connection with its
analyses, Deutsche Bank made, and was provided by Maverick and Prudential
management with, numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond Maverick's or Prudential's control. Analyses based on estimates or
forecasts of future results are not necessarily indicative of actual past or
future values or results, which may be significantly more or less favorable
than suggested by such analyses. Because such analyses are inherently subject
to uncertainty, being based upon numerous factors or events beyond the control
of Maverick, Prudential or their respective advisors, neither Maverick nor
Deutsche Bank nor any other person assumes responsibility if future results or
actual values are materially different from these forecasts or assumptions.
The terms of the Maverick/Prudential business combination were determined
through negotiations between Maverick and Prudential and were approved by
Maverick's board of directors. Although Deutsche Bank provided advice to
Maverick during the course of these negotiations, the decision to enter into
the business
49
<PAGE>
combination was solely that of Maverick's board of directors. As described
above, the opinion and presentation of Deutsche Bank to Maverick's board of
directors was only one of a number of factors taken into consideration by
Maverick's board of directors in making its determination to approve the
business combination.
Maverick selected Deutsche Bank as financial advisor in connection with the
Maverick/Prudential combination based on Deutsche Bank's qualifications,
expertise, reputation and experience in mergers and acquisitions. Maverick
retained Deutsche Bank pursuant to a letter agreement dated April 17, 2000. As
compensation for Deutsche Bank's services in connection with the business
combination, Maverick has paid Deutsche Bank a cash fee of $825,000 and has
agreed to pay an additional cash fee, if the combination is consummated, of
0.6% of the aggregate consideration payable by Maverick in the combination, but
not less than $2.0 million. The previously paid $825,000 cash fee will be
credited against this success fee. Regardless of whether the combination is
consummated, Maverick has agreed to reimburse Deutsche Bank for all reasonable
fees and disbursements of Deutsche Bank's counsel and all of Deutsche Bank's
reasonable travel and other out-of-pocket expenses incurred in connection with
the combination or otherwise arising out of the retention of Deutsche Bank
under the letter agreement. Maverick has also agreed to indemnify Deutsche Bank
and certain related persons to the full extent lawful against certain
liabilities, including certain liabilities under the federal securities laws,
arising out of its engagement or the combination.
Deutsche Bank is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. In the ordinary course of business, Deutsche Bank and its
affiliates may actively trade in the securities and other instruments and
obligations of Maverick and Prudential for their own accounts and for the
accounts of their customers. Accordingly, Deutsche Bank and its affiliates may
at any time hold a long or short position in such securities, instruments and
obligations.
Transaction Mechanics and Description of Exchangeable Shares
The following is a brief summary description of the material terms of:
. the arrangement under section 186 of the Business Corporations Act
(Alberta) which will give effect to the transaction;
. the exchangeable share provisions;
. the form of the support agreement; and
. the form of voting and exchange trust agreement.
Solely for the purposes of this summary, "Maverick" refers to Maverick and a
subsidiary, if any, of Maverick (other than Maverick Canada) incorporated under
the Business Corporation Act (Alberta) ("Maverick Holdco") for the purpose of
delivering Maverick common stock as described in the following summary of the
"Transaction Mechanics and Description of Exchangeable Shares." This summary is
qualified in its entirety by the full text of the documents described above,
which we have included in Annexes D, E, F and G.
Summary. Pursuant to the arrangement, Prudential shareholders (other than
dissenting shareholders) will receive for each share of Prudential:
. 0.52 of an exchangeable share of Maverick Canada, which has economic
rights (including the right to all dividends) and voting attributes
equivalent to those of Maverick common stock but with effectively no
economic or voting rights in Maverick Canada and
. the right to receive Maverick common stock at any time in exchange for
exchangeable shares on a one-for-one basis.
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<PAGE>
The following are rights relating to the exchange or redemption of
exchangeable shares into Maverick common stock.
Shareholder Rights to Exchange or Cause Redemption. Rights (which are called
exchange put rights and retraction rights) to require an exchange by Maverick
or redemption by Maverick Canada of exchangeable shares for Maverick common
stock;
Automatic Rights. Rights (which are referred to in this summary as automatic
redemption rights, optional exchange rights, liquidation rights and automatic
exchange rights) that automatically, upon the occurrence of specified automatic
or triggering events, result in the exchange or redemption of exchangeable
shares for Maverick common stock; and
Maverick Call Rights. Call rights (which are called retraction call rights,
liquidation call rights and redemption call rights) that override the
exchangeable shareholder's rights listed above, granted to Maverick, permit
Maverick to require an exchange of exchangeable shares for Maverick common
stock with Maverick if a holder exercises retraction rights or in any
circumstance where Maverick Canada would otherwise be required to redeem the
exchangeable shares.
Maverick anticipates that it will exercise its call rights, when available,
and currently foresees limited, if any, circumstances under which it would not
exercise its call rights. Therefore we expect that holders of exchangeable
shares will only receive Maverick common stock through an exchange with
Maverick, as opposed to a redemption by Maverick Canada, of exchangeable shares
for Maverick common stock. While the consideration received upon an exchange or
a redemption will be the same, the tax consequences would be substantially
different. See "Information About Tax Considerations--Canadian Federal Income
Tax Considerations to Prudential Shareholders" on page 95.
The Plan of Arrangement.
The Arrangement. We will effect the transaction by means of an arrangement
of Prudential under the Business Corporations Act (Alberta) in accordance with
the plan of arrangement. We have included a copy of the form of the plan of
arrangement as Annex D, which is incorporated by reference into this joint
proxy statement.
Court Approval of the Arrangement and Consummation of the Transaction. An
arrangement of a corporation under Alberta law requires approval by both the
Court of Queen's Bench of Alberta and the shareholders, and, if applicable,
optionholders of the subject corporation. Prior to the mailing of this joint
proxy statement, Prudential obtained the Interim Order of the Court, which is
attached as Annex C, providing for the calling and holding of the Prudential
special meeting and other procedural matters.
Subject to the approval of the arrangement by the Prudential shareholders
and optionholders, together voting as a class, at the Prudential special
meeting, the hearing in respect of the Final Order is scheduled to take place
on , 2000, at 1:00 p.m. (Calgary time) in the Court of Queen's Bench
of Alberta at the Court House, 611--4th Street S.W., Calgary, Alberta, Canada.
All Prudential shareholders and optionholders who wish to participate or be
represented or to present evidence or arguments at that hearing must serve and
file a notice of appearance as set out in the Notice of Petition for the Final
Order and satisfy any other requirements. At the hearing of the application in
respect of the Final Order, the Court will consider, among other things, the
fairness and reasonableness of the arrangement. The Court may approve the
arrangement as proposed or as amended in any manner the Court may direct,
subject to compliance with such terms and conditions, if any, as the Court
deems fit.
Assuming the Final Order is granted and the other conditions to the
combination agreement are satisfied or waived, it is anticipated that the
following will occur substantially simultaneously:
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. articles of arrangement will be filed with the registrar under the
Business Corporations Act (Alberta) to give effect to the arrangement;
. the support agreement between Maverick Canada and Maverick substantially
in the form of Annex F and the voting and exchange trust agreement
between Maverick Canada, Maverick and CIBC Mellon Trust Company, as
trustee, substantially in the form of Annex G will be executed and
delivered; and
. the various other documents necessary to give effect to the transaction
will be executed and delivered.
Subject to the foregoing, we presently anticipate that the transaction will
become effective on or about September 30, 2000.
Rights Relating to the Exchange or Redemption of Exchangeable Shares.
Shareholder Rights to Receive Maverick Common Stock. Maverick will grant the
exchange put right described below to CIBC Mellon Trust Company, as trustee,
for the benefit of the holders of the exchangeable shares. The holders of
exchangeable shares also have the right to retract (i.e., require Maverick
Canada to redeem, subject to Maverick's retraction call rights) any or all of
their exchangeable shares.
Exchange Put Right. A holder of exchangeable shares is entitled to require
Maverick to exchange, which right is called an exchange put right, all or any
part of the holder's exchangeable shares for an equivalent number of shares of
Maverick common stock, plus the equivalent amount of all Maverick dividends
then payable and unpaid, if any. A holder of exchangeable shares may exercise
the exchange put right by:
. presenting written notice to the trustee;
. presenting and surrendering a certificate or certificates representing
the exchangeable shares the holder desires to have Maverick exchange; and
presenting all other documents and instruments as may be required to effect a
transfer of exchangeable shares as provided in the voting and exchange trust
agreement among Maverick, Maverick Canada and CIBC Mellon Trust Company, as
trustee.
These certificates and documents must be provided to the trustee's principal
offices in Calgary, Alberta or Toronto, Ontario. An exchange pursuant to this
right will be completed not later than the close of business on the third
business day following receipt by the trustee of the notice, the certificates
and other required documents.
Retraction Rights. Subject to applicable law and the retraction call right
of Maverick which, if exercised by Maverick shall be binding on the holder of
exchangeable shares, holders of the exchangeable shares are entitled at any
time to retract (i.e., to require Maverick Canada to redeem) any or all
exchangeable shares owned by them and to receive an equivalent number of shares
of Maverick common stock plus the equivalent amount of all Maverick dividends,
payable and unpaid, if any, subject to the retraction call right of Maverick
described below. Holders of exchangeable shares may effect a retraction by
presenting certificates representing the number of exchangeable shares the
holder desires to retract to Maverick Canada or the trustee, together with a
duly executed retraction request:
. specifying the number of exchangeable shares the holder desires to
retract;
. stating the retraction date on which the holder desires to have Maverick
Canada redeem such shares, which must be a business day between five and
ten business days from the date of delivery of the request; and
. acknowledging the retraction call right of Maverick to purchase all but
not less than all the retracted shares directly from the holder and that
the retraction request will be deemed to be a revocable offer by the
holder to sell the retracted shares to Maverick in accordance with the
retraction call right on the terms and conditions described below.
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Upon receipt by Maverick Canada of a retraction request, Maverick Canada
will promptly notify Maverick. In order to exercise its retraction call right,
Maverick must notify Maverick Canada of its determination to do so within two
business days of such notification to Maverick. If Maverick delivers the call
notice within two business days, and provided that the retraction request is
not revoked by the holder in the manner described below, Maverick Canada will
not redeem the retracted shares and Maverick will purchase from the holder and
the holder will sell to Maverick on the retraction date the retracted shares.
In the event that Maverick does not deliver to Maverick Canada a call notice
within the two business days period, and provided that the retraction request
is not revoked by the holder in the manner described below, Maverick Canada
will redeem the retracted shares on the retraction date.
A holder of retracted shares may, by notice in writing given by the holder
to Maverick Canada before the close of business on the business day immediately
preceding the date specified by the holder as the retraction date, withdraw its
retraction request. If the retraction request is withdrawn, the revocable offer
constituted by the retraction request to sell the retracted shares to Maverick
will be deemed to have been revoked.
If, as a result of liquidity or solvency requirements or other provisions of
applicable law, Maverick Canada is not permitted to redeem all exchangeable
shares tendered by a retracting holder, Maverick Canada will redeem only those
exchangeable shares tendered by the holder as would be permitted by applicable
law. The holder of any exchangeable shares not redeemed by Maverick Canada as a
consequence of such applicable law or purchased by Maverick, will be deemed to
have required Maverick to purchase the unretracted shares in exchange for an
equal number of shares of Maverick common stock, plus the equivalent amount of
all dividends then payable and unpaid, if any, on the retraction date or as
soon as practicable thereafter pursuant to the exchange right provided for in
the voting and exchange trust agreement described below.
Shareholder Automatic Rights to Receive Maverick Common Stock.
Redemption of Exchangeable Shares. Subject to applicable law and the
redemption call rights of Maverick described below, on an automatic redemption
date, described below, Maverick Canada will redeem all but not less than all of
the then outstanding exchangeable shares in exchange for an equal number of
shares of Maverick common stock, plus the equivalent amount of all Maverick
dividends then payable and unpaid, if any. Notwithstanding any proposed
redemption of the exchangeable shares, Maverick will, pursuant to the
redemption call rights (as described below), have the overriding right to
acquire on an automatic redemption date all but not less than all of the
outstanding exchangeable shares in exchange for one share of Maverick common
stock for each exchangeable share, plus the equivalent amount of all Maverick
dividends then payable and unpaid, if any. An automatic redemption date is the
first to occur of:
. the date selected by the Maverick Canada board (but no earlier than the
fifth anniversary of the effective date of the arrangement);
. the date selected by the Maverick Canada board (but no earlier than the
third anniversary of the effective date of the arrangement) at a time
when less than 10% of the number of exchangeable shares issuable on the
effective date of the arrangement are outstanding (other than
exchangeable shares held by Maverick and entities controlled by
Maverick);
. the business day prior to the record date for any meeting or vote of the
Maverick Canada shareholders to consider any matter on which the holders
of exchangeable shares would be entitled to vote as Maverick Canada
shareholders, but excluding any meeting or vote as described in the
clause immediately below; or
. the business day following the day on which the holders of exchangeable
shares fail to take the necessary action at a meeting or other vote of
holders of exchangeable shares, if and to the extent such action is
required, to approve or disapprove, as applicable, any change to, or in
the rights of the holders of, exchangeable shares, if the approval or
disapproval, as applicable, of such change would be required to maintain
the economic and legal equivalence of the exchangeable shares and the
Maverick common stock.
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At least 45 days before an automatic redemption date or before a possible
automatic redemption date which may result from a failure of holders of
exchangeable shares to take necessary action as described above, Maverick
Canada shall provide the registered holders of exchangeable shares with written
notice of the proposed redemption or possible redemption of the exchangeable
shares by Maverick Canada or the purchase of such exchangeable shares pursuant
to Maverick's redemption call right. In the case of any notice given in
connection with a possible automatic redemption date, such notice will be given
contingently and will be withdrawn if the contingency does not occur.
Optional Exchange Right. Upon the occurrence and during the continuance of a
Maverick Canada insolvency event, described below, a holder of exchangeable
shares will be entitled to instruct the trustee to exercise the right, which we
refer to as the optional exchange right, with respect to any or all of the
holder's exchangeable shares, thereby requiring Maverick to acquire the
exchangeable shares from the holder. Immediately upon the occurrence of a
Maverick Canada insolvency event or any event which may, with the passage of
time or the giving of notice, become a Maverick Canada insolvency event,
Maverick Canada and Maverick will give written notice to the trustee. The
trustee will then promptly notify each holder of exchangeable shares of the
event or potential event and will advise the holder of its rights with respect
to the optional exchange right. The consideration for each exchangeable share
to be acquired under the optional exchange right will be one share of Maverick
common stock plus the equivalent amount of all Maverick dividends, then payable
and unpaid, if any.
"Maverick Canada insolvency event" means:
. the institution by Maverick Canada of, or the consent of Maverick Canada
to the institution of, any proceeding for Maverick Canada to be
adjudicated bankrupt or insolvent or to be dissolved or wound-up, or the
filing of a petition, answer or consent seeking dissolution or winding-up
under bankruptcy, insolvency or analogous laws;
. the failure of Maverick Canada to contest in good faith any such
proceeding commenced against it within 15 days of becoming aware of the
proceeding;
. the consent of Maverick Canada to the filing of any such petition or
appointment of a receiver;
. the making by Maverick Canada of a general assignment for the benefit of
creditors, or the admission in writing of its inability to pay its debts
generally as they become due; or
. Maverick Canada's not being permitted, pursuant to liquidity or solvency
requirements of applicable law, to redeem any exchangeable shares
pursuant to a retraction request.
If, as a result of liquidity or solvency requirements or other provisions of
applicable law, Maverick Canada is not permitted to redeem all of the
exchangeable shares tendered for retraction by a holder in accordance with the
exchangeable share provisions as described under "--Retraction Rights" above,
the holder will be deemed to have exercised the optional exchange right with
respect to the unredeemed exchangeable shares, and Maverick will be required to
purchase such shares from the holder in the manner described above under
"Optional Exchange Right."
Liquidation Right. Subject to Maverick's liquidation call right described
below, in the event of the liquidation, dissolution or winding-up of Maverick
Canada or any other distribution of assets of Maverick Canada among its
shareholders for the purpose of winding-up its affairs, the holders of
exchangeable shares will be entitled to receive for each exchangeable share one
share of Maverick common stock, together with the equivalent amount of all
Maverick dividends then payable and unpaid, if any.
Automatic Exchange Right. In the event of a Maverick liquidation event
described below, Maverick will be deemed to have purchased each outstanding
exchangeable share and each holder of exchangeable shares will be deemed to
have sold the exchangeable shares held by it immediately prior to such
liquidation event on the basis of one share of Maverick common stock, plus the
equivalent amount of all Maverick dividends then payable and unpaid, if any,
for each exchangeable share.
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"Maverick liquidation event" means:
. any determination by the Maverick board of directors to institute
voluntary liquidation, dissolution or winding-up proceedings with respect
to Maverick or to effect any other distribution of assets of Maverick
among its stockholders for the purpose of winding-up its affairs; or
. the earlier of receipt of notice of and Maverick's otherwise becoming
aware of, any threatened or instituted claim, suit, petition or other
proceeding with respect to the involuntary liquidation, dissolution or
winding-up of Maverick or to effect any other distribution of assets of
Maverick among its stockholders for the purpose of winding-up its
affairs.
Maverick Call Rights. In the circumstances described below, Maverick will
have overriding rights to acquire exchangeable shares from holders by
delivering one share of Maverick common stock, plus the equivalent amount of
all Maverick dividends then payable and unpaid, if any, for each exchangeable
share acquired. Different Canadian federal income tax consequences to a holder
of exchangeable shares and to Maverick Canada may arise depending upon whether
the call rights are exercised by Maverick or whether the relevant exchangeable
shares are redeemed by Maverick Canada pursuant to the exchangeable share
provisions. See "Information About Tax Considerations--Canadian Federal Income
Tax Considerations to Prudential Shareholders" on page 95.
Retraction Call Right. A holder requesting Maverick Canada to redeem the
exchangeable shares will be deemed to offer such shares to Maverick, and
Maverick will have an overriding retraction call right to acquire all, but
not less than all, of the exchangeable shares that the holder has requested
Maverick Canada to redeem in exchange for one share of Maverick common
stock, plus the equivalent amount of all Maverick dividends then payable
and unpaid, if any, for each exchangeable share. See "--Retraction Rights"
on page 52.
Liquidation Call Right. Maverick shall have an overriding liquidation
call right, in the event of and notwithstanding a proposed liquidation,
dissolution or winding-up of Maverick Canada or any other distribution of
the assets of Maverick Canada among its shareholders for the purpose of
winding-up its affairs, to acquire all, but not less than all, of the
exchangeable shares then outstanding in exchange for Maverick common stock,
plus the equivalent amount of all Maverick dividends then payable and
unpaid, if any. Upon the exercise by Maverick of the liquidation call
right, the holders of the exchangeable shares will be obligated to transfer
their shares to Maverick. The acquisition by Maverick of all of the
outstanding exchangeable shares upon the exercise of the liquidation call
right will occur on the effective date of the voluntary or involuntary
liquidation, dissolution or winding-up of Maverick Canada.
Redemption Call Right. Maverick shall have an overriding redemption call
right to acquire on an automatic redemption date all, but not less than
all, of the exchangeable shares then outstanding in exchange for Maverick
common stock, plus the equivalent amount of all Maverick dividends then
payable and unpaid, if any, and, upon the exercise by Maverick of the
redemption call right, the holders of the exchangeable shares will be
obligated to transfer their shares to Maverick.
Effect of Call Right Exercise. If Maverick exercises one or more of its call
rights, it will directly issue Maverick common stock to holders of exchangeable
shares and will become the holder of the exchangeable shares. Maverick will not
be entitled to exercise any voting rights attached to the exchangeable shares
it so acquires. If Maverick declines to exercise its call rights when
applicable, it will be required to issue Maverick common stock as Maverick
Canada directs, including to Maverick Canada, which will, in turn, transfer the
stock to the holders of exchangeable shares in consideration for the return and
cancellation of the exchangeable shares. In the event Maverick does not
exercise its call rights when applicable and instead delivers Maverick common
stock as Maverick Canada directs, the consideration received by holders of the
exchangeable shares would be the same, while the Canadian tax consequences will
be substantially different. See "Information About Tax Considerations--Canadian
Federal Income Tax Considerations to Prudential Shareholders" on page 95.
However, Maverick anticipates that it will exercise its call rights, when
available, and currently foresees limited, if any, circumstances under which it
would not exercise its call rights. In addition, Maverick does not
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anticipate any restriction or limitation on the number of exchangeable shares
it would acquire upon the exercise of its call rights.
Adjustments. The exchangeable shares are subject to adjustment or
modification in the event of a stock split or other changes to the capital
structure of Maverick so as to maintain the initial one-to-one ratio between
the exchangeable shares and Maverick common stock.
Tax Election. While the transaction is structured to provide a tax deferral
for most Prudential shareholders, Prudential shareholders will be entitled to
make an income tax election pursuant to section 85 of the Income Tax Act
(Canada) (Canada) with respect to the transfer of their Prudential common
shares to Maverick Canada so as to ensure a tax deferral. See "Information
About Tax Considerations--Canadian Federal Income Tax Considerations to
Prudential Shareholders" on page 95.
Stock Options. Pursuant to the arrangement, each option to purchase
Prudential common shares granted under Prudential's stock option plan will be
exchanged for an option to purchase a number of whole shares of Maverick common
stock equal to the number of Prudential common shares subject to such option
multiplied by 0.52 at an exercise price per share of Maverick common stock
equal to the exercise price per share of such option divided by 0.52, such
exercise price to be converted into U.S. dollars based upon the average
Canadian/U.S. dollar exchange rate over a ten consecutive trading day period
ending on the third trading day prior to the date of the Prudential special
meeting. If this calculation results in an exchanged option being exercisable
for a fractional share of Maverick common stock, then the number of shares
shall be rounded down to the nearest whole number of shares. Such options will
vest in accordance with the terms of Prudential's stock option plan or other
controlling agreement. The obligations of Prudential under the exchanged
options will be assumed by Maverick and Maverick will be substituted for
Prudential under, and as sponsor of, Prudential's stock option plan. The term,
expiration date, exercisability and all other terms and conditions of the
converted options will be otherwise unchanged.
Special Voting Stock. The transaction will also include the issuance by
Maverick of one share of preferred stock, designated as special voting stock,
to CIBC Mellon Trust Company, the trustee under the voting and exchange trust
agreement. This special voting share will allow holders of exchangeable shares
to vote as if they were Maverick stockholders. See "Information About the Share
Capital of Maverick and Maverick Canada Maverick Share Capital--Common and
Preferred Stock Description--Series II--Special Voting Stock" on page 84 and
"--Voting and Exchange Trust Agreement" below.
Letter of Transmittal. Enclosed with copies of this joint proxy statement
delivered to the registered holders of Prudential common shares is the
Prudential letter of transmittal. For the holder to receive the exchangeable
share certificates for Prudential common share certificates, a holder must
complete, sign and return the letter of transmittal, together with the
certificates for Prudential shares. See "--Procedures for Transfer of Share
Certificates by Prudential Shareholders and Prudential Optionholders" on page
66.
Voting and Exchange Trust Agreement. The following is a summary description
of the material provisions of the voting and exchange trust agreement among
Maverick, Maverick Canada and CIBC Mellon Trust Company, as trustee, and is
qualified in its entirety by reference to the full text of the voting and
exchange trust agreement, the form of which we have included as Annex G. For
purposes of this summary, "Maverick" refers to Maverick and to Maverick Holdco,
as appropriate.
Voting Rights. In accordance with the voting and exchange trust agreement,
the arrangement will include the issuance by Maverick of one share of special
voting stock to CIBC Mellon Trust Company, the trustee under the voting and
exchange trust agreement, for the benefit of the holders (other than Maverick
and its subsidiaries) of the exchangeable shares. The special voting stock will
carry a number of votes, exercisable at any meeting at which Maverick
stockholders are entitled to vote, equal to the number of outstanding
exchangeable shares (other than shares held by Maverick and its subsidiaries).
With respect to any written consent sought from the Maverick stockholders, each
vote attached to the special voting stock will be exercisable in the same
manner as set forth above.
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Each holder of an exchangeable share on the record date for any meeting at
which Maverick stockholders are entitled to vote will be entitled to instruct
the trustee to exercise one of the votes attached to the special voting stock
for such exchangeable share. The trustee will exercise each vote attached to
the special voting stock only as directed by the relevant holder and, in the
absence of instructions from a holder as to voting, will not exercise such
votes. If a holder either has not previously given the trustee voting
instructions with respect to the meeting or submits to the trustee written
revocation of such previous instructions, a holder may, upon instructing the
trustee, obtain a proxy from the trustee entitling the holder to vote directly
at the relevant meeting the votes attached to the special voting stock to which
the holder is entitled.
The trustee will send to the holders of the exchangeable shares the notice
of each meeting at which the Maverick shareholders are entitled to vote,
together with the related meeting materials and a statement as to the manner in
which the holder may instruct the trustee to exercise the votes attaching to
the special voting stock, at the same time as Maverick sends such notice and
materials to the Maverick stockholders. The trustee will also send to the
holders of exchangeable shares copies of all information statements, interim
and annual financial statements, reports and other materials sent by Maverick
to the Maverick stockholders at the same time as such materials are sent to the
Maverick stockholders. To the extent such materials are provided to the trustee
by Maverick, the trustee will also send to the holders of exchangeable shares
all materials sent by third parties to Maverick stockholders, including
dissident proxy circulars and tender and exchange offer circulars, as soon as
possible after such materials are first sent to Maverick stockholders.
All rights of a holder of exchangeable shares to exercise votes attached to
the special voting stock will cease upon the exchange of all such holder's
exchangeable shares for shares of Maverick common stock.
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of the exchangeable shares, making
necessary amendments or curing ambiguities or clerical errors (in each case
provided that the board of directors of each of Maverick and Maverick Canada
and the trustee and its counsel are of the opinion that such amendments are not
prejudicial to the interests of the holders of the exchangeable shares), the
voting and exchange trust agreement may not be amended without the approval of
the holders of the exchangeable shares.
Exchange Put Right, Optional Exchange Right and Automatic Exchange Right.
The voting and exchange trust agreement provides for the exchange put right,
the optional exchange right and the automatic exchange right.
Support Agreement. The following is a summary description of the material
provisions of the support agreement and is qualified in its entirety by
reference to the full text of the support agreement, the form of which we have
included as Annex F.
Under the support agreement, Maverick will agree that so long as any
exchangeable shares are outstanding it will:
. not declare or pay dividends on the Maverick common stock unless Maverick
Canada is able to and simultaneously pays an equivalent dividend on the
exchangeable shares;
. cause Maverick Canada to declare and pay an equivalent dividend on the
exchangeable shares simultaneously with Maverick's declaration and
payment of dividends on the Maverick common stock;
. advise Maverick Canada in advance of the declaration of any dividend on
the Maverick common stock and ensure that the declaration date, record
date and payment date for dividends on the exchangeable shares are the
same as that for the Maverick common stock;
. ensure that the record date for any dividend declared on Maverick common
stock is not less than ten business days after the declaration date for
such dividend;
. take all actions and do all things necessary to ensure that Maverick
Canada is able to provide to the holders of the exchangeable shares the
equivalent number of shares of Maverick common stock in the
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event of a liquidation, dissolution, or winding-up of Maverick Canada or
any other distribution of the assets of Maverick Canada for the purpose of
winding-up its affairs, a retraction request by a holder of exchangeable
shares, or a redemption of exchangeable shares of Maverick Canada;
. not vote or otherwise take any action or omit to take any action causing
the liquidation, dissolution or winding-up of Maverick Canada;
. not take any action that, or omit to take any action the omission of
which (i) is designed to result in the liquidation, dissolution or
winding up of Maverick Canada, or (ii) would result in a meeting of
Maverick Canada shareholders other than a meeting relating to certain
changes required to maintain the economic and legal equivalence of the
exchangeable shares and the Maverick common stock; and
. use its best efforts to ensure that a meeting of Maverick Canada
shareholders is not held other than a meeting relating to certain changes
required to maintain the economic and legal equivalence of the
exchangeable shares and the Maverick common stock.
The support agreement will also provide that Maverick will not (i)
distribute additional shares of Maverick common stock or rights to subscribe
therefor or other property or assets to all or substantially all holders of
shares of Maverick common stock, unless Maverick or Maverick Canada is
permitted under applicable law to, and does, distribute the economic equivalent
simultaneously to the holders of exchangeable shares; or (ii) make any changes
(either by subdivision, combination or otherwise) to the outstanding Maverick
common shares which would result in a greater or lesser number of Maverick
common shares or make any other changes or effect any mergers or other
transactions involving or affecting the Maverick common shares, unless Maverick
or Maverick Canada is permitted under applicable law to, and effects
simultaneous to such changes, the same or economically equivalent changes to
the exchangeable shares.
Maverick has further agreed that in the event of a tender offer, share
exchange offer, issuer bid, take-over bid or similar transaction with respect
to the Maverick common stock is proposed by Maverick or is proposed to Maverick
or its stockholders and is recommended by the Maverick board, Maverick, in good
faith, shall take all actions as are necessary to permit the holders of the
exchangeable shares to participate in such transaction to the same extent and
on an equivalent basis as the holders of Maverick common stock.
Maverick has agreed that as long as there remain outstanding exchangeable
shares not owned by Maverick or any entity controlled by Maverick, Maverick
will remain the beneficial owner, directly or indirectly, of all outstanding
common shares of Maverick Canada. Notwithstanding this agreement, Maverick will
not violate this agreement if any person or group of persons acting jointly or
in concert acquires Maverick common stock pursuant to a merger and Maverick is
not the survivor.
With the exception of administrative changes for the purpose of adding
covenants for the protection of the holders of the exchangeable shares, making
necessary amendments or curing ambiguities or clerical errors (in each case
provided that the board of directors of each of Maverick and Maverick Canada is
of the opinion that such amendments are not prejudicial to the interests of the
holders of the exchangeable shares), the support agreement may not be amended
without the approval of the holders of the exchangeable shares.
Under the support agreement, Maverick has agreed not to exercise any voting
rights attached to the exchangeable shares owned by it or any entity controlled
by it on any matter considered at meetings of holders of exchangeable shares
(including any approval sought from such holders in respect of matters arising
under the support agreement).
In order to assist Maverick to comply with its obligations under the support
agreement, Maverick Canada must notify Maverick of the occurrence of the
following and other events:
. the determination by the Maverick Canada board to take any action which
would require the approval of the holders of exchangeable shares;
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. immediately, upon the earlier of (i) receipt by Maverick Canada of notice
of, and (ii) Maverick Canada otherwise becoming aware of any threatened
or instituted claim, suit, petition or other proceedings with respect to
the involuntary liquidation, dissolution or winding-up of Maverick Canada
or to effect any other distribution of assets of Maverick Canada for the
purpose of winding-up its affairs;
. Maverick Canada's receipt of a retraction request from a holder of
exchangeable shares;
. at least 45 days prior to the determination by the Maverick Canada board
of a date for the automatic redemption of the exchangeable shares;
. at least 30 days prior to the liquidation, dissolution or winding-up of
Maverick Canada or the distribution of the assets of Maverick Canada for
the purpose of winding-up its affairs; and
. as soon as practicable upon the issuance by Maverick Canada of any
exchangeable shares or rights to acquire exchangeable shares.
Delivery of Maverick Common Stock
Maverick will ensure that all shares of Maverick common stock to be
delivered by it under the support agreement or upon the exercise of the rights
granted to the trustee under the voting and exchange trust agreement are duly
registered, qualified or approved under applicable Canadian and United States
securities laws, if required, so that such shares may be freely traded by the
holder thereof (other than any restriction on transfer by reason of a holder
being a "control person" of Maverick for purposes of Canadian law or an
affiliate of Maverick for purposes of U.S. law). In addition, Maverick will
take all actions necessary to cause all such shares of Maverick common stock to
be listed or quoted for trading on all stock exchanges or quotation systems on
which outstanding shares of Maverick common stock are then listed or quoted for
trading.
The Combination Agreement
The following is a summary of the material terms of the combination
agreement. This summary is qualified in its entirety by reference to the
combination agreement, the complete text of which we have included as Annex B
to this joint proxy statement.
Exchange Ratio. Under the terms of the combination agreement, if the
transaction is completed, each holder of Prudential common shares will receive
0.52 of an exchangeable share for each Prudential common share. Each
exchangeable share will have economic and voting rights equivalent to one share
of Maverick common stock and will be exchangeable at any time for one share of
Maverick common stock.
Conditions to Closing. The combination agreement provides that the
respective obligations of each party to complete the transaction are subject to
a number of conditions, including the following material conditions:
. approval of the plan of arrangement by the Prudential shareholders and
optionholders and approval of the issuance of Maverick common stock in
connection with the transaction;
. receipt of all consents, including the Final Order of the Court of
Queen's Bench of Alberta and any other regulatory approvals legally
required for the consummation of the transaction;
. there being no decree or ruling or statute, rule, regulation or order
threatened, enacted, entered or enforced by any governmental agency that
prohibits or renders illegal the consummation of the transaction;
. there being no temporary restraining order, preliminary injunction,
permanent injunction or other order preventing the consummation of the
transaction nor any pending proceeding seeking any of the foregoing;
. the representations and warranties of the parties being true and correct
in all material respects;
. the parties having performed in all material respects all agreements and
covenants to be performed by them under the combination agreement;
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. the Maverick common stock to be issued upon the exchange of the
exchangeable shares having been approved for listing on the New York
Stock Exchange (or on the Nasdaq National Market, if the Maverick common
stock is refused or is not qualified for listing on the New York Stock
Exchange);
. the exchangeable shares having been approved for listing on The Toronto
Stock Exchange or, in the absence of a listing on The Toronto Stock
Exchange, another recognized Canadian stock exchange;
. the receipt of a letter at closing from Maverick's independent auditors
concurring with the conclusion of Maverick's management as to the
appropriateness of pooling-of-interests accounting treatment under U.S.
GAAP if the transaction is closed and consummated in accordance with the
combination agreement; and
. the receipt of a letter from Prudential's independent auditors concurring
with the conclusion of Prudential's management that Prudential is
eligible to enter into a combination that qualifies for pooling-of-
interests accounting treatment under U.S. GAAP.
Covenants. Under the combination agreement Maverick and Prudential have
agreed to a number of covenants, including the following:
Consents and Approvals. The parties have agreed to apply for and use their
reasonable best efforts to obtain all court, regulatory and other consents and
approvals required for the consummation of the transaction, including required
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and to use their reasonable best efforts to effect the transactions
contemplated by the combination agreement;
Interim Operations of Prudential and Maverick. Until the earlier of the
termination of the combination agreement or the consummation of the
arrangement, each party has agreed that it will operate its business only in
the usual, regular and ordinary manner and to the extent consistent with such
operation, use all commercially reasonable efforts to preserve intact its
present business organization and to consummate the transaction. Each party has
agreed to refrain from taking any action which would be reasonably likely to
prevent or materially delay the consummation of the transaction; and
Stock Exchange Listing. Maverick will use its reasonable best efforts to
list the Maverick common stock on the New York Stock Exchange or on the Nasdaq
National Market, if the Maverick common stock is refused or is not qualified
for listing on the New York Stock Exchange and with the cooperation and
assistance of Prudential, to list the exchangeable shares on The Toronto Stock
Exchange or, in the event that a listing on The Toronto Stock Exchange is not
available, on another recognized Canadian stock exchange.
No Solicitation. Until the earlier of the effective time or the termination
of the combination agreement, each of Prudential and Maverick will not, and it
will not authorize or permit any of its officers, directors, employees,
financial advisors, representatives and agents, to directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
participate in or take any other action to facilitate any inquiries or the
making of any proposal which constitutes or may reasonably be expected to lead
to an acquisition proposal from any person, or engage in any discussions,
negotiations or inquiries relating thereto or accept any acquisition proposal,
whether or not initiated by Prudential or Maverick, as the case may be, in
connection therewith. Each of Prudential and Maverick will exercise all rights
to require the return of information regarding it previously provided to such
parties and will exercise all rights to require the destruction of all
materials including or incorporating any information regarding Prudential or
Maverick as the case may be. Notwithstanding the foregoing, each of Prudential
or Maverick may at any time prior to the time their respective shareholders
have voted to approve the transaction, engage in discussions or negotiations
with a third party who (without any solicitation, initiation or encouragement,
directly or indirectly, by either Prudential or Maverick, as the case may be,
or their respective subsidiaries or any of their respective representatives
described above) seeks to initiate such discussions or negotiations and furnish
such third party information concerning either company and its business,
properties and assets which has previously been provided to the other party,
if, and only to the extent that:
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. in the case of Prudential, (a) the third party has first made a bona fide
written acquisition proposal that is a "superior proposal," i.e., a
proposal that is (i) financially superior to the transaction contemplated
by the combination agreement, and (ii) as to which the third party has
demonstrated that the funds or other consideration necessary are
available, as determined in good faith by the Prudential board, after
consulting with its financial advisors; and (b) the Prudential board has
concluded in good faith, after consulting with outside counsel that such
action is necessary for such board to act in a manner consistent with its
fiduciary duties under applicable law;
. in the case of Maverick, the third party has made a written acquisition
proposal and has demonstrated that the funds or other consideration
necessary are available, as determined in good faith by the Maverick
board, and the Maverick board has concluded in good faith, after
consulting with outside counsel that such action is necessary for such
board to act in a manner consistent with its fiduciary duties under
applicable law;
. prior to furnishing information to or entering into discussions or
negotiations with the third party, recipient provides prompt notice
orally and in writing to the other party specifying the identity of such
person or entity and that it is furnishing information or entering into
discussions or negotiations with such person or entity in respect of
another proposal and receives from the third party an executed
confidentiality agreement having confidentiality terms substantially
similar to those contained in the confidentiality agreement executed by
Prudential and Maverick (other than the standstill and exclusivity
provisions contained in that agreement), providing full details forthwith
of all material terms and conditions of the alternative proposal and any
amendments to the proposal and, in the case of Prudential, confirming in
writing the determination of the Prudential board that the acquisition
proposal constitutes a superior proposal;
. the recipient of the third party proposal provides notice forthwith to
the other party at such time as it is terminating any such discussions or
negotiations with such person or entity; and
. such recipient promptly provides to the other party any information
provided to any such person or entity whether or not previously made
available to the other party.
To the extent applicable, Prudential and Maverick must comply with rules
relating to tender or exchange offers under the United States Securities
Exchange Act of 1934 (United States) and similar rules under Canadian
securities laws relating to the provision of directors' circulars, and make
appropriate disclosure with respect thereto to their respective shareholders.
Prudential may accept, recommend, approve or implement a superior proposal
from a third party, but only if prior to such acceptance, recommendation,
approval or implementation, the Prudential board has concluded in good faith,
after giving effect to all proposals to adjust the terms and conditions of the
combination agreement and the arrangement which may be offered by Maverick
during the five day notice period described under "Right to Match" below, that
such action is necessary for the Prudential board to act in a manner consistent
with its fiduciary duties under applicable law and Prudential terminates the
combination agreement and concurrently therewith pays the fees described below.
Right to Match. Prudential must give Maverick at least five days' advance
notice in writing of any decision by the Prudential board to accept, recommend,
approve or implement a superior proposal, which notice must identify the party
making the superior proposal and must provide full details of all material
terms and conditions thereof and any amendments thereto. Prudential must inform
Maverick of the status (including all terms and conditions thereof) of any
discussions and negotiations with that party. In addition Prudential must, and
must cause its financial and legal advisors to, negotiate in good faith with
Maverick to make such adjustments in the terms and conditions of the
combination agreement and the plan of arrangement as would enable Prudential to
proceed with the transactions contemplated by the combination agreement. Before
executing any agreement to implement a superior proposal, Prudential must
provide Maverick with copies of such final documentation executed by the party
making the superior proposal. In the event Maverick proposes
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to amend the combination agreement and the arrangement to provide equivalent
value as is provided under the superior proposal, then Prudential cannot enter
into any agreement regarding the superior proposal.
As used in the combination agreement, "acquisition proposal" means a
proposal or offer (other than by the other party to the combination agreement),
whether or not subject to a due diligence condition, whether or not in writing,
to acquire in any manner, directly or indirectly, beneficial ownership (as
defined under Rule 13(d) of the Securities Exchange Act) of all or a material
portion of the assets of Maverick or Prudential, as the case may be, or any
material subsidiary thereof, or to acquire in any manner, directly or
indirectly, more than 9.9% (and for the purposes of the payment of termination
fees, 20%) of the outstanding voting shares of Prudential or Maverick, as the
case may be, whether by an arrangement, amalgamation, a merger, consolidation
or other business transaction, by means of a sale of shares of capital stock,
sale of assets, tender offer or exchange offer or similar transaction involving
either Prudential or Maverick, as the case may be, or any of its material
subsidiaries, including any single or multi-step transaction or series of
related transactions which is structured to permit such third party to acquire
beneficial ownership of all or a material portion of the assets of either
Prudential or Maverick, as the case may be, or any material subsidiary thereof,
or to acquire in any manner, directly or indirectly, more than 9.9% (and for
the purposes the payment of termination fees, 20%) of the outstanding voting
shares of Prudential or Maverick, as the case may be (other than the
transactions contemplated by the combination agreement).
Termination. The combination agreement may be terminated by mutual agreement
of the parties at any time prior to the effective time. Also, either party may
terminate the combination agreement prior to the effective time if:
. the other party has breached any representation, warranty, covenant or
agreement contained in the combination agreement or if any representation
or warranty of the other party shall have become untrue, and the breach
has been, or could reasonably be expected to be, materially adverse to
the terminating party or will be materially adverse to the terminating
party on the consummation of the transaction, and such breach has not
been cured within 15 business days after written notice (except that no
cure period shall be provided for a breach which by its nature cannot be
cured and in no event shall the cure period extend beyond December 31,
2000);
. all conditions for closing the transaction have not been satisfied or
waived by December 31, 2000 (other than as a result of a breach by the
terminating party);
. any required approval of the Prudential securityholders or Maverick
stockholders has not been obtained; or
. any final and non-appealable order has been entered in any action or
proceeding before any governmental entity that prevents or makes illegal
the consummation of the transaction.
Maverick may terminate the combination agreement at any time prior to the
effective time if the Prudential board, or any committee thereof, withdraws or
modifies adversely to Maverick its approval or recommendation of the
combination agreement or the arrangement, or the Prudential board, or any
committee thereof, fails to reaffirm its approval or recommendation upon a
request by Maverick to do so or upon an acquisition proposal in respect of
Prudential being publicly announced or proposed, offered or made to the
Prudential shareholders or to Prudential.
Prudential may terminate the combination agreement at any time prior to the
effective time if either the Maverick board, or any committee thereof,
withdraws or modifies adversely to Prudential its approval or recommendation of
the combination agreement, or the arrangement, or the Maverick board, or any
committee thereof, fails to reaffirm its approval or recommendation upon a
request by Prudential to do so or upon an acquisition proposal in respect of
Maverick being publicly announced or proposed, offered or made to the Maverick
stockholders or to Maverick.
Maverick may terminate the combination agreement prior to the approval of
the transactions contemplated hereby by the stockholders of Maverick, if as a
result of an acquisition proposal for Maverick, Maverick's
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board accepts, recommends, approves or implements such proposal and otherwise
complies with the provisions of the combination agreement.
Prudential may terminate the combination agreement prior to the approval of
the combination agreement and the arrangement by the securityholders of
Prudential, if the Prudential board accepts, recommends, approves or implements
a superior proposal and otherwise complies with the provisions of the
combination agreement.
Upon termination of the combination agreement in accordance with its terms,
neither party nor its respective officers or directors shall have any further
liability under the agreement except that the termination fees described below
shall survive such termination, and the confidentiality agreements dated May 18
and 31, 2000 will survive any termination. However, neither party will be
released from any liability arising from the willful breach by that party of
the combination agreement.
Termination Fees. Termination fees are payable under the combination
agreement as follows:
. if Prudential terminates the combination agreement because there has been
a breach of the combination agreement by Maverick, which has been or
could reasonably be expected to be materially adverse to Maverick, or if
either party terminates the combination agreement because the required
approval of the Maverick stockholders has not been obtained, then
Maverick must pay Prudential a cash termination fee of $3 million at the
time of termination;
. if Maverick terminates the combination agreement because there has been a
breach of the combination agreement by Prudential which has been or could
reasonably be expected to be materially adverse to Prudential, or if
either party terminates the combination agreement because the required
approval of the securityholders of Prudential has not been obtained, then
Prudential must pay Maverick a cash termination fee of $3 million at the
time of termination;
. if an acquisition proposal in respect of Prudential is publicly announced
or is proposed, offered or made to the Prudential shareholders or to
Prudential, either party terminates the combination agreement as a result
of the failure of the securityholders of Prudential to approve the
combination agreement, and within nine months following such termination
Prudential enters into an agreement, commitment or understanding with
respect to an acquisition proposal, or an acquisition proposal for
Prudential is consummated, then Prudential must pay Maverick a cash
termination fee of $11 million payable immediately once such conditions
are satisfied;
. if an acquisition proposal in respect of Maverick is publicly announced
or is proposed, offered or made to the Maverick stockholders or to
Maverick, either party terminates the combination agreement as a result
of the failure of the stockholders of Maverick to approve the combination
agreement, and within nine months following such termination Maverick
enters into an agreement, commitment or understanding with respect to an
acquisition proposal, or an acquisition proposal for Maverick is
consummated, then Maverick must pay Prudential a cash termination fee of
$11 million payable immediately once such conditions are satisfied;
. if Prudential terminates the combination agreement in connection with a
determination by the Prudential board to accept, recommend, approve or
implement a superior proposal, or Maverick terminates the combination
agreement upon the withdrawal or adverse modification by the Prudential
board, or any committee thereof, of its approval or recommendation of the
combination agreement, the other transactions contemplated thereby or the
arrangement or because the Prudential board, or any committee thereof,
has failed to reaffirm its approval or recommendation upon request or
upon an acquisition proposal in respect of Prudential being publicly
announced or proposed, offered or made to the Prudential shareholders or
to Prudential, then Prudential must pay Maverick a cash termination fee
of $14 million at the time of termination; and
. if Maverick terminates the combination agreement in connection with a
determination by the Maverick board to accept, recommend, approve or
implement a third party acquisition proposal, or Prudential
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terminates the combination agreement upon the withdrawal or adverse
modification by the Maverick board, or any committee thereof, of its
approval or recommendation of the combination agreement, the other
transactions contemplated thereby or the arrangement or because the
Maverick board, or any committee thereof, has failed to reaffirm its
approval or recommendation upon request or upon an acquisition proposal in
respect of Maverick being publicly announced or proposed, offered or made
to the Maverick stockholders or to Maverick, then Maverick must pay
Prudential a cash termination fee of $14 million at the time of
termination.
Representations and Warranties. The combination agreement contains certain
customary representations and warranties of each of Prudential and Maverick
relating to, among other things:
. the parties' organization, capital structures and qualification;
. required consents;
. periodic securities reports and financial information;
. liabilities and litigation;
. intellectual property rights;
. absence of material adverse changes;
. employee matters;
. taxes;
. environmental matters;
. absence of defaults;
. title to properties;
. receipt of fairness opinion from financial advisors;
. pooling-of-interests accounting;
. non-violation by the transaction of Prudential's shareholder rights plan;
. compliance with necessary regulatory or governmental authorities; and
. authority to enter into the combination agreement and to consummate the
transaction.
Dissenting Shareholders' and Optionholders' Rights
Under Delaware law, holders of Maverick common stock will not have appraisal
or dissenters' rights relating to the transaction.
The following description of the rights of dissenting holders of Prudential
common shares and Prudential options is not a comprehensive statement of
procedures to be followed by a dissenting shareholder or optionholder who seeks
payment of the fair value of Prudential common shares or Prudential options and
is qualified in its entirety by the Interim Order and Section 184 of the
Business Corporations Act (Alberta) which we have included as Annexes C and J,
respectively, to this joint proxy statement. A shareholder or optionholder who
intends to exercise the right of dissent and appraisal should carefully
consider and comply with the provisions of Section 184 as modified by the
Interim Order and should seek their own legal advice. Failure to comply with
the provisions of Section 184 as modified by the Interim Order and to adhere to
the procedures established therein may result in the loss of all rights
thereunder.
The Court hearing the application for the Final Order has the discretion to
alter the rights of dissent described herein based on the evidence presented at
such hearing.
Under the Interim Order, registered holders of Prudential common shares or
Prudential options are entitled, in addition to any other right they may have,
to dissent and to be paid by Prudential the fair value of the
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Prudential common shares or Prudential options held by them, determined as of
the close of business on the last business day before the day on which the
resolution from which they dissented was adopted. A shareholder or optionholder
may dissent only with respect to all of the shares or options held by the
shareholder or optionholder or on behalf of any one beneficial owner and
registered in the dissenting shareholder's or optionholder's name. The demand
for appraisal must be executed by or for the holder of record, fully and
correctly, as such holder's name appears on the holder's share certificates or
options. If the shares are owned of record in a fiduciary capacity, such as by
a trustee, guardian or custodian, 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 a tenancy in common, the demand should be made by or for all owners
of record. An authorized agent, including one or more joint owners, may execute
the demand for appraisal for a holder of record; however, such agent must
expressly identify the record owner or owners, and expressly disclose in such
demand that the agent is acting as agent for the record owner or owners.
Only registered shareholders or optionholders may dissent. Beneficial owners
of Prudential common shares registered in the name of a broker, custodian,
nominee or other intermediary who wish to dissent should be aware that they may
only do so through the registered owner of such shares. A registered holder
such as a broker who holds Prudential common shares as nominee for beneficial
owners, some of whom may desire to demand appraisal, must exercise dissent
rights on behalf of such beneficial owners with respect to the shares held for
such beneficial owners. In such case, the demand for appraisal should set forth
the number of Prudential common shares covered by it.
A dissenting holder of Prudential common shares or Prudential options must
send to Prudential a written objection to the resolution in respect of the
arrangement, which written objection must be received by the Vice President,
Legal and Business Affairs of Prudential or the chairman of the Prudential
special meeting at or before the Prudential special meeting. An application may
be made to the Court to fix the fair value of the dissenting shareholder's
Prudential common shares or optionholder's Prudential options after the
effective date of the transaction. If an application to the Court is made by
either Prudential or a dissenting shareholder or optionholder, Prudential must,
unless the Court otherwise orders, send to each dissenting shareholder or
optionholder a written offer to pay such holder an amount considered by the
Prudential board to be the fair value of the Prudential common shares or
Prudential options. The offer, unless the Court otherwise orders, will be sent
to each dissenting shareholder or optionholder at least 10 days before the date
on which the application is returnable, if Prudential is the applicant, or
within 10 days after Prudential is served with notice of the application, if a
shareholder or optionholder is the applicant. The offer will be made on the
same terms to each dissenting holder of Prudential common shares or Prudential
options and will be accompanied by a statement showing how the fair value was
determined.
A dissenting holder of Prudential common shares or Prudential options may
make an agreement with Prudential for the purchase of the holder's Prudential
common shares or Prudential options in the amount of Prudential's offer (or
otherwise) at any time before the Court pronounces an order fixing the fair
value of the Prudential common shares or options. A dissenting shareholder or
optionholder is not required to give security for costs in respect of an
application and, except in special circumstances, will not be required to pay
the costs of the application or appraisal. On the application, the court will
make an order fixing the fair value of the Prudential common shares and options
of all dissenting shareholders or optionholders who are parties to the
application, giving judgment in that amount against Prudential and in favor of
each of those dissenting shareholders or optionholders and fixing the time
within which Prudential must pay that amount payable to the dissenting
shareholders or optionholders. The court may in its discretion allow a
reasonable rate of interest on the amount payable to each dissenting
shareholder or optionholder calculated from the date on which the shareholder
or optionholder ceases to have any rights as a shareholder or optionholder
until the date of payment.
After the arrangement becomes effective, or after an agreement between
Prudential and the dissenting holder of Prudential common shares or Prudential
options is made, or upon the pronouncement of a court order,
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whichever first occurs, the dissenting shareholder or optionholder will cease
to have any rights as a shareholder or optionholder other than the right to be
paid the fair value of the Prudential common shares or Prudential options in
the amount agreed between Prudential and the dissenting shareholder or
optionholder or in the amount of the judgment as the case may be. Until one of
these events occurs, the shareholder or optionholder may withdraw his dissent,
or Prudential may rescind the resolution in respect of the arrangement and, in
either event, the dissent and appraisal proceedings in respect of that
shareholder or optionholder will be discontinued.
The combination agreement provides that it is a condition to the obligations
of Maverick and Prudential to complete the arrangement that holders of not more
than 5% of the issued and outstanding Prudential common shares and Prudential
options, in the aggregate, exercise their right of dissent as described above.
Anticipated Accounting Treatment
Maverick and Prudential expect the transaction to qualify as a pooling-of-
interests under the requirements of Opinion No. 16 (Business Combinations) of
the Accounting Principles Board of the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board, and the rules and
regulations of the SEC. Under the pooling-of-interests accounting method, the
reported balance sheet amounts and results of operations of the separate
companies for prior periods will be combined, reclassified and conformed, as
appropriate, to reflect the financial position and results of operations for
the combined company. See "Unaudited Pro Forma Combined Condensed Financial
Statements" on page 76.
Prudential will use its reasonable best efforts to obtain a letter from its
independent auditors concurring with the conclusion of Prudential's management
that Prudential is eligible to enter into a combination that qualifies for
pooling-of-interests accounting treatment under U.S. GAAP and Maverick will use
its reasonable best efforts to obtain a letter at closing from its independent
auditors concurring with the conclusion of Maverick's management as to the
appropriateness of pooling-of-interests accounting treatment under U.S. GAAP if
the transaction is closed and consummated in accordance with the combination
agreement.
We expect that Maverick and Prudential will enter into affiliates'
agreements with each Prudential affiliate and Maverick affiliate. These
agreements will relate to, among other things, the ability of Maverick to
account for the transaction as a pooling-of-interests under U.S. GAAP.
Business Combination Costs
The combined estimated fees, costs and expenses of Maverick and Prudential
in connection with the combination, including, without limitation, financial
advisors' fees, filing fees, legal and accounting fees and printing and mailing
costs are anticipated to be approximately $10 million. These non-recurring
costs, which are subject to change, will be charged to operations in the
quarter in which the transaction is consummated. These expenses are referred to
in Note 2a to the Unaudited Pro Forma Combined Statements of Earnings, and have
been reflected in the Unaudited Pro Forma Combined Condensed Balance Sheet on
page 77.
Procedures for Transfer by Prudential Shareholders and Prudential Optionholders
Prudential Shareholders. Enclosed with copies of this joint proxy statement
delivered to Prudential shareholders is a Prudential letter of transmittal
which, when duly completed and returned together with a certificate for
Prudential common shares, allows you to receive certificates for the number of
exchangeable shares equal to the number of Prudential common shares you hold
multiplied by 0.52. See "--Transaction Mechanics and Description of
Exchangeable Shares" on page 50.
No certificates representing fractional exchangeable shares will be issued.
In lieu of fractional exchangeable shares, each Prudential shareholder who
would otherwise be entitled to receive a fraction of an exchangeable share
shall be paid by Maverick Canada an amount of cash (rounded to the nearest
whole cent,
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without interest) equal to the product of such fraction, multiplied by the
weighted average trading price of the Maverick common stock on the Nasdaq
National Market for the ten consecutive trading days ended on the third trading
day prior to the date of the Prudential special meeting, expressed in Canadian
dollars.
Any use of the mails to transmit a certificate for Prudential common shares
and a related Prudential letter of transmittal is at the risk of the Prudential
shareholder. If these documents are mailed, it is recommended that registered
mail, with return receipt requested, properly insured, be used.
If the transaction is completed, certificates representing the appropriate
number of exchangeable shares issuable to a former Prudential shareholder who
has complied with the procedures set out above, together with a cheque in the
amount, if any, payable in lieu of fractional exchangeable shares will, as soon
as practicable after the later of the effective date of the transaction and the
date of receipt of a certificate for Prudential common shares and a related
Prudential letter of transmittal, be forwarded to the holder at the address
specified in the Prudential letter of transmittal by first class mail or made
available at the offices of CIBC Mellon Trust Company for pickup by the holder,
if requested by the holder in the Prudential letter of transmittal.
If the transaction does not close, all certificates representing Prudential
common shares transmitted with a related Prudential letter of transmittal will
be returned to Prudential shareholders.
Where a certificate for Prudential common shares has been destroyed, lost or
mislaid, the registered holder of that certificate should immediately contact
CIBC Mellon Trust Company regarding the issuance of a replacement certificate.
A Prudential shareholder may exchange his or her shares as soon as the
arrangement is consummated by checking the relevant box on the Prudential
letter of transmittal to indicate that the shareholder wishes to immediately
exchange his or her exchangeable shares to be received for Prudential shares
into shares of Maverick common stock.
Prudential Optionholders. Pursuant to the arrangement which will give effect
to the transaction, each outstanding option to acquire Prudential common shares
will be automatically exchanged for an option to acquire 0.52 of a share of
Maverick common stock at an exercise price equal to its current exercise price
divided by 0.52, expressed in U.S. dollars, without any action on the part of
the Prudential optionholders. Promptly after the transaction becomes effective,
Maverick will notify each Prudential optionholder of all relevant information.
See "--Transaction Mechanics and Description of Exchangeable Shares--Stock
Options" on page 56.
Stock Exchange Listings
The Maverick common stock currently trades on the Nasdaq National Market. On
, 2000, Maverick applied to the New York Stock Exchange for the
listing of its common stock on the New York Stock Exchange, effective on the
consummation of the arrangement. This application for listing includes the
shares of Maverick common stock issuable from time to time upon the exchange of
exchangeable shares, and upon the exercise of the options held by Prudential
optionholders. The Prudential common shares are currently listed on The Toronto
Stock Exchange. On , 2000, The Toronto Stock Exchange
accepted notice of the proposed transaction and conditionally approved the
listing and posting for trading of the exchangeable shares, subject to
compliance with all of the requirements of The Toronto Stock Exchange,
including distribution of the exchangeable shares to a minimum number of public
shareholders, on or before , 2000.
Eligibility for Investment in Canada
Exchangeable Shares. In the opinion of Bennett Jones LLP, Canadian counsel
to Prudential, the exchangeable shares, if listed on a prescribed stock
exchange in Canada (which currently includes The Toronto
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Stock Exchange) and if Maverick Canada maintains a substantial presence in
Canada, will be qualified investments and will not be foreign property under
the Income Tax Act (Canada) for trusts governed by registered retirement
savings plans, registered retirement income funds, registered education savings
plans and deferred profit sharing plans, for registered pension plans and for
certain other persons to whom Part XI of the Income Tax Act (Canada) applies.
Maverick has indicated that it intends to take all actions necessary to
cause Maverick Canada to maintain the listing of the exchangeable shares.
Maverick Canada will be considered to have a substantial presence in Canada if
it satisfies certain asset tests or if it maintains an office in Canada and
Maverick Canada, or a corporation controlled by it, employs more than five
employees in Canada full time in an active conduct of a business, other than an
investment activity or a business carried on through a partnership of which the
corporation is not a majority interest partner. Maverick is of the view that
following the arrangement Maverick Canada will satisfy this substantial
presence test and expects that Maverick Canada will continue to satisfy the
test.
Voting Rights and Exchange Rights. The rights of the holders of exchangeable
shares to direct the voting of the one share of Maverick special voting stock
by the CIBC Mellon Trust Company, the trustee under the voting and exchange
trust agreement, and the rights granted to the trustee to exchange exchangeable
shares for Maverick common stock in certain circumstances, will not be a
qualified investment and will be foreign property under the Income Tax Act
(Canada). However, as indicated under "Information About Tax Considerations--
Canadian Federal Income Tax Considerations to Prudential Shareholders--
Shareholders Resident in Canada," each of Maverick and Prudential is of the
view that the fair market value of any such rights is nominal.
Maverick Common Stock. The Maverick common stock will be a qualified
investment under the Income Tax Act (Canada) for trusts governed by registered
retirement savings plans, registered retirement income funds, registered
education savings plans and deferred profit sharing plans and for registered
pension plans and for certain other persons to whom Part XI of the Income Tax
Act (Canada) applies provided such shares remain listed on the New York Stock
Exchange or another prescribed stock exchange. The Maverick common stock will
be foreign property under the Income Tax Act (Canada).
Regulatory Matters
We cannot complete the transaction until the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (as amended) has
expired or been terminated. In addition, we must obtain discretionary orders
and rulings under Canadian provincial securities legislation. On June 26, 2000,
Maverick made a pre-merger filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with the Federal Trade Commission and the
Antitrust Division of the Department of Justice and Prudential made a similar
filing on , 2000. On , 2000
Maverick and Maverick Canada filed their application for discretionary orders
and rulings under Canadian provincial securities legislation.
We do not expect that any of these regulatory approvals, filings or any
other required regulatory filings will delay consummation of the transaction.
Resales of Exchangeable Shares and Maverick Common Stock
United States. The issuance of exchangeable shares to holders of Prudential
common shares will not be registered under the United States Securities Act of
1933, as amended. The exchangeable shares will be issued in reliance upon the
exemption available pursuant to Section 3(a)(10) of the Securities Act of 1933.
Section 3(a)(10) exempts securities issued in exchange for one or more
outstanding securities from the general requirement of registration where the
terms and conditions of the issuance and exchange of such securities have been
approved by any court of competent jurisdiction, after a hearing upon the
fairness of the terms and
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<PAGE>
conditions of the issuance and exchange at which all persons to whom the
securities will be issued have the right to appear. The Court of Queen's Bench
of Alberta is authorized to conduct a hearing to determine the fairness of the
terms and conditions of the arrangement, including the proposed issuance of
securities in exchange for other outstanding securities. The Court of Queen's
Bench of Alberta entered the Interim Order on , 2000 and,
subject to the approval of the arrangement by Prudential shareholders and
optionholders, a hearing on the fairness of the arrangement will be held on
, 2000 by the Court. See "--Court Approval of the
Arrangement and Consummation of the Transaction" on page 50. Based upon advice
of U.S. counsel, Maverick and Prudential believe that the issuance by Maverick
Canada of the exchangeable shares in exchange for the Prudential common shares
is exempt under Section 3(a)(10) of the Securities Act of 1933.
The exchangeable shares and the shares of Maverick common stock issuable
upon the exchange of exchangeable shares will be freely transferable under U.S.
federal securities laws, except by persons who are affiliates of Prudential
prior to the transaction. Shares held by Prudential affiliates may be resold
only in transactions permitted by Rule 901 in combination with Rule 903 or Rule
904 of Regulation S under the Securities Act of 1933, the resale provisions of
Rule 145(d)(1), (2), or (3) under the Securities Act of 1933 or as otherwise
permitted under the Securities Act of 1933. Rule 145(d)(1) generally provides
that affiliates of Prudential may not sell securities of Maverick received
pursuant to the transaction unless pursuant to an effective registration
statement or the volume, current public information and manner of sale
limitations of Rule 144. These limitations generally require that any sales
made by an affiliate in any three-month period not exceed the greater of 1% of
the outstanding shares of Maverick or the average weekly trading volume over
the four calendar weeks preceding the placement of the sell order and that
sales be made in unsolicited, open market "broker transactions." Rules
145(d)(2) and (3) generally provide that these limitations lapse for non-
affiliates of Maverick after a period of one or two years, depending upon
whether information continues to be publicly available with respect to
Maverick.
Under Rule 904, persons who are not affiliates of Maverick (or who are
affiliates of Maverick solely by virtue of holding a position as an officer or
director of Maverick) may sell exchangeable shares without registration under
the Securities Act of 1933 if no "directed selling efforts" (as defined in Rule
902 of Regulation S) are made by the seller or any of its affiliates or any
person acting on their behalf, no offer is made to a person in the United
States, and either: (i) at the time the buy order is originated, the buyer is
outside the United States, or the seller and any person acting on behalf of the
seller reasonably believes the buyer is outside the United States; or (ii) the
transaction is executed in, on or through the facilities of The Toronto Stock
Exchange and neither the seller nor any person acting on behalf of the seller
knows that the transaction has been pre-arranged with a buyer in the United
States. In the case of sales by a person who is an officer or director of
Maverick and is an affiliate of Maverick solely by virtue of holding that
position, no selling concession, fee or other remuneration may be paid in
connection with the offer or sale other than the usual and customary broker's
commission that would be received by a person executing the transaction as
agent. Additional conditions apply to resales by persons who are affiliates of
Maverick other than by virtue of holding a position as an officer or director
of Maverick.
Persons who may be deemed to be affiliates of an issuer generally include
individuals or entities that control, are controlled by, or are under common
control with, the issuer and generally include executive officers and directors
of the issuer as well as principal shareholders of the issuer.
Maverick intends to register under the Securities Act of 1933 on Form S-8
the shares of Maverick common stock issuable upon exercise of Prudential
options that are assumed by Maverick. Maverick common stock issuable upon
exercise of the Prudential options may be sold without restrictions in the
United States by Prudential optionholders who are not affiliates of Maverick.
Prudential optionholders who are affiliates of Maverick must comply with the
volume, current public information and manner of sale limitations of Rule 144.
We expect that Prudential and Maverick will enter into affiliates'
agreements with each of their respective affiliates restricting the transfer of
the exchangeable shares and the underlying shares of Maverick common
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<PAGE>
stock and shares of Maverick common stock for the period required by the
requirements for pooling-of-interests accounting treatment and restricting the
sale, pledge or other disposal of exchangeable shares and Maverick common
stock. See "--Anticipated Accounting Treatment" on page 66.
Maverick has agreed that it will file and maintain effective the necessary
registration statements covering the issuance of the Maverick common stock from
time to time in exchange for the exchangeable shares. The shares of Maverick
common stock issued from time to time in exchange for the exchangeable shares
therefore will be freely transferable under U.S. federal securities laws,
subject to restrictions on persons who are affiliates of Maverick.
Canada. Maverick and Maverick Canada expect to receive rulings or orders of
each provincial and territorial securities regulatory authority in Canada
providing exemptions from the registration and prospectus requirements (and the
rights and protections otherwise afforded thereunder):
. to permit the issuance of the exchangeable shares to Prudential
shareholders;
. to permit the issuance of Maverick common stock to holders of
exchangeable shares upon the exchange thereof;
. to permit the exchange of the options to acquire Prudential common shares
for options to acquire Maverick common stock;
. to permit the issuance of Maverick common stock to holders of options
issued upon the exchange of options to acquire Prudential common shares;
and
. to permit resale of the exchangeable shares, Maverick common stock
issuable upon the exchange of exchangeable shares and Maverick common
stock issuable upon exercise of the Maverick options issued upon the
exchange of options to acquire Prudential common shares, in those
Canadian provinces and territories without restriction by a shareholder
other than a "control person," provided that no unusual effort is made to
prepare the market for any such resale or to create a demand for the
securities which are the subject of any such resale and no extraordinary
commission or consideration is paid in respect thereof.
The rulings and orders will provide a rebuttable presumption that a person
or company is a control person where the person or company alone or in
combination with others holds more than 20% of the outstanding voting
securities of Maverick (and for this purpose Maverick common stock and
exchangeable shares will be considered to be of the same class). Maverick
Canada also expects to receive exemptions from statutory financial, insider
reporting and other reporting requirements in those Canadian provinces and
territories on the condition that Maverick files with the securities regulatory
authorities of those Canadian provinces and territories copies of certain of
the reports filed with the SEC and that holders of exchangeable shares receive
materials that are sent to holders of Maverick common stock. In Quebec,
Maverick and Maverick Canada have also applied for an exemption from the
requirements of Title IV of the Securities Act (Quebec), relating to take-over
bids and issuer bids, in respect of the issuance of Maverick common stock in
exchange for exchangeable shares.
Ongoing Canadian Reporting Requirements
As the issuer of the exchangeable shares, Maverick Canada, upon completion
of the arrangement, will be a reporting issuer in certain of the Canadian
provinces and territories. Applications have been made or will be made for
appropriate exemptions from statutory financial and reporting requirements,
including exempting insiders of Maverick Canada from the requirements of filing
insider reports with respect to trades of Maverick Canada's securities in those
Canadian provinces and territories on the condition that Maverick continues to
file with the relevant securities regulatory authorities copies of certain of
its reports filed with the SEC and that holders of exchangeable shares receive
certain materials that are sent to holders of Maverick common stock, including
annual and interim financial statements of Maverick and Maverick shareholder
meeting materials. A similar application will be made to The Toronto Stock
Exchange.
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<PAGE>
After the consummation of the arrangement and subject to Maverick Canada
receiving the reporting exemptions discussed in the preceding paragraph,
holders of exchangeable shares will receive annual and interim financial
statements of Maverick in lieu of financial statements of Maverick Canada.
Interests of Certain Persons in the Transaction
Indemnification of Prudential Officers and Directors. Pursuant to the
combination agreement, Maverick has agreed to maintain all rights to
indemnification existing at the time of execution of the combination agreement
in favor of the directors and officers of Prudential and its subsidiaries in
accordance with the charter documents and bylaws of each entity and to the
fullest extent permitted under the Business Corporations Act (Alberta) and to
continue in effect director and officer liability insurance for such persons
for a period of six years from the closing.
Prudential Options. Pursuant to the arrangement, all Prudential options will
continue to vest in accordance with their terms except that, pursuant to
agreements between Prudential and seven officers, all unvested options owned by
these officers are immediately accelerated and vested upon completion of the
combination. These individuals own in the aggregate 746,026 options, of which
246,039 are currently unvested. Maverick will assume Prudential's stock option
plan and the obligations of Prudential under each Prudential option. Each
Prudential option will be exchanged for an option to purchase 0.52 of a share
of Maverick common stock at an exercise price equal to its current exercise
price divided by 0.52, expressed in U.S. dollars. See "--Transaction Mechanics
and Description of Exchangeable Shares--Stock Options" on page 56.
Rights on Change of Control. Prudential has entered into agreements with
seven officers which provide for a lump sum payment to each of these
individuals in the event their employment with Prudential is terminated by
Prudential without just cause within 180 days of a change of control, or by the
individual, for good reason, within two years of a change of control. In
addition, J. Donald Wilson, Prudential's President and Chief Executive Officer,
may receive his lump sum payment if he terminates his employment for any reason
at his sole discretion within 60 days of the change of control. The agreements
between Prudential and seven of its officers also provide that all unvested
Prudential options are immediately accelerated and vested upon completion of
the combination. See "--Transaction Mechanics and Description of Exchangeable
Shares--Stock Options" on page 56.
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CERTAIN FINANCIAL AND OTHER INFORMATION ABOUT THE COMPANIES
Maverick
Maverick is a leading United States producer of tubular steel products used
in energy and industrial applications. Maverick is one of the largest U.S.
manufacturers of oil country tubular goods, the steel tubular products used in
the completion of the new oil and natural gas wells. Maverick also produces
line pipe for handling and transporting oil and natural gas. Sold through a
network of distributors, these products, which comprise Maverick's energy
products segment, are used primarily throughout the United States and Canada.
Maverick also manufactures structural tubing (hollow structural sections) and
standard pipe. These products, which comprise Maverick's industrial products
segment, are also sold primarily to service centers that supply end users in
construction, transportation, agricultural and other industries. In fiscal
1999, Maverick expanded its industrial products business with the production of
cold drawn products that require close tolerances. To further its growth and
enhance its ability to compete in its energy and industrial businesses,
Maverick plans to expand its current product lines to include larger diameter
pipe and tubing products.
For the fiscal year ended September 30, 1999, Maverick had sales of $172.4
million and net loss of $10.4 million.
Maverick commenced operations in 1977 and is a corporation governed by the
laws of the State of Delaware, United States. Maverick's principal office is
located at 16401 Swingley Ridge Road, Suite 700, Chesterfield, Missouri 63017,
telephone number (636) 733-1600.
A more detailed description of the business of Maverick is incorporated by
reference or included in Annex K to this joint proxy statement.
Maverick Selected Financial Data
<TABLE>
<CAPTION>
(Unaudited)
Six Months
Ended March 31, For the Years Ended September 30,
----------------- -----------------------------------------------
2000 1999(3) 1999 1998 1997 1996(2) 1995(1)
-------- ------- -------- -------- -------- -------- --------
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $140,870 $75,515 $172,417 $265,389 $291,060 $204,182 $167,896
Cost of Goods Sold...... 134,044 75,624 169,562 232,038 252,803 182,042 159,865
-------- ------- -------- -------- -------- -------- --------
Gross profit............ 6,826 (109) 2,855 33,351 38,257 22,140 8,031
Selling, general and
administrative......... 7,941 6,780 13,703 13,210 13,966 10,198 7,728
Write-down of software
cost................... -- -- -- 1,605 -- -- --
-------- ------- -------- -------- -------- -------- --------
Total selling, general
and administrative..... 7,941 6,870 13,703 14,815 13,966 10,198 7,728
Start-up costs.......... -- 1,671(3) 3,462(3) -- -- -- 245
-------- ------- -------- -------- -------- -------- --------
Income (loss) from
operations............. (1,115) (8,650) (14,310) 18,536 24,291 11,942 58
Interest Expense........ 668 793 1,861 1,731 2,067 2,522 3,164
Other Income............ -- -- -- -- -- -- 772
-------- ------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... (1,783) (9,443) (16,171) 16,805 22,224 9,420 (2,334)
Provision (credit) for
income taxes........... (644) (3,391) (5,722) 5,420 7,339 1,882 --
-------- ------- -------- -------- -------- -------- --------
Net income (loss)....... $ (1,139) $(6,052) $(10,449) $ 11,385 $ 14,885 $ 7,538 $ (2,334)
======== ======= ======== ======== ======== ======== ========
Diluted earnings (loss)
per share.............. $ (0.06) $ (0.39) $ (0.68) $ 0.73 $ 0.97 $ 0.50 $ (0.16)
Average shares deemed
outstanding............ 17,686 15,437 15,438 15,564 15,282 15,000 14,920
Other Data:
Depreciation and
amortization........... $ 4,162 $ 3,527 $ 7,355 $ 6,172 $ 5,697 $ 5,201 $ 4,691
Capital expenditures.... 29,596 7,908 11,869 22,181 9,537 5,497 5,592
EBITDA (4).............. 3,047 (5,123) (6,955) 24,708 29,988 17,143 5,521
Balance Sheet Data:
Working capital......... 67,165 42,642 44,316 60,362 44,992 32,652 30,272
Total assets............ 223,776 136,737 160,148 156,885 162,064 125,556 106,494
Current maturities of
long-term debt......... 736 681 708 653 604 1,843 2,795
Long-term debt (less
current maturities).... 7,112 7,850 7,518 8,226 8,879 11,901 18,045
Revolving credit
facility............... 44,000 22,000 31,000 27,400 10,000 13,250 15,000
Stockholders' equity.... 114,034 84,012 79,646 90,063 77,868 57,247 49,503
</TABLE>
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--------
(1) The Fiscal year ended September 30, 1995 is the first reporting period
which includes results of operations of Maverick's structural tube facility
which began operations in October 1994.
(2) Includes the one-time effect of the change in accounting practice which
resulted in a reduction in net sales, gross profit, net income and diluted
earnings per share of $8,700,000, $1,000,000, $839,000, and $0.06,
respectively.
(3) The six months ended March 31, 1999 is the first reporting period which
includes results of operations of Maverick's cold drawn tubing facility
which began operations October 1998.
(4) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. We believe EBITDA is a widely accepted, supplemental
financial measurements used by many investors and analysts to analyze and
compare companies' performances. However, EBITDA should not be considered
as an alternative to income from operations or to cash flow from operating,
investing or financing activities, as determined in accordance with
generally accepted accounting principles. EBITDA should also not be
construed as an indication of a company's operating performance or as a
measure of liquidity. Management's discretionary use of funds depicted by
EBITDA may be limited by working capital, debt service and capital
expenditure requirements and by restrictions related to legal requirements,
commitments and uncertainties. Because EBITDA excludes some, but not all,
items that affect net income and because these measures may vary among
companies, the EBITDA data presented above may not be comparable to similar
titled measures of other companies.
Prudential
Prudential and its wholly owned subsidiary, Prudential Steel Inc., are
engaged in the production of energy and industrial tubular products.
Prudential was incorporated under the Companies Act (Alberta) on April 4,
1966 and was continued under the Business Corporations Act (Alberta) on May 24,
1983. On February 2, 1994, the articles of the corporation were amended to,
among other things, subdivide the issued and outstanding common shares,
increase the authorized share capital to include an unlimited number of common
shares and an unlimited number of preferred shares, issuable in series, and
remove the private company restrictions.
In 1994, Prudential's former owner, Dofasco Inc., sold its ownership
interest in Prudential by way of a public secondary offering of 10 million
common shares for an aggregate consideration of C$100 million. Prudential's
common shares began trading on The Toronto Stock Exchange on April 8, 1994
under the symbol "PTS".
On October 28, 1997, the articles of corporation were amended to split the
common shares on a 3:1 basis. On May 7, 1999, the articles of the corporation
were amended and restated to permit a shareholder's meeting to be held outside
of Alberta.
Prudential was originally incorporated to produce pipe for the energy
sector. Prudential has the ability to produce line pipe for the transportation
and gathering of oil and gas, casing and tubing for use in the natural resource
drilling and completion process and standard round, square and rectangular
shaped steel tubes. Prudential currently has annual capacity to produce
approximately 400,000 metric tonnes of pipe and tubular goods in Canada with
additional capacity of 100,000 metric tonnes in the United States.
Prudential is one of North America's leading producers of high quality
energy and industrial tubular products.
A description of the business of Prudential is included in Prudential's
Renewal Annual Information form dated May 15, 2000. See "Documents Incorporated
by Reference" on page 113 or Annex K.
Prudential's head office is located at Suite 1800, 140-4th Avenue S.W.,
Calgary, Alberta T2P 3N3, telephone (403) 267-0300.
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<PAGE>
Prudential Selected Financial Data
<TABLE>
<CAPTION>
(Unaudited)
Three Months
Ended March 31, For the Years Ended December 31,
----------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- --------- --------- --------- --------- ---------
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... C$95,297 C$40,978 C$210,945 C$175,656 C$352,021 C$242,934 C$176,958
Cost of Goods Sold...... 77,218 35,078 181,301 143,842 273,269 197,498 151,034
Gross profit............ 18,079 5,900 29,644 31,814 78,752 45,436 25,924
Selling, general and
administrative......... 3,002 2,786 12,380 7,842 8,091 7,812 6,315
Interest Expense........ 173 (37) 10 (109) (861) (185) 972
Depreciation............ 1,736 950 6,276 3,532 3,815 3,648 3,290
Income (loss) before
income taxes........... 13,168 2,201 10,978 20,549 67,707 34,161 15,347
Provision for income
taxes.................. 5,343 850 6,165 7,663 24,907 12,605 5,723
Net income.............. C$ 7,825 C$ 1,351 C$ 4,813 C$ 12,886 C$ 42,800 C$ 21,556 C$ 9,624
Basic earnings per
share.................. 0.26 0.04 0.16 0.43 1.42 0.72 0.32
Diluted earnings per
share.................. 0.25 0.04 0.16 0.42 1.39 0.70 0.32
Average shares deemed
outstanding............ 30,239 30,236 30,239 30,236 30,213 30,051 30,000
Balance Sheet Data:
Working capital......... 77,228 70,041 70,264 72,018 93,458 59,557 40,791
Total assets............ 209,258 148,140 186,117 154,315 174,512 121,807 111,047
Stockholders' equity.... 133,403 128,150 127,090 128,311 121,380 83,538 65,801
</TABLE>
The Combined Company
General. The combined company will be the largest North American producer of
welded oil country tubular goods for the energy industry in terms of total ton
capacity and, based upon pro forma data for the twelve-month period ended
December 31, 1999, total tons shipped, and a major supplier of line pipe for
the energy industry and hollow structural sections to industrial markets. The
combined company will retain the name "Maverick Tube Corporation" and will be
headquartered in Chesterfield, Missouri, with Canadian operations headquartered
in Calgary, Alberta and operating under the Prudential name and associated
goodwill. On , 2000, Maverick applied to list its shares
of common stock, including those issuable upon the exchange of exchangeable
shares, on the New York Stock Exchange.
Pro Forma Financial Information. At March 31, 2000, on a pro forma combined
basis, the combined company had:
. total assets of approximately $366.9 million;
. total stockholders' equity of approximately $199.0 million;
. debt of approximately $59.4 million;
. 10 tube mills and five facilities located in the U.S. and Canada, with
the capacity to produce approximately 1.5 million tons of tubular
products annually;
. approximately 33.6 million outstanding shares of common stock (including
Maverick common stock issuable upon exchange of the exchangeable shares);
. approximately 2,000 employees in the U.S. and Canada.
For the three year period ended September 30, 1999 for Maverick and the
three year period ended December 31, 1999 for Prudential, on a pro forma
combined basis, the combined company had:
. average annual revenues of approximately $414.5 million; and
. average annual operating cash flow of approximately $30.7 million.
See "Unaudited Pro Forma Combined Condensed Financial Statements" on page 76.
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<PAGE>
Plans for Prudential. Upon the combination becoming effective, Prudential
will become an indirect wholly owned subsidiary of Maverick. Maverick currently
plans to continue to operate Prudential as a separate entity, substantially as
it is currently being operated, with a view to maximizing Prudential's
potential in conjunction with Maverick's businesses. It is expected that the
businesses and operations of Prudential will form an important part of
Maverick's future business plans. Maverick has no present plans or proposals
which relate to or would result in an extraordinary corporate transaction such
as a merger, reorganization, liquidation, a sale or transfer of a material
amount of assets or any other material changes to Prudential's corporate
structure or business.
Management of the Combined Company. Simultaneously with the consummation of
the arrangement, the Maverick board of directors will be increased to 11
members. This 11-member board will include six members from the Maverick board
and five members from the Prudential board as identified below. Gregg M.
Eisenberg will continue to serve as Chairman of the Board, President and Chief
Executive Officer of Maverick and J. Donald Wilson, President and Chief
Executive Officer of Prudential will continue to serve Prudential in that
capacity. Mr. Wilson and Norman W. Robertson, Prudential's current Chairman of
the Board, will become directors of Maverick upon completion of the
combination. Barry R. Pearl, Vice President, Finance and Chief Financial
Officer of Maverick, will continue in the same role. To date, no further
specific determination as to the management of the combined company has been
made.
Dividend Policy. Maverick has not declared or paid cash dividends on its
common stock since incorporation. After the transaction, we currently intend to
retain earnings to finance the growth and development of our businesses and do
not anticipate paying cash dividends in the near future. Any payment of cash
dividends in the future will depend upon our financial condition, capital
requirements and earnings as well as other factors the Board of Directors may
deem relevant. Our revolving credit facility with commercial lenders restricts
the amount of dividends we can pay to our stockholders.
Maverick Tube (Canada) Ltd.
Maverick Canada was incorporated under the Business Corporations Act
(Alberta) on , 2000 for the purpose of facilitating the
proposed arrangement. Maverick Canada is a wholly-owned subsidiary of Maverick
and has no material assets, capital or liabilities.
The authorized capital of Maverick Canada consists of an unlimited number of
common shares and an unlimited number of exchangeable shares. See "Information
About the Share Capital of Maverick and Maverick Canada--Maverick Canada Share
Capital" on page 87. Currently, all of the outstanding common shares are owned
by Maverick and there are no exchangeable shares outstanding. Upon completion
of the combination, Maverick Canada will own all of the outstanding Prudential
common shares and Prudential shareholders will receive 0.52 of an exchangeable
share of Maverick Canada for each Prudential common share held on the record
date for Prudential's special meeting.
Maverick Canada's principal office is located at Suite 1800, 140-4th Avenue,
S.W., Calgary, Alberta T2P 3N3 telephone (403) 267-0300.
To date, no specific determination as to the directors and officers of
Maverick Canada has been made.
None of the directors or officers of Maverick Canada will receive any
remuneration in respect of his appointment in such capacities.
Ernst & Young LLP, Calgary, Alberta, are the chartered accountants of
Maverick Canada. CIBC Mellon Trust Company, at its principal offices in Toronto
and Calgary, is the registrar and transfer agent for the exchangeable shares.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are
presented to give effect to the acquisition of Prudential by Maverick under the
pooling-of-interests method of accounting. The balance sheet assumes that the
transaction had been consummated on March 31, 2000. The income statements for
each of the three years in the period ended September 30, 1999 and the six
months ended March 31, 2000 assume that the transaction had been consummated on
October 1, 1996.
As a result of the differing year-ends of Maverick and Prudential, results
of operations for dissimilar year-ends have been combined. Maverick's results
of operations for its fiscal year ended September 30, 1999, 1998 and 1997 have
been combined with Prudential's results of operations for the years ended
December 31, 1999, 1998 and 1997, respectively and are reported as September
30, 1999, 1998 and 1997. Maverick's results of operations for the 6 months
ended March 31, 2000 have been combined with Prudential's results of operation
for the 6 months ended March 31, 2000.
The unaudited pro forma combined financial statements do not reflect any
cost savings or other synergies which may result from the transaction and are
not necessarily indicative of future results of operations or financial
position. Additionally, the unaudited pro forma combined statements of
operations exclude non-recurring charges directly attributable to the
transaction which will be charged to operations in the quarter in which the
transaction is consummated. These unaudited pro forma combined financial
statements are presented in accordance with U.S. GAAP. The unaudited pro forma
combined financial statements should be read in conjunction with the historical
consolidated financial statements of Maverick and Prudential, including the
notes thereto, incorporated by reference and included in this joint proxy
statement.
76
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 2000
----------------------------------------
Prudential Pro Forma Pro
U.S. GAAP Adjustments Forma
Maverick (1) (2) Combined
-------- ---------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C>
Assets
Current Assets....................... $123,128 $103,257 $ -- $226,385
Property, Plant and Equipment--
Net................................ 100,011 39,568 139,579
Other Assets......................... 637 260 897
-------- -------- ------- --------
Total Assets..................... $223,776 $143,085 $ -- $366,861
======== ======== ======= ========
Liabilities
Current Liabilities.................. $ 55,963 $ 42,543 $ 7,290a $105,796
Long-term Debt, less Current
Maturities.......................... 7,112 -- 7,112
Revolving Credit Facility............ 44,000 7,582 51,582
Deferred Income Taxes................ 2,667 1,560 (1,367)b 2,860
Other Liabilities and Deferred
Credits............................. 503 503
-------- -------- ------- --------
Total Liabilities................ 109,742 52,188 5,923 167,853
Stockholder's Equity
Common Stock and Paid in Capital..... 79,930 29,916 109,846
Retained Earnings.................... 34,104 62,025 (5,923)c 90,206
Accumulated Other Comprehensive Loss
Foreign Currency Translation....... (1,044) (1,044)
-------- -------- ------- --------
Total Stockholders' Equity....... 114,034 90,897 (5,923) 199,008
-------- -------- ------- --------
Total Liabilities and
Stockholders' Equity............ $223,776 $143,085 $ -- $366,861
======== ======== ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements
77
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Six Months Ended March 31, 2000
---------------------------------------------------
Prudential
U.S. Pro Forma Pro Forma
Maverick GAAP(1)(4) Adjustments(2) Combined
---------- ---------- -------------- ----------
(In thousands, except share and per share
amounts)
<S> <C> <C> <C> <C>
Net Sales.................. $ 140,870 $ 125,463 $ -- $ 266,333
Cost of Goods Sold......... 134,044 105,697 239,741
---------- ---------- ----- ----------
Gross Profit............... 6,826 19,766 -- 26,592
Selling, General &
Administrative............ 7,941 5,182 13,123
---------- ---------- ----- ----------
Income (Loss) from
Operations................ (1,115) 14,584 -- 13,469
Interest Expense........... 668 172 840
---------- ---------- ----- ----------
Income (Loss) Before Income
Taxes..................... $ (1,783) $ 14,412 $ -- $ 12,629
Provision (Benefit) for
Income Taxes.............. (644) 6,141 (291)b 5,206
---------- ---------- ----- ----------
Net Income (Loss).......... $ (1,139) $ 8,271 $ 291 $ 7,423
========== ========== ===== ==========
Basic Earnings (Loss) per
Common Share.............. $ (0.06) $ 0.53 $ 0.22
========== ========== ==========
Diluted Earnings (Loss) per
Common Share.............. $ (0.06) $ 0.50 $ 0.21
========== ========== ==========
Weighted Average number of
Common Shares Outstanding. 17,686,496 15,724,335(3) 33,410,831
========== ========== ==========
Weighted Average number of
Common Shares Outstanding,
including dilution........ 18,184,923 16,415,391(3) 34,600,314
========== ========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements
<TABLE>
<CAPTION>
Year Ended September 30, 1999
---------------------------------------------------
Prudential
U.S. Pro Forma Pro Forma
Maverick GAAP(1)(4) Adjustments(2) Combined
---------- ---------- -------------- ----------
(In thousands, except share and per share
amounts)
<S> <C> <C> <C> <C>
Net Sales................. $ 172,417 $ 142,001 $ -- $ 314,418
Cost of Goods Sold........ 169,562 126,112 295,674
---------- ---------- ------ ----------
Gross Profit.............. 2,855 15,889 -- 18,744
Selling, General &
Administrative........... 13,703 8,334 22,037
Start-up Cost............. 3,462 283 3,745
---------- ---------- ------ ----------
Income (Loss) from
Operations............... (14,310) 7,272 -- (7,038)
Interest Expense.......... 1,861 7 1,868
---------- ---------- ------ ----------
Income (Loss) Before
Income Taxes............. $ (16,171) $ 7,265 $ -- $ (8,906)
Provision (Benefit) for
Income Taxes............. (5,722) 4,150 (1,346)b (2,918)
---------- ---------- ------ ----------
Net Income (Loss)......... $ (10,449) $ 3,115 $1,346 $ (5,988)
========== ========== ====== ==========
Basic Earnings (Loss) per
Common Share............. $ (0.68) $ 0.20 $ (0.19)
========== ========== ==========
Diluted Earnings (Loss)
per Common Share......... $ (0.68) $ 0.19 $ (0.19)
========== ========== ==========
Weighted Average number of
Common Shares
Outstanding.............. 15,437,611 15,724,335(3) 31,161,946
========== ========== ==========
Weighted Average number of
Common Shares
Outstanding, including
dilution................. 15,437,611 16,355,968(3) 31,161,946
========== ========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements
78
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended September 30, 1998
-----------------------------------------------------
Prudential Pro Forma Pro Forma
Maverick U.S. GAAP (1) Adjustments (2) Combined
---------- ------------- --------------- ----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Net Sales............... $ 265,389 $ 118,529 $ -- $ 383,918
Cost of Goods Sold...... 232,038 99,445 331,483
---------- ---------- ----------- ----------
Gross Profit............ 33,351 19,084 -- 52,435
Selling, General &
Administrative......... 14,815 5,292 20,107
Start-up Cost........... 776 776
---------- ---------- ----------- ----------
Income (Loss) from
Operations............. 18,536 13,016 -- 31,552
Interest Expense........ 1,731 (74) 1,657
---------- ---------- ----------- ----------
Income (Loss) Before
Income Taxes........... $ 16,805 $ 13,090 $ -- $ 29,895
Provision (Benefit) for
Income Taxes........... 5,420 5,171 10,591
---------- ---------- ----------- ----------
Net Income (Loss)....... $ 11,385 $ 7,919 $ -- $ 19,304
========== ========== =========== ==========
Basic Earnings per
Common Share........... $ 0.74 $ 0.50 $ 0.62
========== ========== ==========
Diluted Earnings per
Common Share........... $ 0.73 $ 0.49 $ 0.61
========== ========== ==========
Weighted Average number
of Common Shares
Outstanding............ 15,436,922 15,722,497(3) 31,159,419
========== ========== ==========
Weighted Average number
of Common Shares
Outstanding, including
dilution .............. 15,563,931 16,177,487(3) 31,741,418
========== ========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements
<TABLE>
<CAPTION>
Year Ended September 30, 1997
-----------------------------------------------------
Prudential Pro Forma Pro Forma
Maverick U.S. GAAP (1) Adjustments (2) Combined
---------- ------------- --------------- ----------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Net Sales............... $ 291,060 $ 254,236 $ -- 545,296
Cost of Goods Sold...... 252,803 200,115 452,918
---------- ---------- ----------- ----------
Gross Profit............ 38,257 54,121 -- 92,378
Selling, General &
Administrative......... 13,966 5,843 19,809
---------- ---------- ----------- ----------
Income (Loss) from
Operations............. 24,291 48,278 -- 72,569
Interest Expense........ 2,067 (622) 1,445
---------- ---------- ----------- ----------
Income (Loss) Before
Income Taxes........... $ 22,224 $ 48,900 $ -- $ 71,124
Provision (Benefit) for
Income Taxes........... 7,339 17,988 25,327
---------- ---------- ----------- ----------
Net Income (Loss)....... $ 14,885 $ 30,912 $ -- $ 45,797
========== ========== =========== ==========
Basic Earnings per
Common Share........... $ 0.99 $ 1.97 $ 1.49
========== ========== ==========
Diluted Earnings per
Common Share........... $ 0.97 $ 1.92 $ 1.46
========== ========== ==========
Weighted Average number
of Common Shares
Outstanding............ 15,018,118 15,710,832(3) 30,728,950
========== ========== ==========
Weighted Average number
of Common Shares
Outstanding, including
dilution .............. 15,282,156 16,080,289(3) 31,362,445
========== ========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements
79
<PAGE>
MAVERICK TUBE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
1. CONVERSION OF PRUDENTIAL TO U.S. GAAP AND U.S. DOLLARS
The historical consolidated financial statements of Prudential were prepared
under Canadian GAAP in Canadian dollars. For these unaudited pro forma combined
financial statements, the historical financial information of Prudential has
been converted to U.S. GAAP accounting and converted to U.S. dollars using the
March 31, 2000 exchange rate (.6879) for the balance sheet and the average
exchange rates for the six month periods ended March 31, 2000 (.6878), and the
years ended September 30, 1999 (.6732), 1998 (.6748) and 1997 (.7222) for the
statements of income. See Note 10 to Prudential's historical consolidated
financial statements included in Annex K or incorporated by reference for a
description of the adjustments to convert Prudential's financial statements
from Canadian GAAP to U.S. GAAP.
US GAAP BALANCE SHEET--PRUDENTIAL
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------------------
Prudential Prudential
Historical Prudential Historical
Canadian U.S. GAAP Historical U.S. GAAP
GAAP Adjustments U.S. GAAP U.S. $
---------- ----------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Current Assets................ C$150,085 C$ 0 C$150,085 $103,257
Property, Plant and
Equipment--
Net......................... 58,795 (1,283) 57,512 39,568
Other Assets.................. 378 378 260
--------- -------- --------- --------
Total Assets.............. C$209,258 C$(1,283) C$207,975 $143,085
========= ======== ========= ========
LIABILITIES
Current Liabilities........... C$ 61,837 C$ 0 C$ 61,837 $ 42,543
Long-term Debt, less Current
Maturities................... --
Revolving Credit Facility..... 11,020 11,020 7,582
Deferred Income Taxes......... 2,267 2,267 1,560
Other Liabilities and Deferred
Credits...................... 731 731 503
--------- -------- --------- --------
Total Liabilities......... 75,855 -- 75,855 52,188
STOCKHOLDER'S EQUITY
Common Stock and Paid in
Capital...................... 41,966 41,966 29,916
Retained Earnings............. 91,437 (1,283) 90,154 62,025
Accumulated Other
Comprehensive Loss...........
Foreign Currency
Translation................ -- (1,044)
--------- -------- --------- --------
Total Common Stockholders'
Equity................... 133,403 (1,283) 132,120 90,897
--------- -------- --------- --------
Total Liabilities and
Common Stockholders'
Equity................... C$209,258 C$(1,283) C$207,975 $143,085
========= ======== ========= ========
</TABLE>
80
<PAGE>
MAVERICK TUBE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS--(Continued)
U.S. GAAP STATEMENTS OF INCOME--PRUDENTIAL
<TABLE>
<CAPTION>
Six Months Ended
March 31, 2000
--------------------------------------------
Prudential Prudential
Historical Prudential Historical
Canadian U.S. GAAP Historical U.S. GAAP
GAAP Adjustments U.S. GAAP U.S. $
---------- ----------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Net Sales......................... C$183,559 C$ 0 C$183,559 $125,463
Cost of Goods Sold................ 154,771 (131) 154,640 105,697
--------- ----- --------- --------
Gross Profit...................... 28,788 131 28,919 19,766
Selling, General & Administrative. 7,582 7,582 5,182
--------- ----- --------- --------
Income (Loss) from Operations..... 21,206 131 21,337 14,584
Interest Expense.................. 252 252 172
--------- ----- --------- --------
Income (Loss) Before Income Taxes. C$ 20,954 C$131 C$ 21,085 $ 14,412
Provision (Benefit) for Income
Taxes............................ 8,984 8,984 6,141
--------- ----- --------- --------
Net Income (Loss)................. C$ 11,970 C$131 C$ 12,101 $ 8,271
========= ===== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------------
Prudential Prudential
Historical Prudential Historical
Canadian U.S. GAAP Historical U.S. GAAP
GAAP Adjustment U.S. GAAP U.S. $
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Net Sales.......................... C$210,945 C$ 0 C$210,945 $142,001
Cost of Goods Sold................. 187,577 (236) 187,341 126,112
--------- ------ --------- --------
Gross Profit....................... 23,368 236 23,604 15,889
Selling, General & Administrative.. 12,380 12,380 8,334
Start-up Cost...................... -- 421 421 283
--------- ------ --------- --------
Income (Loss) from Operations...... 10,988 (185) 10,803 7,272
Interest Expense................... 10 10 7
--------- ------ --------- --------
Income (Loss) Before Income Taxes.. C$ 10,978 C$(185) C$ 10,793 $ 7,265
Provision (Benefit) for Income
Taxes............................. 6,165 6,165 4,150
--------- ------ --------- --------
Net Income (Loss).................. C$ 4,813 C$(185) C$ 4,628 $ 3,115
========= ====== ========= ========
</TABLE>
81
<PAGE>
MAVERICK TUBE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------
Prudential Prudential
Historical Prudential Historical
Canadian U.S. GAAP Historical U.S. GAAP
GAAP Adjustment U.S. GAAP U.S. $
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Net Sales.......................... C$175,656 C$ 0 C$175,656 $118,529
Cost of Goods Sold................. 147,374 147,374 99,445
--------- -------- --------- --------
Gross Profit....................... 28,282 -- 28,282 19,084
Selling, General & Administrative.. 7,842 7,842 5,292
Start-up Cost...................... -- 1,150 1,150 776
--------- -------- --------- --------
Income (Loss) from Operations...... 20,440 (1,150) 19,290 13,016
Interest Expense................... (109) (109) (74)
--------- -------- --------- --------
Income (Loss) before Income Taxes.. C$ 20,549 C$(1,150) C$ 19,399 $ 13,090
Provision (Benefit) for Income
Taxes............................. 7,663 7,663 5,171
--------- -------- --------- --------
Net Income (Loss).................. C$ 12,886 C$(1,150) C$ 11,736 $ 7,919
========= ======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
---------------------------------------------
Prudential Prudential
Historical Prudential Historical
Canadian U.S. GAAP Historical U.S. GAAP
GAAP Adjustment U.S. GAAP U.S. $
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Net Sales.......................... C$352,021 C$0 C$352,021 $254,236
Cost of Goods Sold................. 277,084 277,084 200,115
--------- --- --------- --------
Gross Profit....................... 74,937 -- 74,937 54,121
Selling, General & Administrative.. 8,091 8,091 5,843
Start-up Cost...................... -- -- --
--------- --- --------- --------
Income (Loss) from Operations...... 66,846 -- 66,846 48,278
Interest Expense................... (861) (861) (622)
--------- --- --------- --------
Income (Loss) Before Income Taxes.. C$ 67,707 C$0 C$ 67,707 $ 48,900
Provision (Benefit) for Income
Taxes............................. 24,907 24,907 17,988
--------- --- --------- --------
Net Income (Loss).................. C$ 42,800 C$0 C$ 42,800 $ 30,912
========= === ========= ========
</TABLE>
2. PRO FORMA ADJUSTMENTS
a) Reflects the estimated direct costs associated with the transaction between
Maverick and Prudential which approximates $10.0 million ($7.3 million net
of income tax). These non-recurring costs, which are subject to change, will
be charged to operations in the quarter in which the transaction is
consummated. We expect that substantially all of the costs related to this
transaction will be paid within six months after the transaction is
consummated.
b) Reflects the impact of eliminating the valuation allowance for Prudential's
U.S. net operating losses which is not considered necessary for combined
financial statement purposes.
82
<PAGE>
MAVERICK TUBE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS--(Continued)
c) Reflects the retained earnings impact of the transaction costs discussed in
footnote (a) and the reduction in the valuation allowance for Prudential's
U.S. tax losses which the combined entity would be able to value for
financial statement purposes.
3. PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
The pro forma weighted average number of Prudential common shares
outstanding and weighted average number of common shares outstanding, including
dilution for each period has been calculated using the exchange ratio of 0.52
of an exchangeable share for each Prudential common share.
4. PRUDENTIAL'S U.S. GAAP FOR STUB PERIOD ENDED MARCH 31, 2000
Due to Maverick's and Prudential's year ends not differing by more than 93
days, our fiscal years have been combined as they have been previously
reported. Accordingly, Prudential's results of operations for the three-month
period ended December 31, 1999 has been included in the pro forma combined
statements of operations for the year ended September 30, 1999 and the six
months ended March 31, 2000. Net sales from October 1, 1999 through December
31, 1999 was $65.5 million and net income for that same time period was $5.4
million.
83
<PAGE>
INFORMATION ABOUT THE
SHARE CAPITAL OF MAVERICK AND MAVERICK CANADA
Maverick Share Capital
Common and Preferred Stock Description
Common Stock. Each share of common stock has one vote on all matters to be
voted upon by Maverick stockholders. No share of Maverick common stock affords
any cumulative voting or preemptive rights or is convertible, redeemable,
assessable or entitled to the benefits of any sinking or repurchase fund.
Holders of Maverick common stock will be entitled to dividends in such amounts
and at such times as Maverick's board, in its discretion, may declare out of
funds legally available for the payment of dividends. See Annex K or the
information incorporated by reference for more information about Maverick's
dividend policy. In the event of Maverick's liquidation, dissolution or winding
up, the holders of Maverick common stock are entitled to share ratably in all
of Maverick's preferred stock, if any, then outstanding.
Preferred Stock. The Maverick board of directors has the authority, without
action by the Maverick stockholders, to designate and issue shares of
Maverick's currently authorized preferred stock in one or more series and to
designate the rights, preferences and privileges of each series, which may be
greater than the rights of Maverick's common stock. The rights any class or
series of Maverick preferred stock may evidence include:
. general or special voting rights;
. preferential liquidation or preemptive rights;
. preferential cumulative or noncumulative dividend rights;
. redemption or put rights; and
. conversion or exchange rights.
Maverick may issue shares of, or rights to purchase, preferred stock the
terms of which might:
. adversely affect voting or other rights evidenced by Maverick's common
stock;
. restrict dividends on Maverick's common stock;
. discourage an unsolicited proposal to acquire Maverick; or
. facilitate a particular business combination involving Maverick.
Any such action could discourage a transaction that some or a majority of
Maverick stockholders might believe to be in their best interests or in which
Maverick stockholders might receive a premium for their stock over its then
market price.
Series I--Junior Participating Preferred Stock. Maverick has designated
1,000,000 shares of Maverick's preferred stock as Series I junior participating
preferred stock, which may be issued in connection with the exercise of the
rights described below in the section entitled "Maverick Shareholder Rights
Plan." Each one one-hundredth of a share of Series I junior participating
preferred stock that may be issued on the exercise of the rights described
below will be economically similar to a share of common stock.
Series II--Special Voting Stock. A single share of special voting stock, to
be designated Series II special voting stock, will be established by the
Maverick board pursuant to the combination agreement from its current
authorized preferred stock referred to above. Except as otherwise required by
law or the Maverick certificate of incorporation, the Series II special voting
stock will possess a number of votes equal to the number of outstanding
exchangeable shares from time to time not owned by Maverick or its affiliates,
which votes may be exercised for the election of directors and on all other
matters submitted to a vote of Maverick's stockholders. The holders of Maverick
common stock and the holder of the Series II special voting stock will vote
together
84
<PAGE>
as a single class on all matters. Pursuant to the combination agreement, the
Series II special voting stock will be issued to the trustee appointed under
the voting and exchange trust agreement. The holder of the special voting stock
will not be entitled to receive dividends, and, in the event of any
liquidation, dissolution or winding up of Maverick, will receive an amount
equal to the par value thereof. At such time as the special voting stock has no
votes attached to it because there are no exchangeable outstanding not owned by
Maverick or any of its affiliates, the special voting stock will cease to have
any rights.
Maverick Shareholder Rights Plan
Each share of Maverick common stock includes one right to purchase from
Maverick one one-hundredth of a share of Maverick's Series I junior
participating preferred stock at an exercise price of $50.00 per share, subject
to adjustment. The rights are not exercisable until after the "separation
time," as described below, occurs.
The rights are attached to all certificates representing Maverick's
currently outstanding common stock and will attach to all common stock
certificates Maverick issues prior to the separation time. The separation time
would occur, except in some cases, on the earlier of:
. the day that a public announcement that a person or group of affiliated
or associated persons (collectively, an "acquiring person") has acquired
or obtained the right to acquire beneficial ownership of 20% or more of
the outstanding Maverick common stock; or
. 10 days following the start of a tender or exchange offer that would
result, if closed, in a person becoming an acquiring person.
Maverick's board may defer the separation time in some circumstances, and
some inadvertent acquisitions will not result in a person becoming an acquiring
person if the person promptly divests itself of sufficient common stock.
Until the separation time occurs:
. common stock certificates will evidence the rights;
. the rights will be transferable only with those certificates;
. those certificates will contain a notation incorporating the rights
agreement by reference; and
. the surrender for transfer of any of those certificates also will
constitute the transfer of the rights associated with the stock that
certificate represents.
The rights will expire at the close of business on July 23, 2008, unless
Maverick earlier redeems or exchanges them as described below.
As soon as practicable after the separation time, the rights agent will mail
certificates representing the rights to holders of record of common stock as of
the close of business on that date and, from and after that date, only separate
rights certificates will represent the rights. Maverick will not issue rights
with any shares of common stock issued after the separation time, except as the
board otherwise may determine.
A "flip-in event" will occur under the Maverick shareholder rights plan when
a person becomes an acquiring person otherwise than through a "permitted offer"
as described in the Maverick shareholder rights plan. The Maverick shareholder
rights plan defines "permitted offer" to mean a tender or exchange offer for
all outstanding shares of common stock at a price and on terms that a majority
of the independent members of Maverick's board determines to be adequate and
otherwise in its best interests and the best interests of its stockholders.
85
<PAGE>
Anytime prior to the earlier of any person becoming an acquiring person and
the expiration of the rights, Maverick may redeem the rights in whole, but not
in part, at a redemption price of $.01 per right. At its option, Maverick may
pay the redemption price in cash, shares of common stock or other securities of
Maverick. If the Maverick board timely orders the redemption of the rights, the
rights will terminate on the effectiveness of that action. If a flip-in event
occurs and Maverick does not redeem the rights, each right, other than any
right that has become null and void, will become exercisable, at the time
Maverick no longer may redeem it, to receive the number of shares of common
stock (or, in some cases, other property) which has a "market price" (as the
Maverick shareholder rights plan defines that term) equal to two times the
exercise price of the right.
A "flip-over event" will occur under the Maverick shareholder rights plan
when, at any time from and after the time a person becomes an acquiring person:
. Maverick is acquired in a merger or other business combination
transaction, other than specified mergers that follow a permitted offer
of the type described above;
. 50% or more of Maverick's assets or earning power is sold or transferred;
or
. an acquiring person increases its percentage beneficial ownership by more
than one percent of common stock or other class of stock or engages in
self-dealing transactions with Maverick, as described in the Maverick
shareholder rights plan.
If a flip-over event occurs, each holder of a right will have the right to
receive upon exercise of the right common stock of the surviving or purchasing
company or of the acquiring person which has a then market value equal to two
times the exercise price of the right. However, rights held by an acquiring
person become void.
At any time after the occurrence of a flip-in event and prior to a person's
becoming the beneficial owner of 50% or more of Maverick's outstanding common
stock, Maverick may exchange each outstanding right for its stock at an
exchange rate of either one share of common stock or one one-hundredth of a
share of Series I junior participating preferred stock for each right owned,
subject to adjustment.
Maverick may supplement or amend the Maverick shareholder rights plan
without the approval of any holders of the rights:
. to make any change prior to a flip-in event other than to change the
exercise price, the redemption price or the expiration of the rights;
. to make any change following a flip-in event that does not materially
adversely affect the interests of holders of rights; or
. to cure any ambiguity, defect or inconsistency.
The holder of a right cannot vote, receive dividends or take any actions as
a stockholder until the right is exercised.
The rights have anti-takeover effects. They cause severe dilution to any
person or group that attempts to acquire Maverick without the approval of its
board. As a result, the overall effect of the rights may be to render more
difficult or discourage any attempt to acquire Maverick, even if that
acquisition may be favorable to the interests of Maverick stockholders. Because
the Maverick board can redeem the rights or approve a permitted offer, the
rights should not interfere with a merger or other business combination that
the board approves. Maverick has issued the rights to protect its stockholders
from coercive or abusive takeover tactics and to afford the board more
negotiating leverage in dealing with prospective acquirers.
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Amendment to Maverick Shareholder Rights Plan
Effective as of the consummation of the arrangement, the Maverick
shareholder rights plan will be amended to provide that each exchangeable share
issued in the arrangement will have an associated exchangeable share right
entitling the holder of such exchangeable share the right to acquire additional
exchangeable shares on the same terms and conditions upon which a holder of
Maverick common stock is entitled to acquire additional shares of Maverick
common stock, with the definitions of beneficial ownership, the calculation of
percentage ownership and the number of shares outstanding and related
provisions applying, as appropriate, to Maverick common stock and exchangeable
shares as though they were the same security. The exchangeable share rights are
intended to have characteristics essentially equivalent in economic effect to
the Maverick stock purchase rights related to shares of Maverick common stock.
Maverick Canada Share Capital
On the consummation of the transaction, the share capital of Maverick Canada
will be as summarized below. This summary is qualified in its entirety by
reference to the share capital of Maverick Canada and other provisions included
in Maverick Canada's articles of incorporation which we have attached as Annex
E hereto.
Common Shares of Maverick Canada
The holders of Maverick Canada common shares will be entitled to receive
notice of and to attend all meetings of the shareholders of Maverick Canada and
will be entitled to one vote for each share held of record on all matters
submitted to a vote of holders of Maverick Canada common shares. Subject to the
prior rights of the exchangeable shares and any other shares ranking prior to
the common shares, the holders of Maverick Canada common shares will be
entitled to receive such dividends as may be declared by the Maverick Canada
board of directors out of funds legally available therefor. Holders of Maverick
Canada common shares will be entitled upon any liquidation, dissolution or
winding-up of Maverick Canada, subject to the prior rights of the holders of
the exchangeable shares and to any other shares ranking senior to the Maverick
Canada common shares, to receive the remaining property and assets of Maverick
Canada ratably with the holders of the Maverick Canada common shares.
Exchangeable Shares
Ranking. The exchangeable shares will be entitled to a preference over the
Maverick Canada common shares and any other shares ranking junior to the
exchangeable shares with respect to the payment of dividends and the
distribution of assets in the event of the liquidation, dissolution or winding-
up of Maverick Canada.
Dividends. Holders of exchangeable shares will be entitled to receive
dividends equivalent to dividends paid from time to time by Maverick on shares
of Maverick common stock. The declaration date, record date and payment date
for dividends on the exchangeable shares will be the same as that for the
corresponding dividends on the Maverick common stock.
Certain Restrictions. Without the approval of the holders of the
exchangeable shares, Maverick Canada will not:
. pay any dividend on the Maverick Canada common shares, or any other
shares ranking junior to the exchangeable shares, other than stock
dividends payable in such other shares ranking junior to the exchangeable
shares;
. redeem, purchase or make any capital distribution in respect of Maverick
Canada common shares or any other shares ranking junior to the
exchangeable shares with respect to the payment of dividends or on any
liquidation distribution;
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. redeem or purchase any other shares of Maverick Canada ranking equally
with the exchangeable shares with respect to the payment of dividends or
on any liquidation distribution; or
. amend the articles or bylaws of Maverick Canada in any manner that would
affect the rights or privileges of the holders of exchangeable shares.
The restrictions in the first three points above will not apply at any time
when the dividends on the outstanding exchangeable shares corresponding to
dividends declared on the Maverick common stock have been declared and paid in
full. Maverick Canada is not restricted from issuing additional common shares
or exchangeable shares.
Liquidation. In the event of the liquidation, dissolution or winding-up of
Maverick Canada, a holder of exchangeable shares will be entitled to receive
for each exchangeable share one share of Maverick common stock, together with
the equivalent amount of all Maverick dividends, payable and unpaid, if any.
Retraction Right, Exchange Put Right and Automatic Redemption Right. The
exchangeable share provisions also provide for the retraction right, the
exchange put right and the automatic redemption right. See "Description of the
Transaction--Transaction Mechanics and Description of Exchangeable Shares" on
page 50.
Voting Rights. Except as required by applicable law, the holders of the
exchangeable shares will not be entitled as such to receive notice of or attend
any meeting of the shareholders of Maverick Canada or to vote at any such
meeting.
Amendment and Approval. The rights, privileges, restrictions and conditions
attaching to the exchangeable shares may be changed only with the approval of
the holders thereof. Any such approval or any other approval or consent to be
given by the holders of the exchangeable shares will be sufficiently given if
given in accordance with applicable law and subject to a minimum requirement
that such approval or consent be evidenced by a resolution passed by not less
than 66 2/3% of the votes cast thereon at a meeting of the holders of
exchangeable shares (other than shares beneficially owned by Maverick or
entities controlled by Maverick) duly called and held at which holders of at
least 20% of the then outstanding exchangeable shares are present or
represented by proxy. In the event that no such quorum is present at such
meeting within one-half hour after the time appointed therefor, then the
meeting will be adjourned to such place and time not less than 10 days later as
may be designated by the chairman of such meeting, and the holders of
exchangeable shares present or represented by proxy at the adjourned meeting
may transact the business for which the meeting was originally called. At the
adjourned meeting, a resolution passed by the affirmative vote of not less than
66 2/3% of the votes cast thereon (other than shares beneficially owned by
Maverick or entities controlled by Maverick) will constitute the approval or
consent of the holders of the exchangeable shares.
Actions of Maverick Canada under Support Agreement. Under the exchangeable
share provisions, Maverick Canada will agree to take all such actions and do
all such things as are necessary or advisable to perform and comply with its
obligations under, and to ensure the performance and compliance by Maverick
with its obligations under, the support agreement.
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COMPARISON OF SHAREHOLDER RIGHTS
If the transaction is consummated, holders of Prudential common shares will
transfer their Prudential common shares to Maverick Canada in consideration for
exchangeable shares. Such holders will have the right to exchange or retract
exchangeable shares for an equivalent number of shares of Maverick common
stock. Prudential is a corporation governed by Alberta law. Maverick is a
corporation organized under Delaware law. While the rights and privileges of
shareholders of an Alberta corporation are, in many instances, comparable to
those of stockholders of a Delaware corporation, there are certain differences.
These differences arise from differences between Alberta and Delaware law, and
between the Prudential articles of amalgamation and bylaws and the Maverick
certificate of incorporation and bylaws. For a description of the rights of the
holders of Maverick common stock, See "Information About the Share Capital of
Maverick and Maverick Canada--Maverick Share Capital" on page 84.
Prudential Shareholder Maverick Stockholder Rights
Rights
Vote Required for Under Alberta law, the Under Delaware law, the
Extraordinary approval of at least two- affirmative vote of a
Transactions thirds of votes cast at a majority of the outstanding
meeting is required for stock entitled to vote is
extraordinary corporate required for:
actions, including:
. amalgamations; . mergers;
. continuances; . consolidations;
. sales, leases or . dissolutions; or
exchanges of all or
substantially all of the
property of a . sales of substantially
corporation; all of the assets of the
corporation.
. liquidations and
dissolutions; and
. arrangements (if ordered
by a court).
Alberta law may also
require the separate
approval by the holders of
a class or series of shares
for extraordinary corporate
actions.
Amendment to Under Alberta law, the Under Delaware law, the
Governing approval of at least two- affirmative vote of the
Documents thirds of the votes cast at holders of a majority of
the meeting is required to the outstanding stock
amend the articles of the entitled to vote is
corporation. required to approve a
proposed amendment to the
certificate of
incorporation, following
the adoption of the
amendment by the board of
directors of the
corporation, provided that
the certificate of
incorporation may provide
for a greater vote.
If the amendment would If the amendment would
affect the rights of any adversely affect the rights
holders of a class or of any holders of a class
series of shares or series of stock, the
differently than other amendment also requires the
shares the amendment also approval of a majority of
requires the approval of a the shares of the class or
majority of the shares of series.
the class or series.
Maverick's certificate of
incorporation provides that
the affirmative vote of not
less than 75% of the voting
stock is
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Amendment to Under Alberta law, the required to amend, alter or
Governing creation, amendment or repeal the provisions of
Documents repeal of bylaws requires article 8 (action by
(continued) that, after being approved stockholders), article 9
by the directors of the (calling special meeting of
corporation, the creation, stockholders), article 10
amendment or repeal of the (director liability),
bylaw must be approved by a article 11
majority of the votes of (indemnification), article
the shareholders of the 13 (special voting
corporation at the next requirements) and any
shareholder meeting. article imposing cumulative
voting.
Under Delaware law,
shareholders are given the
power to adopt, alter and
repeal bylaws, provided
that the certificate of
incorporation may also
provide such power to the
board of directors.
Maverick's certificate of
incorporation provides that
the Maverick board may
make, alter and repeal
bylaws.
Dissenters' Under Alberta law, each of Under Delaware law, holders
Rights the matters listed below of shares may dissent from
will entitle shareholders a merger or consolidation
to exercise rights of by demanding payment equal
dissent and to be paid the to the fair value of their
fair value of their shares: shares. These rights of
dissent and appraisal only
. any amalgamation with apply in the event of a
another corporation merger or consolidation and
(other than with certain not in the case of a sale
affiliated corporations); or transfer of assets or a
purchase of assets for
. an amendment to the stock.
corporation's articles to
add, change or remove any Under Delaware law, no
provisions restricting or dissent or appraisal rights
constraining the issue or are available if the shares
transfer of that class of are listed on a national
shares; securities exchange or are
designated as a national
. an amendment to the market system security on
corporation's articles to an interdealer quotation
add, change or remove any system by the National
restriction upon the Association of Securities
business or businesses Dealers, Inc. or are held
that the corporation may of record by more than two
carry on; thousand stockholders,
unless the merger or
. a continuance under the consolidation converts the
laws of another shares into something other
jurisdiction; than:
. a sale, lease or exchange . stock of the surviving
of all or substantially corporation;
all the property of the
corporation other than in . stock of another
the ordinary course of corporation that is
business; either listed on a
national securities
. a court may permit exchange or designated as
shareholders to dissent a national market system
in connection with an security on an
application to the court interdealer quotation
for an order approving an system by the National
arrangement; or Association of Securities
Dealers, Inc. or held of
. amendments to the record by more than two
articles of a corporation thousand stockholders;
which require a separate
class or series vote,
provided that a
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Dissenters' shareholder is not entitled . cash in lieu of
Rights to dissent if an amendment fractional shares; or
(continued) to the or articles is
effected by a court order . some combination of the
approving a reorganization above.
or by a court order made in
connection with an action
for an oppression remedy.
Alberta law provides these
dissent rights for both
listed and unlisted shares.
Oppression Remedy Alberta law provides an Delaware law does not
oppression remedy that provide for a similar
allows a complainant who remedy.
is:
. a present or former
shareholder;
. a present or former
director or officer of
the corporation or its
affiliates; and
. any other person who in
the discretion of the
court is a proper person
to make the application,
to apply to court for
relief where:
. any act or omission of
the corporation or an
affiliate effects a
result;
. the business or affairs
of the corporation or an
affiliate are or have
been carried on or
conducted in a manner; or
. the powers of the
directors of the
corporation or an
affiliate are or have
been exercised in a
manner,
that is oppressive or
unfairly prejudicial to or
that unfairly disregards
the interest of a
shareholder, creditor,
director or officer.
Derivative Action Under Alberta law, a Under Delaware law, a
complainant may not bring stockholder may bring a
an action in the name of, derivative action in
or on behalf of a Delaware on behalf of, and
corporation, or intervene for the benefit of, the
in an existing action on corporation, provided that:
behalf of the corporation,
unless the complainant has . the stockholder must
given reasonable notice to state in his complaint
the directors of the that he was a stockholder
corporation and the of the corporation at the
complainant satisfies the time of the transaction
court that: that is the subject of
the complaint; and
. the directors of the
corporation will not . the stockholder must
bring, diligently first make demand on the
prosecute or defend or corporation that it bring
discontinue the action; an action and the demand
be refused, unless it is
. the complainant is acting shown that the demand
in good faith; and would have been futile.
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. it appears to be in the
interest of the
corporation that the
action be brought,
prosecuted, defended or
discontinued.
Shareholder Under Alberta law, a Under Delaware law, unless
Consent in Lieu written resolution signed otherwise provided in the
of Meeting by all the shareholders of corporation's certificate
the corporation who would of incorporation, a written
have been entitled to vote consent signed by holders
on the resolution at a of stock having sufficient
meeting, is effective to votes to approve the matter
approve the resolution. at a meeting is effective
to approve the matter.
Maverick's certificate of
incorporation provides that
any action by Maverick
shareholders must be taken
at a meeting of the
Maverick stockholders and
no action may be taken by
the written consent of the
Maverick stockholders.
Director Under Alberta law, at least Delaware law does not have
Qualifications half of the directors of a comparable requirements.
corporation governed by the
Business Corporations Act
(Alberta) must be resident
Canadians. Alberta law also
requires that a corporation
whose securities are
publicly traded must have
not fewer than three
directors, at least two of
whom are not officers or
employees of the
corporation or any of its
affiliates.
Fiduciary Duties Under Alberta law, Under Delaware law,
of Directors directors have a duty of directors have a duty of
care and loyalty to the care and loyalty to the
corporation. The duty of corporation and its
care requires that the stockholders. The duty of
directors exercise the care, which can be limited
care, diligence and skill under Delaware law,
that a reasonably prudent requires that the directors
person would exercise in act in an informed and
comparable circumstances. deliberative manner and
The duty of loyalty inform themselves, prior to
requires directors to act making a business decision,
honestly and in good faith of all material information
with a view to the best reasonably available to
interests of the them. The duty of loyalty
corporation. is the duty to act in good
faith in a manner which the
directors reasonably
believe to be in the best
interests of the
stockholders.
Indemnification Under Alberta law, except Delaware law provides that
of Officers and in respect of an action by a corporation may indemnify
Directors or on behalf of a its present and former
corporation to procure a directors, officers,
judgment in its favor, employees and agents
which would require court against all reasonable
approval, a corporation may expenses (including
indemnify present and attorneys' fees) and,
former directors and except in actions initiated
officers against costs, by or in the right of the
charges and
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Indemnification expenses (including corporation, against all
of Officers and settlements and judgements) judgments, fines and
Directors provided that: amounts paid in settlement
(continued) of actions brought against
. they acted honestly and them, provided that they:
in good faith with a view
to the best interests of . acted in good faith and
the corporation; and in a manner which he or
she reasonably believed
. in the case of a criminal to be in, or not opposed
or administrative action to, the best interests of
they had reasonable the corporation; and
grounds for believing
that their conduct was . in the case of a criminal
lawful. proceeding, had no
reasonable cause to
The Prudential bylaws believe his or her
provide for indemnification conduct was unlawful.
of directors and officers
to the fullest extent The Maverick certificate of
authorized by Alberta law. incorporation provides for
indemnification of
Neither Alberta law nor the directors and officers to
Prudential bylaws expressly the fullest extent
provide for advance payment authorized by Delaware law.
of an indemnitee's
expenses.
Delaware law allows for the
Prudential has entered into advance payment of an
indemnity agreements with indemnitee's expenses prior
each of its directors (one to the final disposition of
of whom is also an an action, provided that
officer). the indemnitee undertakes
to repay any such amount
advanced if it is later
determined that the
indemnitee is not entitled
to indemnification with
regard to the action for
which the expenses were
advanced.
Director Alberta law does not permit Delaware law provides that
Liability the limitation of a the charter of a
director's liability as corporation may include a
Delaware law does. provision which limits or
eliminates the liability of
directors to the
corporation or its
stockholders for monetary
damages for breach of a
fiduciary duty, provided
such liability does not
arise from prescribed
conduct, including acts or
omissions not in good faith
or which involve
intentional misconduct or
which involve a knowing
violation of the law. The
Maverick certificate of
incorporation contains a
provision limiting the
liability of its directors
to the fullest extent
permitted by Delaware law.
Anti-Takeover Alberta law does not Maverick is subject to
Provisions and contain specific anti- Section 203 of the Delaware
Interested takeover provisions with General Corporation Law,
Stockholder respect to business which provides that, if a
Transactions transactions. However, the person acquires 15% or more
policies of Canadian of the stock of a
securities
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Anti-Takeover regulatory authorities, Delaware corporation
Provisions and including Rule 61-501 of without the approval of the
Interested the Ontario Securities board of directors of that
Stockholder Commission and Policy Q-27 corporation, thereby
Transactions of the Quebec Security becoming an "interested
(continued) Commission contain stockholder", that person
requirements in Connection may not engage in certain
with any transaction by transactions with the
which an issuer, directly corporation for a period of
or indirectly: three years unless one of
the following three
. acquires or transfers an exceptions applies:
asset;
. the board of directors
. acquires or issues approved the acquisition
securities; of stock or the
transaction prior to the
. assumes or transfers a time that the person
liability; or became an interested
stockholder;
. borrows or lends monies . the person became an
from or to, as the case may interested stockholder
be, a director, senior and 85% owner of the
officer, holder of 10% or voting stock of the
more of the voting corporation in the
securities of the issuer or transaction, excluding
a holder of sufficient voting stock owned by
securities to affect directors who are also
materially the control of officers and certain
the issuer. employee stock plans; or
Rule 61-501 and Policy Q-27 . the transaction is
requires more detailed approved by the board of
disclosure in the proxy directors and by the
material sent to security affirmative vote of two-
holders in connection with thirds of the outstanding
a transaction as described voting stock which is not
above, including, subject owned by the interested
to certain exceptions, the stockholder.
inclusion of a formal
valuation of the subject
matter of the transaction
and any non-cash
consideration offered
therefor. Rule 61-501 and
Policy Q-27 also require,
subject to certain
exceptions, that the
minority shareholders of
the issuer separately
approve the transaction.
Shareholder Under Prudential's rights Under the Maverick
Rights Plan agreement, holders of shareholder rights plan,
Prudential common shares holders of Maverick common
have one right with respect stock have one right with
to each of Prudential respect to each share of
common shares held. The Maverick common stock held.
rights have certain anti- The rights have certain
takeover effects. The anti-takeover effects. The
rights will cause rights will cause
substantial dilution to a substantial dilution to a
person or group that person or group that
attempts to acquire attempts to acquire
Prudential in a manner Maverick in a manner which
which causes the rights to causes the rights to become
become exercisable. exercisable. See
"Information About the
Share Capital of Maverick
and Maverick Canada--
Maverick Share Capital--
Maverick Shareholder Rights
Plan" on page 85.
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INFORMATION ABOUT TAX CONSIDERATIONS
Canadian Federal Income Tax Considerations To Prudential Shareholders
Introduction. Subject to the qualifications and assumptions contained
herein, in the opinion of Bennett Jones LLP, Canadian counsel to Prudential,
the following is a fair and adequate summary of the material Canadian federal
income tax considerations, as of the date of this joint proxy statement,
generally applicable to Prudential shareholders who at all relevant times, for
purposes of the Income Tax Act (Canada), hold their Prudential common shares
and will hold their exchangeable shares and Maverick common stock as capital
property, deal at arm's length with, and are not affiliated with, Prudential,
Maverick Canada or Maverick, and following the completion of the arrangement,
will not alone or together with non-arm's length persons control Maverick or
Maverick Canada or beneficially own shares of Maverick or Maverick Canada
having a fair market value of more than 50% of the fair market value of all
outstanding shares of Maverick or Maverick Canada. This discussion does not
apply to a holder with respect to whom Maverick is a foreign affiliate within
the meaning of the Income Tax Act (Canada) nor to a person who is a financial
institution which is subject to the mark-to-market provisions of the Income Tax
Act (Canada).
All Prudential shareholders should consult their own tax advisors as to
whether, as a matter of fact, they hold their Prudential common shares and will
hold their exchangeable shares and Maverick common stock as capital property
for the purposes of the Income Tax Act (Canada). Certain provisions of the
Income Tax Act (Canada) permit holders of Prudential common shares to deem
their Prudential common shares to be capital property, subject to certain
conditions.
This discussion is based on the current provisions of the Income Tax Act
(Canada) and the regulations thereunder, the current provisions of the
Convention Between the United States of America and Canada with Respect to
Taxes on Income and on Capital, signed September 26, 1980, as amended,
counsel's understanding of the current published administrative practices of
the Canada Customs and Revenue Agency and officer's certificates from
Prudential and Maverick as to certain factual matters. This discussion takes
into account all specific proposed amendments to the Income Tax Act (Canada)
and the regulations thereunder that have been publicly announced by or on
behalf of the Minister of Finance (Canada) prior to the date hereof and assumes
that all such proposed amendments will be enacted in their present form. No
assurances can be given that the proposed amendments will be enacted in the
form proposed, if at all.
Except for the foregoing, this discussion does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein.
This discussion is of a general nature only. Therefore, Prudential
shareholders should consult their own tax advisors with respect to their
particular circumstances.
For purposes of the Income Tax Act (Canada), all amounts relating to the
acquisition, holding or disposition of Maverick common stock, including the
receipt of dividends and the calculation of any adjusted cost base amounts and
proceeds of disposition, must be converted into Canadian dollars based on the
prevailing United States dollar exchange rate at the time such amounts arise.
Shareholders Resident in Canada. The following portion of this discussion is
generally applicable to Prudential shareholders who, for the purposes of the
Income Tax Act (Canada) and any applicable income tax treaty or convention, are
resident or deemed to be resident in Canada at all relevant times.
Exchange of Prudential Common Shares for Exchangeable Shares Where No
Election is Made under Section 85 of the Income Tax Act (Canada). The
arrangement has been structured so that each Prudential shareholder will be
considered to have disposed of a portion of such shareholder's Prudential
common shares
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solely in consideration for exchangeable shares and to have disposed of the
balance of such shareholder's Prudential common shares for all other ancillary
rights and benefits (including the exchange put right and the voting and
support rights) associated with the exchangeable shares, the one share of
special voting stock in Maverick and the agreements related thereto. Each of
Maverick and Prudential is of the view, and has advised counsel, that any such
ancillary rights and benefits have nominal, if any, value. Such determinations
of value are not binding on the Canada Customs and Revenue Agency and counsel
can express no opinion on matters of factual determination such as this. On the
assumption that such determination of value is correct, all or substantially
all of a Prudential shareholder's common shares will be disposed of in exchange
for exchangeable shares, and only a nominal portion, if any, of a Prudential
shareholder's common shares will be disposed of in exchange for such ancillary
rights and benefits.
A Prudential shareholder who is a resident of Canada for income tax purposes
will generally qualify for a tax deferred share-for-share exchange pursuant to
section 85.1 of the Income Tax Act (Canada), as described below, with respect
to that portion of the shareholder's Prudential common shares which are
disposed of in exchange for exchangeable shares. The disposition of the
remaining portion, if any, of such shareholder's Prudential common shares in
exchange for such ancillary rights and benefits will constitute a taxable
disposition of such Prudential common shares and will generally give rise to a
capital gain (or a capital loss) to the extent that the value of such ancillary
rights and benefits received for such shares exceeds (or is less than) the
aggregate of the adjusted cost base of such shares and any reasonable costs
associated with the disposition.
Prudential shareholders may also effect a tax deferred exchange by making an
election under section 85 of the Income Tax Act (Canada). Also, certain
Prudential shareholders to whom this opinion is not specifically addressed and
who may be disentitled to the provisions of section 85.1 of the Income Tax Act
(Canada) may avail themselves of the provisions of section 85. Prudential
shareholders are urged to consult their own tax advisors to determine whether
they should make an election under section 85 of the Income Tax Act (Canada),
as described below.
Pursuant to section 85.1 of the Income Tax Act (Canada), a Prudential
shareholder will not realize any immediate tax consequences as a result of
exchanging Prudential common shares solely for exchangeable shares provided
that such Prudential shareholder does not make a joint election under section
85 of the Income Tax Act (Canada) in respect of the exchange as discussed below
and does not, in the Prudential shareholder's return of income for the taxation
year in which the exchange occurs, include in computing the Prudential
shareholder's income, any portion of the capital gain or capital loss otherwise
determined from such exchange. Instead, the Prudential shareholder will be
deemed:
. to have disposed of that holder's Prudential common shares for proceeds
of disposition equal to the adjusted cost base to the holder of such
shares immediately before such exchange; and
. to have acquired the exchangeable shares at a cost equal to the deemed
proceeds of disposition of the holder's Prudential common shares.
The cost of any particular exchangeable shares will generally be averaged
with the adjusted cost base of other exchangeable shares held by such holder.
Pursuant to the current administrative practices of the Canada Customs and
Revenue Agency, a Prudential shareholder who receives cash not exceeding C$200
in lieu of a fraction of an exchangeable share will have the option of
recognizing the capital gain or capital loss arising on the disposition of the
fractional share or alternatively of reducing the adjusted cost base of the
exchangeable shares acquired by the amount of cash so received.
Where a Prudential shareholder exchanges Prudential common shares for
exchangeable shares and, in the Prudential shareholder's return of income for
the taxation year in which such exchange occurs, includes in computing income
for that year any portion of the capital gain or capital loss from such
exchange, section 85.1 of the Income Tax Act (Canada) will not apply. In these
circumstances, the Prudential shareholder will be considered to have disposed
of all of the holder's Prudential common shares so exchanged for proceeds of
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disposition equal to the fair market value of the exchangeable shares received
on the exchange and to have acquired the exchangeable shares at a cost equal to
the fair market value. A Prudential shareholder who so chooses to realize a
capital gain or capital loss on the exchange will realize a capital gain (or a
capital loss) to the extent that the holder's proceeds of disposition, net of
any reasonable costs of disposition, exceed (or are less than) the adjusted
cost base of that holder's Prudential common shares immediately before the
exchange.
The consequences to a Prudential shareholder of realizing a capital gain or
capital loss are as described below under "-- Taxation of Capital Gains and
Capital Losses."
Exchange of Prudential Common Shares for Exchangeable Shares Where Election
is Made under Section 85 of the Income Tax Act (Canada). A Prudential
shareholder who disposes of Prudential common shares to Maverick Canada and who
receives exchangeable shares may obtain a full or partial tax deferral by
entering into a joint tax election with Maverick Canada and filing with the
Canada Customs and Revenue Agency and, where applicable, a provincial tax
authority a joint tax election under section 85 of the Income Tax Act (Canada)
in respect of such Prudential common shares and specifying therein an elected
transfer price within the limits described below.
The joint tax election must specify the elected transfer price in respect of
the Prudential common shares transferred to Maverick Canada. The elected
transfer price will be the proceeds of disposition to a former holder of its
Prudential common shares and the acquisition cost of its exchangeable shares.
The elected transfer price may not:
. be less than the lesser of the Prudential shareholder's adjusted cost
base of those Prudential common shares at the time of disposition and the
fair market value of those Prudential common shares at that time; or
. exceed the fair market value of those Prudential common shares at the
time of disposition.
Elected transfer prices, which do not otherwise comply with the foregoing
limitations, will be automatically adjusted under the Income Tax Act (Canada)
so that they are in compliance.
Maverick Canada will execute a joint tax election under subsection 85(1) or
(2) of the Income Tax Act (Canada) and the corresponding provisions of any
applicable provincial tax legislation forwarded to it by a Prudential
shareholder. Maverick Canada agrees only to execute and to forward such tax
election by mail to the Prudential shareholder for filing with the Canada
Customs and Revenue Agency and any applicable provincial tax authorities.
Compliance with the requirements to ensure the validity of a joint tax election
on a timely basis will be the sole responsibility of the Prudential shareholder
making the election and Maverick Canada assumes no liability for the failure to
execute and file a valid election or for the late filing of any election.
Prudential shareholders are urged to consult their own advisors as soon as
possible regarding the deadlines and procedures for making the elections which
are appropriate to their circumstances.
Taxation of Capital Gains and Capital Losses. Two-thirds of any capital gain
(a taxable capital gain) realized on a disposition of Prudential common shares
or exchangeable shares must be included in a shareholder's income for the year
of disposition. Two-thirds of any capital loss (an allowable capital loss)
generally must be deducted by the holder against taxable capital gains for the
year of disposition. Any allowable capital losses in excess of taxable capital
gains for the year of disposition generally may be carried back up to three
taxation years or carried forward indefinitely and deducted against taxable
capital gains in such other years to the extent and under the circumstances
described in the Income Tax Act (Canada).
Capital gains realized by an individual or trust, other than certain
specified trusts, may give rise to alternative minimum tax under the Income Tax
Act (Canada).
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A shareholder that is throughout the relevant taxation year a "Canadian-
controlled private corporation", as defined in the Income Tax Act (Canada), may
be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year which will include an amount in respect of
taxable capital gains.
If the holder of a Prudential common share or an exchangeable share is a
corporation, the amount of any capital loss arising from a disposition or
deemed disposition of such share may be reduced by the amount of dividends
received or deemed to have been received by it on such share to the extent and
under circumstances prescribed by the Income Tax Act (Canada). Similar rules
may apply where a corporation is a member of a partnership or a beneficiary of
a trust that owns Prudential common shares or exchangeable shares or where a
trust or partnership of which a corporation is a beneficiary or a member is a
member of a partnership or a beneficiary of a trust that owns Prudential common
shares or exchangeable shares. Shareholders to whom these rules may be relevant
should consult their own tax advisors.
Dividends on Exchangeable Shares. In the case of a shareholder who is an
individual, dividends received or deemed to be received on the exchangeable
shares will be included in computing the shareholder's income, and will be
subject to the gross-up and dividend tax credit rules normally applicable to
taxable dividends received from taxable Canadian corporations.
In the case of a shareholder that is a corporation other than a "specified
financial institution", as defined in the Income Tax Act (Canada), dividends
received or deemed to be received on the exchangeable shares normally will be
included in the corporation's income and will be deductible in computing its
taxable income.
A shareholder that is a "private corporation", as defined in the Income Tax
Act (Canada), or any other corporation resident in Canada and controlled or
deemed to be controlled by or for the benefit of an individual or a related
group of individuals may be liable under Part IV of the Income Tax Act (Canada)
to pay a refundable tax of 33 1/3% of dividends received or deemed to be
received on the exchangeable shares to the extent that such dividends are
deductible in computing the shareholder's taxable income.
The exchangeable shares will be "term preferred shares" as defined in the
Income Tax Act (Canada). Consequently, in the case of a shareholder that is a
specified financial institution, a dividend will be deductible in computing its
taxable income only if:
. the specified financial institution did not acquire the exchangeable
shares in the ordinary course of the business carried on by such
institution; or
. in any case, at the time the dividend is received by the specified
financial institution, the exchangeable shares are listed on a prescribed
stock exchange in Canada (which currently includes The Toronto Stock
Exchange) and the specified financial institution, either alone or
together with persons with whom it does not deal at arm's length, does
not receive (or is not deemed to receive) dividends in respect of more
than 10% of the issued and outstanding exchangeable shares.
In addition, to the extent that a deemed dividend arises on the redemption
of the exchangeable shares by Maverick Canada, a portion of the dividend may
not be subject to the denial of dividend deduction applicable in respect of
term preferred shares in accordance with the exceptions outlined above.
Specified financial institutions should consult their own tax advisors.
A shareholder that is throughout the relevant taxation year a "Canadian-
controlled private corporation", as defined in the Income Tax Act (Canada), may
be liable to pay an additional refundable tax of 6 2/3% on its "aggregate
investment income" for the year which will include dividends or deemed
dividends that are not deductible in computing taxable income.
Redemption of Exchangeable Shares. On the redemption (including a
retraction) of an exchangeable share by Maverick Canada, the holder of an
exchangeable share will be deemed to have received a dividend equal to the
amount, if any, by which the redemption proceeds exceed the paid-up capital at
the time of the
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exchangeable share so redeemed. For these purposes, the redemption proceeds
will be the fair market value at the time of the redemption of Maverick common
stock received from Maverick Canada plus the amount, if any, of all then
accrued but unpaid dividends on the exchangeable shares paid on the redemption.
The amount of such deemed dividend generally will be subject to the same tax
treatment accorded to dividends on the exchangeable shares as described above.
On the redemption, the holder of an exchangeable share will also be considered
to have disposed of the exchangeable share, but the amount of the deemed
dividend will be excluded in computing the shareholder's proceeds of
disposition for purposes of computing any capital gain or capital loss arising
on the disposition. In the case of a shareholder that is a corporation, in some
circumstances, the amount of any such deemed dividend may be treated as
proceeds of disposition and not as a dividend. The taxation of capital gains
and capital losses is described above.
Exchange of Exchangeable Shares with Maverick. On the exchange of an
exchangeable share with Maverick for Maverick common stock, the holder will
generally realize a capital gain (or a capital loss) equal to the amount by
which the proceeds of disposition of the exchangeable share, net of any
reasonable costs of disposition, exceed (or are less than) the adjusted cost
base to the holder of the exchangeable share immediately before the exchange.
For these purposes, the proceeds of disposition will be the fair market value
at the time of exchange of the Maverick common stock plus any other amount
received by the holder from Maverick as part of the exchange consideration. The
taxation of capital gains and capital losses is described above.
Dividends on Maverick Common Stock. Dividends on Maverick common stock will
be included in the recipient's income for the purposes of the Income Tax Act
(Canada). Such dividends received by an individual shareholder will not be
subject to the gross-up and dividend tax credit rules in the Income Tax Act
(Canada). A shareholder that is a corporation will include such dividends in
computing its income and generally will not be entitled to deduct the amount of
such dividends in computing its taxable income. A shareholder that is
throughout the relevant taxation year a "Canadian-controlled private
corporation", as defined in the Income Tax Act (Canada), may be liable to pay
an additional refundable tax of 6 2/3% on its "aggregate investment income" for
the year which will include such dividends. United States non-resident
withholding tax on such dividends received by Canadian residents will be
generally eligible for foreign tax credit or deduction treatment, where
applicable, under the Income Tax Act (Canada). See "--United States Federal
Income Tax Considerations to Prudential Shareholders -- Non-U.S. Holders"
below.
Disposition of Shares of Maverick Common Stock. The cost of Maverick common
stock received on a retraction, redemption or exchange of exchangeable shares
will be equal to the fair market value of such shares at the time of such
event. The adjusted cost base to a holder of Maverick common stock acquired on
a retraction, redemption or exchange of exchangeable shares will be determined
by averaging the cost of such shares with the adjusted cost base of all other
Maverick common stock held by such holder as capital property immediately
before the retraction, redemption or exchange, as the case may be. A
disposition or deemed disposition of Maverick common stock by a holder will
generally result in a capital gain (or a capital loss) equal to the amount by
which the proceeds of disposition, net of any reasonable costs of disposition,
exceed (or are less than) the adjusted cost base to the holder of such shares
immediately before the disposition. The taxation of capital gains and capital
losses is described above.
Foreign Property Information Reporting. With some exceptions, a taxpayer
resident in Canada is a "specified Canadian entity" (as defined in the Income
Tax Act (Canada)) and is required to file an annual information return
disclosing prescribed information concerning the ownership of "specified
foreign property" (as defined in the Income Tax Act (Canada)) where the cost
amount of such property to the taxpayer exceeds C$100,000. Specified foreign
property is defined in the Income Tax Act (Canada) to include shares of the
capital stock of a non-resident corporation and property that, under the terms
or conditions thereof or any agreement related thereto, is convertible into,
exchangeable for or confers a right to acquire, property that is a share of the
capital stock of a non-resident corporation.
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The exchangeable shares and the Maverick common stock will be specified
foreign property. As a result, if the aggregate cost amount of any specified
foreign property held by a holder (including any exchangeable shares and
Maverick common stock) at any time in a taxation year or fiscal period exceeds
$100,000, the holder will be required to file an information return for the
year or period disclosing prescribed information, such as the cost amount of
the specified foreign property and the amount of any dividends, interest and
gains or losses realized in the year in respect of such specified foreign
property. Prudential shareholders should consult their own advisors to
determine whether they will be subject to these rules with respect to their
ownership of exchangeable shares and Maverick common stock.
Dissenting Shareholders. Prudential shareholders are permitted to dissent
from the arrangement. A dissenting Prudential shareholder will be entitled, in
the event the transaction becomes effective, to be paid by Prudential the fair
value of the Prudential common shares held by such holder determined as of the
appropriate date. See "Description of the Transaction -- Dissenting
Shareholders' and Optionholders' Rights" on page 64. Such shareholder may be
considered to have realized a deemed dividend to the extent that the proceeds
of disposition exceed the paid-up capital of the Prudential common shares and a
capital gain (or a capital loss) to the extent that the proceeds of disposition
less the deemed dividend exceed (or are less than) the adjusted cost base of
the Prudential common shares to the holder immediately before the payment.
Alternatively, the entire consideration received may be viewed as proceeds of
disposition of the holder's Prudential common shares. Additional income tax
considerations may be relevant to dissenting Prudential shareholders who fail
to perfect or withdraw their claims pursuant to the right of dissent.
Dissenting Prudential shareholders should consult their own tax advisors.
Shareholders Not Resident in Canada. The following portion of the discussion
is applicable to Prudential shareholders who, for purposes of the Income Tax
Act (Canada) and any applicable tax treaty or convention, have not been and
will not be resident or deemed to be resident in Canada at any time while they
have held Prudential common shares or will hold exchangeable shares or Maverick
common stock and who will not use or hold the Prudential common shares,
exchangeable shares or Maverick common stock in the course of carrying on a
business (including an insurance business) in Canada and, except as
specifically discussed below, to whom such shares are not "taxable Canadian
property", as defined in the Income Tax Act (Canada).
Prudential common shares and exchangeable shares will generally not be
taxable Canadian property at a particular time provided that such shares are
listed on a prescribed stock exchange (which currently includes The Toronto
Stock Exchange) and the holder, persons with whom such holder does not deal at
arm's length, or the holder and such persons, has not owned (or had under
option) 25% or more of the issued shares of any class or series of the capital
stock of Prudential or Maverick Canada at any time within five years preceding
the particular time. Maverick common stock will generally not constitute
taxable Canadian property.
A holder of Prudential common shares that are not taxable Canadian property
will not be subject to tax under the Income Tax Act (Canada) on a capital gain
recognized on the exchange of Prudential common shares for exchangeable shares.
Similarly, provided the exchangeable shares or Maverick common stock are not
taxable Canadian property to the holder, the holder will not be subject to tax
under the Income Tax Act (Canada) on the exchange of exchangeable shares for
Maverick common stock (except to the extent the exchange gives rise to a deemed
dividend discussed below), or on the sale or other disposition of exchangeable
shares or Maverick common stock.
In the event that the Prudential common shares constitute taxable Canadian
property to a particular non-resident holder thereof, the exchange of
Prudential common shares for exchangeable shares will qualify as a tax deferred
share-for-share exchange as described above under "-- Shareholders Resident in
Canada -- Exchange of Prudential Common Shares for Exchangeable Shares Where No
Election is Made under Section 85 of the Income Tax Act (Canada)." However,
Prudential shareholders are urged to consult their own tax advisors.
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Dividends paid or deemed to be paid on the exchangeable shares are subject
to non-resident withholding tax under the Income Tax Act (Canada) at the rate
of 25%, although such rate may be reduced under the provisions of an applicable
income tax treaty or convention. For example, under the Canada-U.S. Tax
Convention, the rate is generally reduced to 15% in respect of dividends paid
to a person who is the beneficial owner thereof and who is resident in the
United States for purposes of the Canada-U.S. Tax Convention.
A holder whose exchangeable shares are redeemed by Maverick Canada (either
under redemption rights or pursuant to the retraction rights) may be deemed to
receive a dividend as described above under "--Shareholders Resident in
Canada--Redemption of Exchangeable Shares." Any such deemed dividend will be
subject to withholding tax as described in the preceding paragraph.
Prudential shareholders are permitted to dissent from the arrangement. A
dissenting Prudential shareholder will be entitled, in the event the
transaction becomes effective, to be paid by Prudential the fair value of the
Prudential common shares held by such holder determined as of the appropriate
date. See "Description of the Transaction--Dissenting Shareholders' and
Optionholders' Rights" on page 64. A dissenting shareholder may be considered
to have received a dividend equal to the excess of the consideration received
over the paid-up capital of such Prudential common shares and to have received
proceeds of disposition equal to the amount of such paid-up capital for the
purpose of computing their capital gain, or in most instances, their capital
loss. Any dividends realized by a dissenting Prudential shareholder will be
subject to Canadian withholding tax as described above. Alternatively,
dissenting shareholders may be considered to have realized a capital gain (or a
capital loss) based on redemption proceeds equal to such fair value, computed
generally as described above. Any capital gain realized by a dissenting
Prudential shareholder would not be taxed under the Income Tax Act (Canada) if
the Prudential common shares in respect of which the right of dissent is
exercised were not taxable Canadian property, as described above. Additional
income tax considerations may be relevant to dissenting Prudential shareholders
who fail to perfect or withdraw their claims pursuant to the right of dissent.
Dissenting Prudential shareholders should consult their own tax advisors.
Canadian Federal Income Tax Considerations To Prudential Optionholders
Subject to the qualifications and assumptions contained herein, in the
opinion of Bennett Jones LLP, Canadian counsel to Prudential, the following is
a fair and adequate summary of the material Canadian federal income tax
considerations, as of the date of this joint proxy statement, generally
applicable to the holders of Prudential options who at all relevant times, for
purposes of the Income Tax Act (Canada) and any applicable income tax treaty or
convention, are resident or deemed to be resident in Canada, who are current or
former employees, officers and directors of Prudential and who received the
Prudential options in respect of, in the course of, or by virtue of their
positions as employees, officers or directors of Prudential.
This discussion is based on the current provisions of the Income Tax Act
(Canada) and the regulations thereunder and counsel's understanding of the
current published administrative practices of the Canada Customs and Revenue
Agency.
This discussion does not take into account or anticipate any changes in law,
whether by legislative, administrative or judicial decision or action, nor does
it take into account provincial, territorial or foreign income tax legislation
or considerations which may differ from the Canadian federal income tax
considerations described herein.
This discussion is of a general nature only. Therefore, Prudential
optionholders should consult their own tax advisors with respect to their
particular circumstances.
On the assumption that at the time of the exchange the difference between
the value of the Maverick common stock under the options to purchase Maverick
common stock and the amount payable under such options to purchase such
Maverick common stock does not exceed the difference between the value of the
Prudential common shares available under the Prudential options and the amount
payable under such options to
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purchase Prudential common shares, the holders of the Prudential options will
not realize any immediate tax consequences as a result of exchanging their
Prudential options for options to purchase Maverick common stock. Instead, for
the purposes of the Income Tax Act (Canada):
. the Prudential optionholders will be deemed not to have disposed of
Prudential options and not to have acquired the Maverick options;
. the Maverick options will be deemed to be the same as, and a continuation
of, the Prudential options; and
. Maverick will be deemed to be the same corporation as Prudential for the
purposes of the rules in the Income Tax Act (Canada) relating to employee
stock options.
United States Federal Income Tax Considerations To Prudential Shareholders
In the opinion of Dorsey & Whitney LLP, U.S. tax counsel to Prudential, the
following is a summary of the material U.S. federal income tax considerations
arising from and relating to the transaction that are generally applicable to
U.S. holders (as defined below) of Prudential common shares that hold
Prudential common shares as capital assets, including the receipt, ownership,
and disposition of exchangeable shares and the receipt of Maverick common
stock. The opinion of Dorsey & Whitney LLP will be subject to certain
assumptions, limitations and qualifications, and will be based on the truth and
accuracy of certain representations of Prudential, Maverick and Maverick
Canada, as of the effective time of the transaction and thereafter as relevant.
In the event that one or more of such assumptions or representations proves to
be inaccurate, the following summary may not apply and material adverse U.S.
federal income tax consequences may result to U.S. holders. This summary is
based on:
. the U.S. Internal Revenue Code of 1986, as amended;
. income tax regulations, proposed and final, issued under the U.S. Code;
and
. judicial and administrative interpretations of the U.S. Code and
regulations;
in each case as in effect and available as of the date of this joint proxy
statement.
These income tax laws, regulations and interpretations, however, may change
at any time, and any change could be retroactive to the date of this joint
proxy statement. These income tax laws, regulations and judicial and
administrative interpretations are also subject to various interpretations, and
the U.S. Internal Revenue Service or the U.S. courts could later disagree with
the explanations or conclusions contained in this summary.
For purposes of this summary, a U.S. holder is a beneficial owner of
Prudential common shares, exchangeable shares, or Maverick common stock, as the
case may be, that, for U.S. federal income tax purposes, is:
. a citizen or resident of the U.S., including some former citizens or
residents of the U.S.;
. a partnership or corporation created or organized in or under the laws of
the U.S. or any state thereof, including the District of Columbia;
. an estate if its income is subject to U.S. federal income taxation
regardless of its source; or
. a trust if it has validly elected to be treated as a United States person
for U.S. federal income tax purposes or if a U.S. court can exercise
primary supervision over its administration, and one or more United
States persons have the authority to control all of its substantial
decisions.
A non-U.S. holder is a beneficial owner of Prudential common shares,
exchangeable shares, or Maverick common stock, as the case may be, other than a
U.S. holder.
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The tax consequences to the following parties are not addressed in this
summary:
. persons that may be subject to special tax treatment such as financial
institutions, real estate investment trusts, tax-exempt organizations,
qualified retirement plans, individual retirement accounts, regulated
investment companies, insurance companies, and brokers and dealers or
traders in securities or currencies;
. Prudential optionholders and persons who acquired Prudential common
shares pursuant to an exercise of employee stock options or rights or
otherwise as compensation;
. persons having a functional currency for U.S. federal income tax purposes
other than the U.S. dollar;
. persons that hold or will hold Prudential common shares, exchangeable
shares, or Maverick common stock, as the case may be, as part of a
position in a straddle or as part of a hedging or conversion transaction;
. persons that own, or are deemed to own, 5% or more, by voting power or
value, of the outstanding stock of Prudential, Maverick Canada or
Maverick, as the case may be; and
. persons subject to the alternative minimum tax.
U.S. holders who do not maintain a substantial presence, permanent home or
habitual abode in the U.S. or whose personal and economic relations are not
closer to the U.S. than to any other country (other than Canada) may be unable
to benefit from the provisions described herein of the Convention Between the
United States of America and Canada with Respect to Taxes on Income and on
Capital, signed September 26, 1980, as amended. These holders should consult
their own tax advisors concerning the availability of benefits under the
Canada-U.S. Tax Convention.
No statutory, judicial, or administrative authority exists which directly
addresses some of the U.S. federal income tax consequences of the issuance and
ownership of instruments and rights comparable to the exchangeable shares and
the related rights. Therefore, some aspects of the U.S. federal income tax
treatment of the transaction, including the receipt and ownership of
exchangeable shares and the exchange of exchangeable shares for shares of
Maverick common stock, are not certain. No advance income tax ruling has been
sought or obtained from the IRS regarding any of the tax consequences of the
transaction.
This summary does not address aspects of U.S. taxation other than U.S.
federal income taxation, nor does it address all aspects of U.S. federal income
taxation that may be applicable to particular holders. In addition, this
summary does not address the U.S. state or local tax consequences or the tax
consequences in jurisdictions other than the U.S. of the transaction.
Holders are urged to consult their tax advisors with respect to the U.S.
federal, state, and local tax consequences and the non-U.S. tax consequences of
the transaction, including the receipt, ownership, and disposition of
exchangeable shares and the related rights.
United States Holders.
Tax Treatment of the Transaction. In the opinion of Dorsey & Whitney LLP,
although not free from doubt, it is more likely than not that U.S. holders of
Prudential common shares that exchange their Prudential common shares for
exchangeable shares will not recognize gain or loss on such exchange for U.S.
federal income tax purposes, except as described below. There is, however, no
direct authority addressing the proper treatment of the transaction for U.S.
federal income tax purposes, and, therefore, Dorsey & Whitney LLP's opinion and
the conclusions contained in the discussion below are subject to significant
uncertainty. Accordingly, there can be no assurance that the IRS will not
challenge a U.S. holder's assertion that the exchange of Prudential common
shares for exchangeable shares gives rise to no gain or loss for U.S. federal
income tax purposes or that, if challenged, a court will not agree with the
IRS. In addition, information reporting requirements may apply to the
transaction.
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Consequences if the Exchange of Prudential Common Shares for Exchangeable
Shares is Tax-Deferred. Assuming that the exchange of Prudential common shares
for exchangeable shares does not constitute a taxable transaction for U.S.
federal income tax purposes, the following U.S. federal income tax consequences
should apply.
Receipt of Exchangeable Shares. Except as otherwise provided below:
. a U.S. holder of Prudential common shares that exchanges Prudential
common shares for exchangeable shares pursuant to the transaction should
not recognize any gain or loss with respect to the receipt of the
exchangeable shares;
. the aggregate tax basis of the exchangeable shares received pursuant to
the transaction by the U.S. holder of Prudential common shares should
equal the holder's aggregate adjusted tax basis in the Prudential common
shares surrendered pursuant to the transaction, reduced by the tax basis
allocated to a fractional share interest for which cash is received;
. the holding period of the exchangeable shares received by the U.S. holder
of Prudential common shares pursuant to the transaction should include
the holding period of the Prudential common shares surrendered in
exchange therefor;
. cash payments in lieu of a fractional exchangeable share will be treated
as if a fractional exchangeable share had been received in the
transaction and then redeemed by Maverick or Maverick Canada.
The redemption of the fractional exchangeable share should qualify as a
distribution in full payment in exchange for the fractional share rather than
as a distribution of a dividend. Accordingly, a Prudential shareholder
receiving cash in lieu of a fractional share will recognize gain or loss upon
payment equal to the difference, if any, between the shareholder's tax basis in
the fractional share, as described in the second bullet point above, and the
amount of cash received. The gain or loss, if any, will be capital gain or
loss. In the case of a noncorporate U.S. holder of Prudential common shares who
receives cash in lieu of a fractional exchangeable share, generally the maximum
U.S. federal income tax rate applicable to any capital gain recognized on the
receipt of the cash will be lower than the maximum U.S. federal income tax rate
applicable to ordinary income if the holder's holding period for the Prudential
common shares exceeds one year. The deductibility of capital losses is subject
to limitations.
For U.S. federal income tax purposes, any gain recognized by a U.S. holder
on the receipt of cash in lieu of a fractional exchangeable share generally
will be treated as U.S. source gain, except that, under the terms of the
Canada-U.S. Tax Convention, the gain may be treated as sourced in Canada. Any
Canadian tax imposed on the gain generally will be available as a credit
against U.S. federal income taxes, subject to applicable limitations. A U.S.
holder that is ineligible for a foreign tax credit with respect to any Canadian
tax paid may be entitled to deduct the Canadian tax in computing U.S. taxable
income.
Voting Rights, Exchange Rights and Call Rights. If the exchange of
Prudential common shares for exchangeable shares and the related rights is
considered to be made pursuant to a tax-deferred reorganization under Section
368(a)(1)(B) of the U.S. Code in which the exchangeable shares and the related
rights, in substance, are viewed for U.S. federal income tax purposes as
constituting Maverick common stock, then the voting rights and exchange rights
received and any call rights deemed to be conveyed by Prudential shareholders
that receive exchangeable shares pursuant to the transaction should not be
treated as having substance separate from the exchangeable shares. If, however,
the exchange of Prudential common shares for exchangeable shares and the
related rights is considered to be made pursuant to a transaction described in
Section 351(a) of the U.S. Code in which the transferee corporation is Maverick
Canada, then the receipt of the voting rights and exchange rights may result in
Prudential shareholders being required to recognize gain on the exchange of
Prudential common shares for the exchangeable shares and the related rights,
but only to the extent of the fair market value of these rights.
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Although the value of the voting rights and exchange rights received and any
call rights deemed to be conveyed by Prudential shareholders that receive
exchangeable shares pursuant to the transaction is uncertain, Maverick,
Prudential and Maverick Canada believe that the voting rights, exchange rights,
and call rights will have only nominal value. These determinations of value are
not binding on the IRS, however, and counsel can express no opinion on matters
of factual determinations, such as value. Further, the exchange of some of the
call rights for the voting rights and exchange rights may not be taxable to
U.S. holders because each U.S. holder and Maverick may be deemed to have
granted purchase options to each other, which grants would not generally be
treated as taxable events for U.S. federal income tax purposes. It is possible,
however, that the voting rights, exchange rights, and call rights have greater
than nominal value and that the transfer or receipt of the rights constitutes a
taxable exchange or otherwise generates taxable gain.
Exchange of Exchangeable Shares. A U.S. holder that exchanges exchangeable
shares for shares of Maverick common stock, including an exchange upon the
occurrence of an automatic redemption date, arguably could take the position
that no gain or loss is recognized on the exchange on the grounds that the
initial exchange of Prudential common shares for exchangeable shares was made
pursuant to a tax-deferred reorganization under Section 368(a)(1)(B) of the
U.S. Code in which the exchangeable shares, in substance, constituted Maverick
common stock, and, therefore, the exchange of the exchangeable shares for
shares of Maverick common stock is not a taxable event. In that case, the
aggregate tax basis of the Maverick common stock received pursuant to the
exchange by the U.S. holder of exchangeable shares should equal the holder's
aggregate adjusted tax basis in the exchangeable shares surrendered pursuant to
the exchange, and the holding period of the Maverick common stock received by
the U.S. holder of exchangeable shares pursuant to the exchange should include
the holding period of the exchangeable shares surrendered in the exchange,
which, in turn, should include the holding period of the Prudential common
shares exchanged in the initial exchange, provided that the Prudential common
shares and exchangeable shares have been held as capital assets prior to the
initial exchange and the subsequent exchange, respectively.
If, however, the initial exchange of Prudential common shares for
exchangeable shares is considered to be made pursuant to a transaction
described in Section 351(a) of the U.S. Code in which the transferee
corporation is Maverick Canada, then, subject to the discussion below, a U.S.
holder that exchanges exchangeable shares for shares of Maverick common stock,
including an exchange upon the occurrence of an automatic redemption date, may
be required to recognize gain or loss equal to the difference between the fair
market value of the shares of Maverick common stock received at the time of the
exchange and the U.S. holder's aggregate adjusted tax basis in the exchangeable
shares exchanged. In that case, the gain or loss, if any, will be capital gain
or loss if the exchangeable shares are held as a capital asset at the time of
the exchange, except that, with respect to any amount representing accrued but
unpaid dividends on the exchangeable shares, ordinary income may be recognized
by the holder thereof. In the case of a noncorporate U.S. holder of
exchangeable shares who receives Maverick common stock on the exchange,
generally the maximum U.S. federal income tax rate applicable to any capital
gain recognized on the exchange will be lower than the maximum U.S. federal
income tax rate applicable to ordinary income if the holder's holding period
for the exchangeable shares, which should include the holding period of the
Prudential common shares exchanged in the initial exchange provided that the
Prudential common shares have been held as capital assets immediately prior to
the initial exchange, exceeds one year. The deductibility of capital losses is
subject to limitations. The U.S. holder's tax basis in the shares of Maverick
common stock will be the fair market value of the shares of Maverick common
stock received by the U.S. holder in the exchange, and the holding period will
begin on the day after the exchange.
For U.S. federal income tax purposes, any gain recognized by a U.S. holder
on the exchange of exchangeable shares for shares of Maverick common stock
generally will be treated as U.S. source gain, except that, under the terms of
the Canada-U.S. Tax Convention, the gain may be treated as sourced in Canada.
Any Canadian tax imposed on the gain generally will be available as a credit
against U.S. federal income taxes, subject to applicable limitations. A U.S.
holder that is ineligible for a foreign tax credit with respect to any Canadian
tax paid may be entitled to deduct the Canadian tax in computing U.S. taxable
income.
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In view of this possibility of recognizing gain or loss upon the exchange of
the exchangeable shares for shares of Maverick common stock, U.S. holders may
wish to consider delaying the exchange until the time when they intend to
dispose of the shares of Maverick common stock receivable in exchange for their
exchangeable shares or, as discussed below, until the time when Maverick will
own at least 80% of all the then issued and outstanding exchangeable shares
either at the time of or as a result of the exchange.
Assuming that the initial exchange of Prudential common shares for
exchangeable shares is considered to be made pursuant to a transaction
described in Section 351(a) of the U.S. Code in which the transferee
corporation is Maverick Canada, the exchange by a U.S. holder of exchangeable
shares for shares of Maverick common stock may be characterized as a tax-
deferred exchange under limited circumstances. An exchange of exchangeable
shares for shares of Maverick common stock generally may be characterized as a
tax-deferred exchange if: at least 80% of the then outstanding exchangeable
shares (and other shares, if any, of Maverick Canada) are held by Maverick
either at the time of or as a result of the exchange; and in the exchange,
Maverick, rather than Maverick Canada or Maverick Holdco, acquires the
exchangeable shares in exchange for shares of Maverick common stock pursuant to
the exercise of its call rights. In any case, the exchange would not be tax-
deferred unless some other requirements are satisfied, which, in turn, will
depend upon facts and circumstances existing at the time of the exchange and
cannot be accurately predicted as of the date of this joint proxy statement. If
the exchange did qualify as a tax-deferred exchange, a U.S. holder's aggregate
tax basis in the shares of Maverick common stock received would be equal to the
holder's aggregate adjusted tax basis in the exchangeable shares exchanged. The
holding period of the shares of Maverick common stock received by the U.S.
holder should include the holding period of the exchangeable shares exchanged,
which, in turn, should include the holding period of the Prudential common
shares exchanged pursuant to the initial exchange, provided that the Prudential
common shares and exchangeable shares have been held as capital assets prior to
the initial exchange and the subsequent exchange, respectively.
Consequences if the Exchange of Prudential Common Shares for Exchangeable
Shares and the Related Rights is Taxable. Assuming that the exchange of
Prudential common shares for exchangeable shares and the related rights
pursuant to the transaction constitutes a taxable transaction for U.S. federal
income tax purposes, the following U.S. federal income tax consequences should
apply. There can be no assurance that the IRS would not challenge the
characterization of the transaction discussed below, or that, in the event of a
challenge, a court would not agree with the IRS.
Receipt of Exchangeable Shares. A U.S. holder that receives exchangeable
shares and the related rights in exchange for Prudential common shares in
the transaction generally will recognize gain or loss on the receipt of the
exchangeable shares and the related rights. The gain or loss will be equal
to the difference between the fair market value of the exchangeable shares
and the related rights received at the time of the exchange and the U.S.
holder's aggregate adjusted tax basis in the Prudential common shares
exchanged. The gain or loss, if any, will be capital gain or loss. In the
case of a noncorporate U.S. holder, generally the maximum marginal U.S.
federal income tax rate applicable to any capital gain recognized on the
exchange will be lower than the maximum marginal U.S. federal income tax
rate applicable to ordinary income if the U.S. holder's holding period for
the Prudential common shares exceeds one year at the time of the exchange.
A U.S. holder's tax basis in the exchangeable shares and the related rights
will equal the fair market value of the exchangeable shares and the related
rights received by the U.S. holder in the transaction, and the holder's
holding period will begin on the day after the date that the U.S. holder
received the exchangeable shares and the related rights.
For U.S. federal income tax purposes, any gain recognized by a U.S.
holder on the exchange of Prudential common shares for exchangeable shares
and the related rights generally will be treated as U.S. source gain,
except that, under the terms of the Canada-U.S. Tax Convention, the gain
may be treated as sourced in Canada. Any Canadian tax imposed on the
exchange generally will be available as a credit against U.S. federal
income taxes, subject to applicable limitations. A U.S. holder that is
ineligible for a foreign tax credit with respect to any Canadian tax paid
may be entitled to deduct the Canadian tax in computing U.S. taxable
income.
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Exchange of Exchangeable Shares. Upon the exercise of a U.S. holder's
rights to exchange a U.S. holder's exchangeable shares and the related
rights for shares of Maverick common stock, the holder generally will
recognize gain or loss on the receipt of the shares of Maverick common
stock in exchange for the exchangeable shares and the related rights.
However, depending on the underlying reason why the exchange of Prudential
common shares for exchangeable shares and the related rights constituted a
taxable transaction for U.S. federal income tax purposes, the exercise of a
U.S. holder's rights to exchange exchangeable shares and the related rights
for shares of Maverick common stock arguably may be characterized as a tax-
deferred exchange under limited circumstances. See "--Consequences if the
Exchange of Prudential Common Shares for Exchangeable Shares is Tax-
Deferred--Exchange of Exchangeable Shares" above. The gain or loss will be
equal to the difference between the fair market value of the shares of
Maverick common stock at the time of the exchange and the U.S. holder's
aggregate adjusted tax basis in the exchangeable shares and the related
rights exchanged. The gain or loss, if any, will be capital gain or loss if
the exchangeable shares are held as a capital asset at the time of the
exchange, except that, with respect to any declared but unpaid dividends on
the exchangeable shares, ordinary income may be recognized by the holder
thereof. In the case of a noncorporate U.S. holder, generally the maximum
marginal U.S. federal income tax rate applicable to any capital gain
recognized on the exchange will be lower than the maximum marginal U.S.
federal income tax rate applicable to ordinary income if the U.S. holder's
holding period for the exchangeable shares and the related rights exceeds
one year at the time of the exchange. A U.S. holder's tax basis in the
shares of Maverick common stock will equal the fair market value of the
shares of Maverick common stock received by the U.S. holder in the exchange
and the holder's holding period will begin on the day after the date that
the U.S. holder received the shares of Maverick common stock.
For U.S. federal income tax purposes, any gain recognized by a U.S.
holder on the exchange of exchangeable shares and the related rights for
shares of Maverick common stock generally will be treated as U.S. source
gain, except that, under the terms of the Canada-U.S. Tax Convention, the
gain may be treated as sourced in Canada. Any Canadian tax imposed on the
exchange generally will be available as a credit against U.S. federal
income taxes, subject to applicable limitations. A U.S. holder that is
ineligible for a foreign tax credit with respect to any Canadian tax paid
may be entitled to deduct the Canadian tax in computing U.S. taxable
income.
Consequences Irrespective of Whether the Exchange of Prudential Common
Shares for Exchangeable Shares is Tax-Deferred.
Distribution on the Exchangeable Shares. While not free from doubt,
Maverick and Maverick Canada intend to treat distributions paid on the
exchangeable shares as distributions from Maverick Canada, rather than from
Maverick. The following discussion assumes that these distributions will be
treated as distributions from Maverick Canada for U.S. federal tax
purposes. A U.S. holder of exchangeable shares generally will be required
to include in gross income as dividend income the gross amount of any
distribution paid on the exchangeable shares to the extent the distribution
is paid out of the current or accumulated earnings and profits of Maverick
Canada, as determined under U.S. federal income tax principles. That
dividend will not be eligible for the dividends received deduction
generally allowed to corporate U.S. holders. To the extent that the amount
of any distribution by Maverick Canada exceeds its current and accumulated
earnings and profits as determined under U.S. federal income tax
principles, the excess will be treated first as a tax-deferred return of
the U.S. holder's adjusted tax basis in the exchangeable shares and
thereafter as capital gain. Assuming eligibility for benefits under the
Canada-U.S. Tax Convention, dividends on the exchangeable shares will be
subject to Canadian withholding tax at a maximum rate of 15% under the
Canada-U.S. Tax Convention. Subject to some limitations of U.S. federal
income tax law, a U.S. holder generally should be entitled to credit that
withholding tax against the holder's U.S. federal income tax liability or
to a deduction in computing U.S. taxable income. The amount of any foreign
tax credit allowable to a U.S. holder for the Canadian withholding tax is
subject to complex limitations. For the purpose of these limitations,
dividends on the exchangeable shares should be treated as foreign source
passive income or, in the case of some holders, foreign source financial
services income.
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Dissenters. A U.S. holder that exercises its right to dissent from the
transaction will recognize gain or loss on the exchange of the holder's
Prudential common shares for cash in an amount equal to the difference
between the amount of cash received (other than the amounts, if any, which
are or are deemed to be interest for U.S. federal income tax purposes,
which amounts will be taxed as ordinary income) and the holder's aggregate
adjusted tax basis in the Prudential common shares exchanged. Any gain or
loss recognized on receipt of the cash generally will be capital gain or
loss. In the case of a noncorporate U.S. holder of Prudential common shares
who receives cash pursuant to the exercise of the holder's right to dissent
from the transaction, generally the maximum U.S. federal income tax rate
applicable to any capital gain recognized on the receipt of the cash will
be lower than the maximum U.S. federal income tax rate applicable to
ordinary income if the holder's holding period for the Prudential common
shares exceeds one year. The deductibility of capital losses is subject to
limitations.
For U.S. federal income tax purposes, any gain recognized by a U.S.
holder on the receipt of cash pursuant to the exercise of the holder's
right to dissent from the transaction generally will be treated as U.S.
source gain, except that, under the terms of the Canada-U.S. Tax
Convention, the gain may be treated as sourced in Canada. Any Canadian tax
imposed on the gain generally will be available as a credit against U.S.
federal income taxes, subject to applicable limitations. A U.S. holder that
is ineligible for a foreign tax credit with respect to any Canadian tax
paid may be entitled to deduct the Canadian tax in computing U.S. taxable
income.
Receipt of Canadian Currency. The value of Canadian currency received by
a U.S. holder is generally equal to the U.S. dollar value of such currency
on the date of receipt (based on the exchange rate on such date). In the
case of Canadian currency received that is not converted by the recipient
into U.S. dollars on the date of receipt, a U.S. holder will have an
adjusted tax basis in such currency equal to its U.S. dollar value on the
date of receipt. Generally any gain or loss recognized upon a subsequent
sale or other disposition of the Canadian currency, including the exchange
for U.S. dollars, will be ordinary income or loss. However, an individual
U.S. holder whose realized gain does not exceed $200 will not recognize
that gain, to the extent that there are no expenses associated with the
transaction that meet the requirements for deductibility as a trade or
business expense (other than travel expenses in connection with a business
trip) or as an expense for the production of income.
Non-U.S. Holders. Subject to the discussion below under "--Backup
Withholding Tax and Information Reporting Requirements," a non-U.S. holder
generally will not be subject to U.S. federal income tax on gain, if any,
recognized on the receipt of the exchangeable shares, on the sale or exchange
of the exchangeable shares, or on the receipt or sale of shares of Maverick
common stock, unless the gain is effectively connected with a U.S. trade or
business of the holder or, in the case of gains recognized by an individual,
the individual is present in the U.S. for 183 days or more in the taxable year
of disposition, and some other conditions are satisfied.
Subject to the discussion below under "--Backup Withholding Tax and
Information Reporting Requirements," while not free from doubt, Maverick and
Maverick Canada intend to treat dividends, if any, received by a non-U.S.
holder with respect to exchangeable shares as dividends from Maverick Canada
rather than from Maverick and as not subject to U.S. withholding tax, and
Maverick and Maverick Canada do not intend that Maverick or Maverick Canada
will withhold any amounts for tax from those dividends. There is some
possibility, however, that the IRS may assert that U.S. withholding tax is
payable with respect to any dividends paid on the exchangeable shares to non-
U.S. holders. In that case, unless the dividends are effectively connected with
a U.S. trade or business, a non-U.S. holder of exchangeable shares could be
subject to U.S. withholding tax at a rate of 30%, which rate may be reduced by
an income tax treaty in effect between the U.S. and the non-U.S. holder's
country of residence. This reduction generally would result in a withholding
tax of 15% on dividends paid to eligible residents of Canada under the Canada-
U.S. Tax Convention.
Subject to the discussion below under "--Backup Withholding Tax and
Information Reporting Requirements," dividends, unless effectively connected
with a U.S. trade or business, received by non-U.S.
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holders with respect to the Maverick common stock generally will be subject to
U.S. withholding tax at a rate of 30%, which rate may be subject to reduction
by an applicable income tax treaty. This reduction generally would result in a
withholding tax of 15% on dividends paid to eligible residents of Canada under
the Canada-U.S. Tax Convention.
Backup Withholding Tax and Information Reporting Requirements. U.S. backup
withholding tax and information reporting requirements generally apply to some
payments holders of stock other than specified exempt recipients. Information
reporting generally will apply to payments of dividends on, and to proceeds
from the sale or redemption of, exchangeable shares or Maverick common stock,
as the case may be, by a payor or middleman (in the case of exchangeable
shares, within the U.S.) to a holder of exchangeable shares or Maverick common
stock, as the case may be, other than an exempt recipient. Exempt recipients
include corporations, payees that are not United States persons and that
provide an appropriate certification and some other persons. A payor or
middleman within the U.S. will be required to withhold 31% of any payments to a
holder of exchangeable shares of the proceeds from the sale or redemption of
the shares within the U.S., unless the holder is an exempt recipient, if the
holder fails to furnish its correct taxpayer identification number or otherwise
fails to comply with the backup withholding tax requirements. A payor or
middleman will be required to withhold 31% of any payments of dividends on, and
to proceeds from the sale or redemption of, Maverick common stock, unless the
holder is an exempt recipient, if the holder fails to furnish its correct
taxpayer identification number or otherwise fails to comply with the backup
withholding tax requirements. However, dividends paid to non-U.S. holders
outside the United States that are subject to the 30% withholding tax or a
reduced rate under a United States income tax treaty will be exempt from backup
withholding tax.
Income tax regulations effective January 1, 2001, would modify some of the
rules discussed above generally with respect to payments on exchangeable shares
or Maverick common stock, as the case may be, made after December 31, 2000. In
particular, a payor or middleman within the U.S. will be required to withhold
31% of any payments to a holder of exchangeable shares of dividends on, or
proceeds from the sale of, exchangeable shares within the U.S., unless the
holder is an exempt recipient, if the holder fails to furnish its correct
taxpayer identification number or otherwise fails to comply with, or establish
an exemption from, the backup withholding tax requirements. In the case of
payments by a payor or middleman (in the case of exchangeable shares, within
the U.S.) to a foreign partnership, other than payments to a foreign
partnership that qualifies as a withholding foreign partnership within the
meaning of these income tax regulations and payments to a foreign partnership
that are effectively connected with the conduct of a trade or business in the
U.S., the partners of the partnership will be required to provide the
certification discussed above in order to establish an exemption from backup
withholding tax and information reporting requirements. Moreover, a payor or
middleman may rely on a certification provided by a non-U.S. holder only if the
payor or middleman does not have actual knowledge or a reason to know that any
information or certification stated in the certificate is unreliable.
The discussion of the U.S. federal income tax consequences set forth above
is for general information only and does not purport to be a complete analysis
or listing of all potential tax effects that may apply to a holder of
Prudential common shares. Holders of Prudential common shares are strongly
urged to consult their own tax advisors to determine the particular tax
consequences to them of the transaction, including the application and effect
of U.S. federal, state, local, and other tax laws.
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AMENDMENT OF MAVERICK'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF MAVERICK'S COMMON STOCK FROM 40,000,000 TO 80,000,000
In connection with its authorization of the business combination with
Prudential, the Maverick board of directors authorized the amendment to the
Maverick's Certificate of Incorporation to increase the number of authorized
shares of Maverick common stock from 40,000,000 to 80,000,000 shares.
As of the record date for the Maverick stockholders' meeting, approximately
17,899,224 shares of Maverick common stock were issued and outstanding and an
aggregate of approximately 709,750 shares of Maverick common stock were
reserved for issuance pursuant to outstanding Maverick stock options. Upon
completion of the business combination with Prudential, approximately
15,742,336 additional shares will be reserved for issuance upon conversion,
from time to time, of the exchangeable shares and approximately 720,966 shares
of Maverick common stock will be reserved for issuance pursuant to outstanding
Prudential options. If the amendment to the Certificate of Incorporation is
approved, the Maverick board of directors will have the authority to issue
approximately 44,972,724 additional shares of Maverick common stock without
further shareholder approval, on such terms and for such consideration as may
be determined by the board of directors. However, the Nasdaq National Market,
on which the Maverick common stock is currently listed, and the New York Stock
Exchange, upon which it is expected that the Maverick common stock will be
listed immediately following the consummation of the transaction with
Prudential, each currently requires shareholder approval as a prerequisite to
listing shares in several instances, including acquisition transactions where
the present or potential of shares could result in an increase of 20% or more
in the number of shares of common stock outstanding.
The Maverick board of directors believes that the authorized number of
shares of common stock should be increased, commensurate with the increased
size of the combined company in terms of equity and market capitalization that
will result from the business combination between Maverick and Prudential, to
provide sufficient shares for each corporate purpose as may be determined from
time to time by the Maverick board of directors to be necessary or desirable.
These purposes may include, without limitation:
. facilitating broad ownership of the Maverick common stock by effecting a
stock split or issuing a stock dividend;
. raising capital through the sale of common stock;
. attracting and retaining valuable employees by the issuance of additional
stock options, including additional shares reserved for future option
grants under Maverick's existing and future stock option plans and
Prudential's existing stock option plan which will be assumed by
Maverick; and
. acquiring other businesses in exchange for shares of common stock.
While Maverick continually evaluates potential acquisitions, it has no
present agreements or commitments with respect to issuing shares of common
stock as part of any acquisition other than the proposed business combination
with Prudential. The Maverick board of directors considers the authorization of
additional shares of common stock advisable to ensure prompt availability of
shares for issuance should the occasion arise.
The issuance of additional shares of common stock could have the effect of
diluting earnings per share and book value per share, which could adversely
affect Maverick's existing stockholders. In addition, Maverick's authorized but
unissued shares of common stock could be used to make a change in control of
the combined company more difficult or costly. Issuing additional shares of
common stock could have the effect of diluting stock ownership of persons
seeking to obtain control of the combined company. However, Maverick is not
aware of any pending or threatened efforts to obtain control of Maverick or the
combined company following consummation of the proposed business combination,
and the Maverick board of directors has no current intention to use the
additional shares of common stock in order to impede a takeover attempt.
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The proposed amendment to Maverick's Certificate of Incorporation does not
alter Maverick's present ability to issue up to 5,000,000 shares of its
preferred stock.
If the proposed combination of Maverick and Prudential is not approved by
Maverick's stockholders, then this proposed increase of authorized shares will
not be implemented, notwithstanding that it may have been approved by
Maverick's stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL AND ADOPTION OF THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
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CERTAIN LEGAL AND OTHER INFORMATION
Auditors, Transfer Agent and Registrar
The independent accountants of Maverick are Ernst & Young LLP. The
independent chartered accountants of Prudential are Ernst & Young LLP.
Harris Trust and Savings Bank, P.O. Box 755, 111 West Monroe, Chicago,
Illinois 60690, is transfer agent and registrar for the Maverick common stock.
The transfer agent for Prudential common shares is CIBC Mellon Trust Company at
600, 333-7th Ave. S.W., Calgary, Alberta T2P 2Z1. Concurrently with the
closing, CIBC Mellon Trust Company will be appointed as transfer agent and
registrar for the exchangeable shares. CIBC Mellon Trust Company will also be
trustee under the voting and exchange trust agreement.
Legal Matters
Certain legal matters in connection with the transaction have been passed
upon, on behalf of Maverick, by Gallop, Johnson & Neuman, L.C., as to matters
of U.S. law, and McCarthy Tetrault, as to matters of Canadian law, and, on
behalf of Prudential, by Bennett Jones LLP, as to matters of Canadian law and
Dorsey & Whitney LLP, as to matters of U.S. law.
Where You Can Find More Information
Maverick files reports, proxy statements and other information with the SEC.
You may read and copy any reports, statements or other information Maverick
files at the SEC's public reference rooms at 450 Fifth Street, N.W.,
Washington, D.C., 20549 or in New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Maverick common stock is listed on the NASDAQ National Market and
reports, proxy statements and other information regarding Maverick can be
inspected at the offices of the NASDAQ National Market, 853 Key West Avenue,
Rockville, Maryland 20850. The SEC maintains a web site that contains all
reports, proxy and information statements, and other information filed
electronically with the SEC. The address of the SEC's web site is www.sec.gov.
The address of Maverick's web site is www.Maverick-tube.com.
Prudential files reports, management information circulars and other
information with the Canadian securities administrators in each of the
provinces of Canada. The Canadian securities administrators maintain a web site
that contains all public information filed electronically with any Canadian
securities administrator. The address of this web site is www.sedar.com. The
address of Prudential's web site is www.prudentialsteel.com.
No person is authorized to give any information or to make any
representation not contained in this joint proxy statement and, if given or
made, such information or representation should not be relied upon as having
been authorized. This joint proxy statement does not constitute the
solicitation of a proxy, by any person in any jurisdiction in which such a
solicitation is not authorized or in which the person making such solicitation
is not qualified to do so or to any person to whom it is unlawful to make such
a solicitation. Neither delivery of this joint proxy statement nor any
distribution of the securities referred to in this joint proxy statement shall,
under any circumstances, create an implication that there has been no change in
the information set forth herein since the date of this joint proxy statement.
Maverick is organized under the laws of the State of Delaware, United
States. Six of the seven directors, and executive officers, of Maverick and
many of the experts named herein are residents of the United States. In
addition, substantial portions of the assets of Maverick and of such
individuals and experts are located outside of Canada. As a result, it may be
difficult or impossible for persons who become securityholders of Maverick to
effect service of process upon such persons within Canada with respect to
matters arising under Canadian securities laws or to enforce against them in
Canadian courts judgments predicated upon the civil liability provisions of
Canadian securities laws. There is some doubt as to the enforceability in the
United States in original actions, or in actions for enforcement of judgments
of Canadian courts, of civil liabilities predicated upon the Canadian
securities laws. In addition, awards of punitive damages in actions Maverick
sought in Canada or elsewhere may be unenforceable in the United States.
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DOCUMENTS INCORPORATED BY REFERENCE
The SEC and the Canadian securities administrators allow us to "incorporate
by reference" information into this joint proxy statement, which means that we
can disclose important information to you by referring you to another document
filed separately. The information incorporated by reference is deemed to be
part of this joint proxy statement, except for any information superseded by
information in, or incorporated by reference in, this joint proxy statement.
This joint proxy statement incorporates by reference the documents set forth
below that we have previously filed. These documents contain important
information about our companies and their finances.
The following Maverick SEC filings are incorporated by reference:
. Annual Report on Form 10-K for the year ended September 30, 1999, filed
on December 16, 1999;
. Quarterly Report on Form 10-Q for the quarter ended December 31, 2000,
filed on February 14, 2000;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 filed
on May 11, 2000;
. Current Report on Form 8-K dated June 12, 2000, filed on June 12, 2000;
and
. Proxy Statement for Maverick's 2000 Annual Meeting of Stockholders, filed
on December 17, 1999.
Copies of the foregoing documents, or the information contained therein,
are included in the form of this joint proxy statement mailed to Prudential
shareholders and optionholders and filed with the Canadian securities
administrators in each of the provinces of Canada.
The following Prudential filings with the Canadian securities
administrators are incorporated by reference:
. The Notice of Meeting and Information Circular of Prudential relating to
the annual and special meeting of shareholders held on May 1, 2000;
. The renewal annual information form of Prudential dated May 15, 2000; and
. Material Change Report dated June 20, 2000 with respect to the
arrangement.
Copies of these filings, or the information contained therein, are included
in the form of this joint proxy statement mailed to Maverick stockholders and
filed with the SEC.
All Maverick SEC filings made after the date of this joint proxy statement
and before the date of the Maverick special meeting are incorporated by
reference in this joint proxy statement. Any material change reports
(excluding confidential reports), interim financial statements and information
circulars filed by Prudential with the Canadian securities commissions or
other similar Canadian regulatory authorities in all of the provinces of
Canada after the date of this joint proxy statement and prior to the
Prudential special meeting shall be deemed to be incorporated by reference
into this joint proxy statement. Maverick will file with the SEC and mail to
its stockholders copies of any documents filed by Prudential with the Canadian
securities commissions or other similar Canadian regulatory authorities in all
of the provinces of Canada after the date of this joint proxy statement and
prior to the Maverick special meeting.
Maverick has supplied all information contained or incorporated by
reference in this joint proxy statement relating to Maverick and Prudential
has supplied all such information relating to Prudential.
We may have sent you some of the documents incorporated by reference, but
you can obtain any of them through us, the SEC at www.sec.gov or the Canadian
securities administrators at www.sedar.com. Documents incorporated by
reference are available from us without charge. Securityholders may obtain
documents
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incorporated by reference in this joint proxy statement by requesting them in
writing or by telephone from the appropriate party at the following address:
<TABLE>
<S> <C>
Barry R. Pearl Norman E. Hall
Corporate Secretary Vice President, Legal & Business Affairs
Maverick Tube Corporation Prudential Steel Ltd.
16401 Swingley Ridge Road Suite 1800, 140-4th Avenue S.W.
Chesterfield, Missouri 63017 Calgary, Alberta T2P 3N3
(636) 733-1600 (403) 267-0300
</TABLE>
Any statement contained in this joint proxy statement or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for the purposes of this joint proxy statement to
the extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. The modifying or superseding statement
need not state that it has modified or superseded a prior statement or include
any other information set forth in the document that it modifies or supersedes.
The making of a modifying or superseding statement shall not be deemed an
admission for any purposes that the modified or superseded statement, when
made, constituted a misrepresentation, an untrue statement of a material fact
or an omission to state a material fact that is required to be stated or that
is necessary to make a statement not misleading in light of the circumstances
in which it was made. Any statement so modified or superseded shall not be
deemed in its unmodified or superseded form to constitute a part of this joint
proxy statement.
You should rely on the information contained or incorporated by reference in
this joint proxy statement to vote at the Maverick special meeting and the
Prudential special meeting. We have not authorized anyone to provide you with
information that is different from that contained in this joint proxy
statement. This joint proxy statement is dated , 2000.
You should not assume that the information contained in the joint proxy
statement is accurate as of any other date, and neither the mailing of this
joint proxy statement to shareholders nor the issuance of exchangeable shares
or Maverick common stock in the transaction shall create any implication to the
contrary.
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ANNEX A
RESOLUTION FOR CONSIDERATION AT
THE SPECIAL MEETING OF THE SHAREHOLDERS AND OPTIONHOLDERS
OF
PRUDENTIAL STEEL LTD.
("PRUDENTIAL")
BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. the arrangement involving Prudential (the "Arrangement") under section 186
of the Business Corporations Act (Alberta), as more particularly described
in the Joint Management Information Circular and Proxy Statement of
Prudential and Maverick Tube Corporation (the "Joint Proxy Statement")
accompanying the notice of this meeting is hereby authorized, approved and
adopted;
2. the plan of arrangement involving Prudential, the full text of which is set
out as Annex D to the Joint Proxy Statement is hereby approved and adopted;
3. notwithstanding the passing of this resolution by shareholders and
optionholders or the approval of the Court of Queen's Bench of Alberta, the
Board of Directors of Prudential without further notice to or approval of
shareholders or optionholders, may decide not to proceed with the
Arrangement or may revoke this resolution at any time prior to the
Arrangement becoming effective pursuant the Business Corporations Act
(Alberta); and
4. the proper officers of Prudential are hereby authorized and directed for and
on behalf of Prudential to execute or cause to be executed and to deliver or
cause to be delivered all such documents, agreements and instruments and to
do or cause to be done all such other acts and things as such officers of
Prudential shall determine to be necessary or desirable in order to carry
out the intent of the foregoing paragraphs of this resolution and the
matters authorized thereby, such determination to be conclusively evidenced
by the execution and delivery of such document, agreement or instrument or
the doing of any such act or thing.
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ANNEX B
COMBINATION AGREEMENT
MAVERICK TUBE CORPORATION
and
PRUDENTIAL STEEL LTD.
Dated effective as of June 11, 2000
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TABLE OF CONTENTS
ARTICLE 1
GENERAL
<TABLE>
<S> <C>
1.1 Plan of Arrangement............................................. 1
1.2 Adjustments to Exchange Ratio................................... 2
1.3 Dissenting Shares............................................... 2
1.4 Other Effects of the Arrangement................................ 2
1.5 Joint Proxy Statement; Registration Statement................... 2
1.6 Material Adverse Effect......................................... 3
1.7 Currency........................................................ 4
1.8 MCo Sub......................................................... 4
1.9 Exhibits........................................................ 4
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PCO
2.1 Organization and Standing....................................... 4
2.2 Agreement Authorized and its Effect on Other Obligations........ 5
2.3 Governmental and Third Party Consents........................... 6
2.4 Capitalization.................................................. 6
2.5 Securities Reports and Financial Statements..................... 7
2.6 Liabilities..................................................... 7
2.7 Information Supplied............................................ 8
2.8 No Defaults..................................................... 8
2.9 Litigation; Investigations...................................... 8
2.10 Absence of Certain Changes and Events........................... 8
2.11 Additional PCo Information...................................... 9
2.12 Certain Agreements.............................................. 10
2.13 Employee Benefit Plans.......................................... 10
2.14 Intellectual Property........................................... 11
2.15 Title to Properties............................................. 11
2.16 Environmental Matters........................................... 12
2.17 Compliance With Other Laws...................................... 13
2.18 Taxes........................................................... 13
2.19 Vote Required................................................... 13
2.20 Brokers and Finders............................................. 14
2.21 Disclosure...................................................... 14
2.22 Fairness Opinion................................................ 14
2.23 Restrictions on Business Activities............................. 14
2.24 Books and Records............................................... 14
2.25 Pooling Matters................................................. 15
2.26 Takeover Laws................................................... 15
2.27 PCo Rights Plan................................................. 15
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF MCO
3.1 Organization and Standing....................................... 15
</TABLE>
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<TABLE>
<S> <C>
3.2 Agreement Authorized and its Effect on Other Obligations........ 16
3.3 Governmental and Third Party Consents........................... 16
3.4 Capitalization.................................................. 17
3.5 Securities Reports and Financial Statements..................... 18
3.6 Liabilities..................................................... 18
3.7 Information Supplied............................................ 18
3.8 No Defaults..................................................... 19
3.9 Litigation; Investigations...................................... 19
3.10 Absence of Certain Changes and Events........................... 19
3.11 Additional MCo Information...................................... 20
3.12 Certain Agreements.............................................. 21
3.13 Employee Benefit Plans.......................................... 21
3.14 Intellectual Property........................................... 22
3.15 Title to Properties............................................. 22
3.16 Environmental Matters........................................... 23
3.17 Compliance With Other Laws...................................... 23
3.18 Taxes........................................................... 23
3.19 Vote Required................................................... 24
3.20 Brokers and Finders............................................. 24
3.21 Disclosure...................................................... 24
3.22 Fairness Opinion................................................ 24
3.23 Restrictions on Business Activities............................. 25
3.24 Books and Records............................................... 25
3.25 MCo Sub......................................................... 25
3.26 Pooling Matters................................................. 25
ARTICLE 4
OBLIGATIONS PENDING EFFECTIVE DATE
4.1 Agreements of MCo and PCo....................................... 25
4.2 Additional Agreements of PCo.................................... 27
4.3 Additional Agreements of MCo.................................... 30
4.4 Public Announcements............................................ 33
4.5 Comfort Letters................................................. 34
4.6 Actions Regarding Rights........................................ 34
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1 Conditions Precedent to Obligations of Each Party............... 34
5.2 Conditions Precedent to Obligations of PCo...................... 36
5.3 Conditions Precedent to Obligations of MCo...................... 37
ARTICLE 6
TERMINATION
6.1 Termination..................................................... 38
6.2 Notice of Termination........................................... 39
6.3 Effect of Termination........................................... 39
6.4 Termination Fee................................................. 40
</TABLE>
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<TABLE>
ARTICLE 7
ADDITIONAL AGREEMENTS
<S> <C>
7.1 Meetings......................................................... 41
7.2 The Closing...................................................... 41
7.3 Ancillary Documents/Reservation of Shares........................ 41
7.4 Exchange of Options.............................................. 42
7.5 Indemnification and Related Matters.............................. 42
7.6 Affiliate Agreements............................................. 44
7.7 MCo Board of Directors........................................... 44
7.8 Tax Elections.................................................... 44
ARTICLE 8
MISCELLANEOUS
8.1 No Survival of Representations and Warranties.................... 44
8.2 Notices.......................................................... 45
8.3 Interpretation................................................... 46
8.4 Severability..................................................... 46
8.5 Counterparts..................................................... 46
8.6 Miscellaneous.................................................... 46
8.7 Governing Law.................................................... 46
8.8 Amendment and Waivers............................................ 47
8.9 Expenses......................................................... 47
8.10 Further Assurances............................................... 47
</TABLE>
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<PAGE>
COMBINATION AGREEMENT
THIS COMBINATION AGREEMENT (this "Agreement") is entered into effective as
of June 11, 2000 between Maverick Tube Corporation, a Delaware corporation
("MCo"), and Prudential Steel Ltd., an Alberta corporation ("PCo").
RECITALS
WHEREAS, the respective boards of directors of MCo and PCo each deem it
advisable and in the best interests of their respective corporations and
stockholders to combine their respective businesses by MCo, through MCo Sub (as
hereinafter defined), acquiring common shares of PCo pursuant to the Plan of
Arrangement (as hereinafter defined);
AND WHEREAS, in furtherance of such combination, and in furtherance of
their respective long-term business strategies, the respective boards of
directors of MCo and PCo have approved the transactions contemplated by this
Agreement, the board of directors of PCo has agreed to submit the Plan of
Arrangement and the other transactions contemplated hereby to its shareholders
and optionholders (together, "securityholders") and the Court of Queen's Bench
of Alberta (the "Court") for approval, and the board of directors of MCo has
agreed to submit the issuance of the shares of MCo Common Stock, issuable in
connection with the transactions contemplated by this Agreement and the Plan of
Arrangement, to its stockholders for approval;
AND WHEREAS, it is intended that the transactions contemplated hereby will
be treated as a "pooling of interests" under United States generally accepted
accounting principles.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE 1
GENERAL
1.1 Plan of Arrangement
As promptly as practicable after the Joint Proxy Statement (as hereinafter
defined) is cleared by the United States Securities and Exchange Commission (the
"SEC"), PCo will apply to the Court pursuant to Section 186 of the Business
Corporations Act (Alberta) (the "ABCA") for an interim order in form and
substance reasonably satisfactory to MCo (the "Interim Order") providing for,
among other things, the calling and holding of the PCo Shareholders Meeting (as
hereinafter defined) for the purpose of considering and, if deemed advisable,
approving the arrangement (the "Arrangement") under Section 186 of the ABCA and
pursuant to this Agreement and the Plan of Arrangement substantially in the form
of Exhibit A (the "Plan of Arrangement"). If the PCo securityholders approve
the Arrangement and all necessary approvals of MCo stockholders have been
obtained, PCo will take the necessary steps to submit the Arrangement to the
Court and apply for a final order of the Court approving the Arrangement in such
fashion as the Court may direct (the "Final Order"). At 12:01 a.m. (the
"Effective Time") on the date (the "Effective Date") shown on the articles of
arrangement filed with the Registrar
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under the ABCA (which articles of arrangement will not be filed with the
Registrar under the ABCA during any 15 business day cure period referred to in
Section 6.1 (b) or (c) hereof) giving effect to the Arrangement and other
transactions set out in clauses (a) through (e), inclusive, of Section 2.1 of
the Plan of Arrangement, the Arrangement and such other transactions shall occur
and shall be deemed to occur in the order set out therein without any further
act or formality.
1.2 Adjustments to Exchange Ratio
The Exchange Ratio (as defined in the Plan of Arrangement) shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
MCo Common Stock or PCo Common Shares, as such terms are defined in the Plan of
Arrangement), merger, reorganization, recapitalization or other like change with
respect to MCo Common Stock or PCo Common Shares occurring after the date hereof
and prior to the Effective Time.
1.3 Dissenting Shares
Holders of PCo Common Shares and options to acquire PCo Common Shares ("PCo
Options") may exercise rights of dissent with respect to such shares in
connection with the Arrangement pursuant to and in the manner set forth in
Section 184 of the ABCA and Section 3.1 of the Plan of Arrangement (such holders
referred to as "Dissenters" or as "Dissenting Shareholders" when referring
exclusively to PCo Shareholders). PCo shall give MCo (i) prompt notice of any
written demands of a right of dissent, withdrawals of such demands, and any
other instruments served pursuant to the ABCA and received by PCo and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
such rights. Without the prior written consent of MCo, except as required by
applicable law, PCo shall not make any payment with respect to any such rights
or offer to settle or settle any such rights.
1.4 Other Effects of the Arrangement
At the Effective Time: (a) each PCo Common Share and each PCo Option
outstanding immediately prior to the Effective Time will be exchanged as
provided in the Plan of Arrangement; and (b) the Arrangement will, from and
after the Effective Time, have all of the effects provided by applicable law,
including the ABCA.
1.5 Joint Proxy Statement; Registration Statement
(a) As promptly as practicable after execution of this Agreement, MCo
and PCo shall prepare and MCo shall file with the SEC a joint management
information circular and proxy statement (the "Joint Proxy Statement"), together
with any other documents required by the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in connection with the Arrangement and the other transactions
contemplated hereby. The Joint Proxy Statement shall constitute (i) the
management information circular of PCo with respect to the meeting of
securityholders of PCo relating to the Arrangement and the approval of certain
matters in connection therewith (the "PCo Shareholders Meeting") and (ii) the
proxy statement of MCo with respect to the meeting of stockholders of MCo with
respect to the issuance of MCo Common Stock from time to time in connection with
the transactions contemplated by this Agreement and the Plan of Arrangement
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(the "MCo Stockholders Meeting"). As promptly as practicable after the Joint
Proxy Statement is cleared by the SEC, MCo and PCo shall cause the Joint Proxy
Statement to be mailed to each company's respective securityholders entitled to
vote, as the case may be. As promptly as practicable, MCo shall file a
registration statement (the "Registration Statement") with the SEC to register
the MCo Common Stock to be issued from time to time after the Effective Time
upon exchange of the exchangeable shares to be issued by MCo Sub (as herein
defined) as contemplated in the Plan of Arrangement (the "Exchangeable Shares")
and MCo and PCo shall use their best efforts to cause the Registration Statement
to become effective prior to the mailing of the Joint Proxy Statement. If such
Registration Statement is filed and becomes effective, MCo will use its best
efforts to maintain the effectiveness of the Registration Statement for so long
as any Exchangeable Shares remain outstanding or until such earlier time as MCo
shall have received a written opinion of its outside counsel to the effect that
the holders of Exchangeable Shares may exchange such shares for freely tradeable
shares of MCo Common Stock without registration under the Securities Act.
(b) Each party shall promptly furnish to the other party all information
concerning such party and its securityholders as may be reasonably required in
connection with any action contemplated by this Section 1.5. The Joint Proxy
Statement and the Registration Statement, shall comply in all material respects
with all applicable requirements of law. Each of MCo and PCo will notify the
other promptly of the receipt of any comments from the SEC and of any request by
the SEC for amendments or supplements to the Joint Proxy Statement or the
Registration Statement, or for additional information, and will supply the other
with copies of all correspondence with the SEC with respect to the Joint Proxy
Statement or the Registration Statement. Whenever any event occurs which should
be set forth in an amendment or supplement to the Joint Proxy Statement or the
Registration Statement, MCo or PCo, as the case may be, shall promptly inform
the other of such occurrence and cooperate in filing with the SEC, and/or
mailing to securityholders entitled to vote of MCo and PCo, as may be
applicable, such amendment or supplement.
(c) MCo, MCo Sub and PCo shall take any action required to be taken
under any applicable provincial or state securities laws (including "blue sky"
laws) in connection with the issuance of the Exchangeable Shares, MCo Common
Stock and the Arrangement; provided, however, that with respect to the blue sky
and Canadian provincial qualifications, neither MCo nor PCo shall be required to
register or qualify as a foreign corporation or reporting issuer where any such
entity is not now so registered or qualified or consent to service of legal
process in any jurisdiction, except as to matters and transactions arising
solely from the offer and sale of the MCo Common Stock or the issuance of the
Exchangeable Shares.
1.6 Material Adverse Effect
In this Agreement, the term "Material Adverse Effect" used with respect to
any party means any event, change or effect that is or would reasonably be
expected to be materially adverse to the financial condition, operations,
assets, liabilities, or business of such party and its subsidiaries, taken as a
whole, provided that, a Material Adverse Effect shall not include any adverse
effect resulting from changes in general economic conditions or conditions
generally affecting the industries in which MCo or PCo operate.
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1.7 Currency
Unless otherwise specified, all references in this Agreement to "dollars"
or "$" shall mean United States dollars.
1.8 MCo Sub
(a) On or prior to the Effective Date, MCo shall incorporate a new
corporation under the ABCA ("MCo Sub") and shall include the following
provisions in its articles of incorporation:
(i) a class of common voting shares, unlimited in number and
having the terms and conditions substantially in the form set forth in
Exhibit B;
(ii) a class of exchangeable shares (the "Exchangeable Shares"),
unlimited in number and having the terms and conditions substantially in
the form set forth in Exhibit B; and
(iii) those other provisions substantially in the form set forth
in Exhibit B.
(b) MCo shall cause MCo Sub to complete the transactions contemplated
herein. 1.9 Exhibits
The following Exhibits attached hereto are incorporated herein by
reference:
(a) Exhibit A - Plan of Arrangement;
(b) Exhibit B - Share Capital and Other Provisions to be included in the
Articles of Incorporation of MCo Sub;
(c) Exhibit C - Support Agreement;
(d) Exhibit D - Voting and Exchange Trust Agreement;
(e) Exhibit E - PCo Affiliates Agreement; and
(f) Exhibit F - MCo Affiliates Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PCO
Except as set forth in a letter dated the date of this Agreement and
delivered by PCo to MCo concurrently herewith (the "PCo Disclosure Letter"), PCo
hereby represents and warrants to, and agrees with, MCo that:
2.1 Organization and Standing
PCo and each body corporate, partnership, joint venture, association or
other business entity of which more than 50% of the total voting power of shares
of stock or units of ownership
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<PAGE>
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or beneficial interest entitled to vote in the election of directors (or members
of a comparable governing body) is owned or controlled, directly or indirectly,
by PCo (the "PCo Subsidiaries"), is an entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization, has full requisite power and authority to carry on its business as
it is currently conducted, and to own, lease and operate the properties
currently owned, leased and operated by it, and is duly qualified or licensed to
do business and is in good standing as a foreign corporation or organization
authorized to do business in all jurisdictions in which the character of the
properties owned or leased or the nature of the business conducted by it would
make such qualification or licensing necessary, except where the failure to be
so qualified or licensed would not have a Material Adverse Effect on PCo. The
PCo Disclosure Letter sets forth a complete list, as at the date hereof, of the
PCo Subsidiaries and the percentage of each subsidiary's outstanding capital
stock or other ownership interest owned by PCo or another PCo Subsidiary and a
description of each Encumbrance (as hereinafter defined) on such stock (if any)
or other ownership interest (if any) and a complete list of each jurisdiction in
which each of PCo and the PCo Subsidiaries is duly qualified and in good
standing to do business.
2.2 Agreement Authorized and its Effect on Other Obligations
(a) PCo has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder and, subject to approval of
PCo's securityholders and the Court as provided in this Agreement, to consummate
the Arrangement and the other transactions contemplated by this Agreement. The
execution and delivery of this Agreement by PCo and, subject to approval of
PCo's securityholders and the Court as provided in this Agreement, the
consummation by PCo of the Arrangement and the other transactions contemplated
hereby have been unanimously approved by the board of directors of PCo and have
been duly authorized by all other necessary corporate action on the part of PCo.
This Agreement has been duly executed and delivered by PCo and is a valid and
binding obligation of PCo, enforceable in accordance with its terms, except that
such enforceability is subject to (i) bankruptcy, insolvency, reorganization or
other similar laws affecting or relating to enforcement of creditors' rights
generally, (ii) general equitable principles, and (iii) the qualifications that
the consummation of the Arrangement is subject to approval of PCo's
securityholders and the Court as provided in this Agreement and that Alberta
courts will only render monetary judgments expressed in Canadian dollars.
(b) Neither the execution, delivery or performance of this Agreement or
the Arrangement by PCo, nor the consummation of the transactions contemplated
hereby or thereby by PCo nor compliance with the provisions hereof or thereof by
PCo will: (i) conflict with, or result in any violations of, the articles or
bylaws of PCo or any equivalent document of any of the PCo Subsidiaries; or (ii)
result in any breach of or cause a default (with or without notice or lapse of
time, or both) under; give rise to a right of termination, amendment,
cancellation or acceleration of any obligation contained in, or the loss of any
material benefit or the incurrence of any material cost under; or result in the
creation of any lien, charge, mortgage, security interest, option, preferential
purchase right or other right or interest of any other person (collectively, an
"Encumbrance") upon any of the material properties or assets of PCo or any of
the PCo Subsidiaries under; any term, condition or provision of any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
judgment, order, decree, statute, law,
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ordinance, rule or regulation applicable to PCo or any of the PCo Subsidiaries
or their respective properties or assets, other than any such breaches,
defaults, rights, losses, or Encumbrances which, individually or in the
aggregate, would not have a Material Adverse Effect on PCo.
2.3 Governmental and Third Party Consents
(a) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign (each a
"Governmental Entity"), is required to be obtained by PCo or any of the PCo
Subsidiaries in connection with the execution and delivery of this Agreement or
the Plan of Arrangement or the consummation of the transactions contemplated
hereby or thereby, except for: (i) the filing with the applicable Canadian
provincial securities commissions or regulatory authorities (the "Commissions")
and the Court and the mailing to securityholders of PCo of the Joint Proxy
Statement relating to the PCo Shareholders Meeting; (ii) approval by the Court
of the Arrangement and the filings of the articles of arrangement and other
required arrangement or other documents as required by the ABCA; (iii) such
filings, authorizations, orders and approvals as may be required under any
applicable federal, provincial or state securities laws and the rules of the
National Association of Securities Dealers Automatic Quotation System, National
Market (the "Nasdaq") or The Toronto Stock Exchange (the "TSE"); (iv) such
filings and notifications as may be necessary under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); and (v) such
notices and filings as may be necessary under the Investment Canada Act and
under the Competition Act (Canada); unless the failure to obtain such consents,
approvals, etc., would not prevent or delay the consummation of the Arrangement
or otherwise prevent PCo from performing its obligations under this Agreement
and would not reasonably be expected to have a Material Adverse Effect on PCo.
(b) Other than as contemplated by Sections 2.3 (a) or 2.19 or as specified
in the PCo Disclosure Letter, no consents, assignments, waivers, authorizations
or other certificates are necessary in connection with the transactions
contemplated hereby to provide for the continuation in full force and effect of
all of PCo's material contracts or leases or for PCo to consummate the
transactions contemplated hereby, except when the failure to receive such
consents or other certificates would not have a Material Adverse Effect on PCo.
2.4 Capitalization
(a) The authorized capital of PCo consists of an unlimited number of
common shares ("PCo Common Shares", which term shall include for all purposes of
this Agreement the related PCo Common Share purchase rights issued or issuable
under that certain Shareholder Protection Rights Plan Agreement made effective
as of May 1, 2000, (the "PCo Rights Plan") between PCo and CIBC Mellon Trust
Company, as Rights Agent) and an unlimited number of preferred shares ("PCo
Preferred Shares"). As of June 9, 2000, 30,273,724 PCo Common Shares and no PCo
Preferred Shares were issued and outstanding. As of June 9, 2000, PCo has in its
authorized capital the number of PCo Common Shares required to be issued upon
the exercise of rights provided by the PCo Rights Plan in accordance with the
terms and conditions thereof. As of June 9, 2000, an aggregate of 1,386,474 PCo
Common Shares were reserved for issuance pursuant to outstanding PCo Options
granted under the Stock Option Plan of PCo (the "PCo Option Plan"). Prior to the
date hereof, 944,880 of the PCo Options have vested in accordance with their
terms and 441,594 remain unvested. The consummation of the transactions
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contemplated by this Agreement will automatically accelerate the vesting of
246,039 unvested PCo Options. All of the issued and outstanding PCo Common
Shares have been duly authorized and validly issued, are fully paid and non-
assessable, were not issued in violation of the terms of any agreement or other
understanding binding upon PCo and were issued in compliance with all applicable
charter documents of PCo and all applicable federal, provincial and foreign
securities laws, rules and regulations. There are, and have been, no preemptive
rights with respect to the issuance of the PCo Common Shares or any other
capital stock of PCo.
(b) Other than as set forth above, there are no outstanding subscriptions,
options, warrants, convertible securities, calls, commitments, agreements or
rights (contingent or otherwise) of any character to purchase or otherwise
acquire from PCo any shares of, or any securities convertible into, the capital
stock of PCo.
2.5 Securities Reports and Financial Statements
(a) PCo has filed all forms, reports, annual reports and documents with
the Commissions required to be filed by it pursuant to relevant Canadian
securities statutes, regulations, policies and rules (collectively, the "PCo
Canadian Securities Reports"), all of which have complied in all material
respects with all applicable requirements of such statutes, regulations,
policies and rules. None of the PCo Canadian Securities Reports, at the time
filed or as subsequently amended, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of PCo contained in the PCo Canadian Securities Reports complied in
all material respects with the then applicable accounting requirements and the
published rules and regulations of the relevant Canadian securities statutes
with respect thereto, were prepared in accordance with Canadian generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may have been indicated in the notes thereto or, in the case
of unaudited statements, as permitted by applicable laws, rules or regulations)
and fairly present (subject, in the case of the unaudited statements, to normal,
year-end audit adjustments) the consolidated financial position of PCo and its
consolidated PCo Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended.
(b) There has been no change in PCo's accounting policies or the methods
of making accounting estimates or changes in estimates that are material to such
financial statements, except as described in the notes thereto.
2.6 Liabilities
Neither PCo nor any PCo Subsidiary has any material liabilities or
obligations, either accrued, absolute, contingent or otherwise, or has any
knowledge of any potential material liabilities or obligations, other than those
disclosed in the PCo Canadian Securities Reports or incurred in the ordinary
course of business since December 31, 1999.
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2.7 Information Supplied
None of the information supplied or to be supplied by PCo for inclusion or
incorporation by reference in the Joint Proxy Statement or the Registration
Statement will, at the time the Joint Proxy Statement is mailed to the
securityholders of PCo and at the time of the PCo Shareholders Meeting or at the
time the Registration Statement is declared effective, contain any untrue
statement which, at the time and in light of the circumstances under which it is
made, is 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 therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading. The Joint Proxy Statement will comply as to form in all material
respects with the provisions of the ABCA and applicable United States and
Canadian securities laws and the rules and regulations promulgated thereunder.
2.8 No Defaults
Neither PCo nor any PCo Subsidiary is, or has received notice that it
would be with the passage of time, in default or violation of any term,
condition or provision of: (a) its articles or bylaws; (b) any judgment, decree
or order applicable to it; or (c) any loan or credit agreement, note, bond,
mortgage, indenture, contract, agreement, lease, license or other instrument to
which PCo or any PCo Subsidiary is now a party or by which it or any of its
properties or assets may be bound, except in the case of item (c) for defaults
and violations which, individually or in the aggregate, would not have a
Material Adverse Effect on PCo.
2.9 Litigation; Investigations
There is no claim, action, suit or proceeding pending, or to the knowledge
of PCo threatened against PCo or any of the PCo Subsidiaries, which would, if
adversely determined, individually or in the aggregate, have a Material Adverse
Effect on PCo, nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against PCo or any of the PCo
Subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future could have, any such effect. There is no investigation pending or, to the
knowledge of PCo, threatened, against PCo or any of the PCo Subsidiaries before
any Governmental Entity which could have such effect.
2.10 Absence of Certain Changes and Events
Since December 31, 1999, there has not been:
(a) Any Material Adverse Effect on PCo;
(b) Any material damage, destruction, or loss to the business or
properties of PCo and the PCo Subsidiaries, taken as a whole, not covered by
insurance;
(c) Except for the regular quarterly declaration and payment of dividends
in respect of the PCo Common Shares, any declaration, setting aside or payment
of any dividend or other
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distribution in respect of the capital stock of PCo, or any direct or indirect
redemption, purchase or any other acquisition by PCo of any such stock;
(d) Any change in the capital stock or in the number of shares or classes
of PCo's authorized or outstanding capital stock as described in Section 2.4
(other than as a result of exercises of PCo Options described in Section 2.4
(a));
(e) Any material labor dispute or charge of unfair labor practice (other
than routine individual grievances), any activity or proceedings by a labor
union or, to the knowledge of PCo, by a representative thereof to organize any
employees of any PCo Subsidiary or any campaign being conducted to solicit
authorization from employees to be represented by such labor union;
(f) Any other event or condition known to PCo particularly pertaining to
and adversely affecting the operations, assets or business of PCo or any of the
PCo Subsidiaries (other than events or conditions which are of a general or
industry-wide nature and of general public knowledge) which would constitute a
Material Adverse Effect on PCo; and
(g) Any material cancellation of orders which have not been completed and
which have not been replaced by new orders.
2.11 Additional PCo Information
The PCo Disclosure Letter contains true, complete and correct lists of the
following items with respect to PCo and each of the PCo Subsidiaries, and PCo
has furnished or made available to MCo true, complete and correct copies of all
documents referred to in such lists:
(a) All contracts (except those contracts between PCo and any of the PCo
Subsidiaries) which involve, or may involve, aggregate payments by any party
thereto of $5 million or more, which payments or obligations are to be performed
in whole or in part after the Effective Time;
(b) All material option, bonus, incentive compensation, deferred
compensation, indemnification and employment agreements (including change of
control agreements), and profit-sharing, retirement, pension, welfare, group
insurance, death benefit, or other fringe benefit plans, arrangements or trust
agreements;
(c) All material patents, trademarks, copyrights and other intellectual
property rights owned, licensed or used and all applications therefor;
(d) All material trade names and fictitious names used or held, whether
and where such names are registered and where used;
(e) Except for obligations between PCo and any PCo Subsidiary, all
material long-term and short-term promissory notes, installment contracts, loan
agreements, credit agreements, operating and finance leases, and any other
material agreements relating thereto or with respect to collateral securing the
same;
(f) All material indebtedness, liabilities and commitments of third
parties (other than PCo Subsidiaries) and as to which it is a guarantor,
endorser, co-maker, surety or
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accommodation maker, or is contingently liable therefor (excluding liabilities
as an endorser of checks and the like in the ordinary course of business) or has
otherwise provided any form of financial assistance and all letters of credit in
excess of $1 million, whether stand-by or documentary, issued by any third
party;
(g) All returns, reports or other information covering income, franchise,
sales, use, property and other taxes imposed by Canada, or any provincial,
state, local or foreign government or subdivision or agency thereof, filed since
January 1, 1998;
(h) Summaries of all material insurance policies or bonds currently
maintained, including those covering properties, buildings, machinery,
equipment, fixtures, employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or pending on such
policies or any predecessor policies; and
(i) Any collective bargaining agreements with any labor union or other
representative of employees, including all amendments and supplements, and all
material employment and consulting agreements.
2.12 Certain Agreements
Except for the PCo employment agreements (and related change of control
agreements) disclosed under Section 2.11 (b) or the acceleration of vesting of
PCo Options, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will: (a) result in any
payment (including severance, unemployment compensation, parachute payment,
bonus or otherwise) becoming due to any director, employee or independent
contractor of PCo or any of the PCo Subsidiaries under any PCo Plan (as defined
in Section 2.13) or otherwise; (b) materially increase any benefits otherwise
payable under any PCo Plan or otherwise; or (c) result in the acceleration of
the time of payment or vesting of any such benefits.
2.13 Employee Benefit Plans
(a) For purposes of Section 2.12 and this Section 2.13, PCo Subsidiaries
shall include any enterprise which, with PCo, forms or formed a controlled group
of corporations, a group of trades or business under common control or an
affiliated service group, within the meaning of Section 414(b), (c) or (m) of
the Internal Revenue Code of 1986, as amended (the "Code"). All material
employee benefits plans covering active, former or retired employees of PCo and
the PCo Subsidiaries are listed in the PCo Disclosure Letter (the "PCo Plans").
PCo has made available to MCo true, complete and correct copies of each PCo
Plan, any related trust agreement, annuity or insurance contract or other
funding vehicle.
(b) Each PCo Plan has been maintained and administered in material
compliance with its terms and is, to the extent required by applicable law or
contract, fully funded without having any deficit or unfunded actuarial
liability or adequate provision has been made therefor. All required employer
contributions under any PCO Plan have been made and the applicable funds have
been funded in accordance with the terms thereof. Each PCo Plan that is required
or intended to be qualified under applicable law or registered or approved by a
governmental agency or authority has been so qualified, registered or approved
by the appropriate governmental agency or authority, and nothing has occurred
since the date of the last
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qualification, registration or approval to adversely affect, or cause, the
appropriate governmental agency or authority to revoke such qualification,
registration or approval. To the knowledge of PCo after due inquiry, there are
no pending or anticipated material claims against or otherwise involving any of
the PCo Plans and no suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of PCo Plan activities) has been
brought against or with respect to any PCo Plan. All material contributions,
reserves or premium payments required to be made to the PCo Plans have been made
or provided for.
(c) To the extent applicable, the PCo Plans comply, in all material
respects, with the requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Code and any other applicable tax act and
other laws, and any PCo Plan intended to be qualified under Section 401 (a) of
the Code has been determined by the Internal Revenue Service to be so qualified
and nothing has occurred to cause the loss of such qualified status. No PCo Plan
is subject to Title IV of ERISA or Section 412 of the Code. Neither PCo nor any
PCo Subsidiary has incurred or reasonably expects to incur any liability under
subtitle C or D of Title IV of ERISA with respect to any "single-employer plan,"
within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by PCo, any PCo Subsidiary or any entity which is considered one
employer with PCo under Section 4001 of ERISA. Neither PCo nor any PCo
Subsidiary is a participating employer in or is required to contribute to any
multiemployer plan. There have been no non-exempt "Prohibited Transactions" as
defined in ERISA Section 406 and Code Section 4975 with respect to any PCo Plan.
Neither PCo nor any PCo Subsidiary has any obligations for retiree health and
life benefits under any PCo Plan. With respect to each PCo Plan that is an
employee welfare benefit plan to which the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (COBRA) applies, the requirements of
COBRA have been met in all material respects.
2.14 Intellectual Property
PCo or the PCo Subsidiaries own or possess licenses to use all patents,
patent applications, trademarks and service marks (including registrations and
applications therefor), trade names, copyrights and written know-how, trade
secrets and all other similar proprietary data and the goodwill associated
therewith (collectively, the "PCo Intellectual Property") that are either
material to the business of PCo or any PCo Subsidiary or that are necessary for
the manufacture, use, license or sale of any services or products manufactured,
used, licensed or sold by PCo and the PCo Subsidiaries. The PCo Intellectual
Property is owned or licensed by PCo or the PCo Subsidiaries free and clear of
any Encumbrance other than such Encumbrances that would not have a Material
Adverse Effect on PCo. Except in the ordinary course of business, neither PCo
nor any of the PCo Subsidiaries has granted to any other person any license to
use any PCo Intellectual Property. Neither PCo nor any of the PCo Subsidiaries
has received any notice of infringement, misappropriation or conflict with, the
intellectual property rights of others in connection with the use by PCo and the
PCo Subsidiaries of the PCo Intellectual Property that could reasonably be
expected to result in a Material Adverse Effect on PCo.
2.15 Title to Properties
Except for goods and other property sold, used or otherwise disposed of
since December 31, 1999 in the ordinary course of business for fair value, PCo
and the PCo Subsidiaries have good and defensible title to all of their
properties, interests in properties and assets, real and
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personal, reflected in PCo's December 31, 1999 financial statements, free and
clear of any Encumbrance, except: (a) Encumbrances reflected in the balance
sheet of PCo as of December 31, 1999; (b) liens for current taxes not yet due
and payable and (c) such imperfections of title, easements and Encumbrances as
would not have a Material Adverse Effect on PCo. All leases pursuant to which
PCo or any PCo Subsidiary leases (whether as lessee or lessor) any real or
personal property are in good standing, valid, and effective; and there is not,
under any such leases, any existing or prospective default or event of default
or event which with notice or lapse of time, or both, would constitute a default
by PCo or any PCo Subsidiary which, individually or in the aggregate, would have
a Material Adverse Effect on PCo and in respect to which PCo or a PCo Subsidiary
has not taken adequate steps to prevent a default from occurring. The buildings
and premises of PCo and each of the PCo Subsidiaries that are used in its
business are in good operating condition and repair, subject only to ordinary
wear and tear. All major items of operating equipment of PCo and the PCo
Subsidiaries are in good operating condition and in a state of reasonable
maintenance and repair, ordinary wear and tear excepted, and are free from any
known defects except as may be repaired by routine maintenance and such minor
defects as do not substantially interfere with the continued use thereof in the
conduct of normal operations.
2.16 Environmental Matters
(a) There are no environmental conditions or circumstances, such as the
presence or release of any hazardous substance, on any property presently or, to
the knowledge of PCo, previously owned or leased or occupied or controlled by
PCo or any of the PCo Subsidiaries that could reasonably be expected to result
in a Material Adverse Effect on PCo;
(b) PCo and the PCo Subsidiaries have in full force and effect all
material environmental permits, licenses, approvals and other authorizations
required to conduct their operations and are operating in material compliance
thereunder;
(c) PCo's and the PCo Subsidiaries' operations and the use of their
assets do not violate any applicable Canadian or United States federal,
provincial, state or local law, statute, ordinance, rule, regulation, order or
notice requirement pertaining to (i) the condition or protection of air,
groundwater, surface water, soil, or other environmental media; (ii) the
environment, including natural resources or any activity which affects the
environment or (iii) the regulation of any pollutants, contaminants, waste or
other substances (whether or not hazardous or toxic) (collectively the
"Applicable Environmental Laws"), except for violations which, either singly or
in the aggregate, would not result in a Material Adverse Effect on PCo;
(d) To the knowledge of PCo, none of the operations or assets of PCo or
any PCo Subsidiary has ever been conducted or used by PCo or any PCo Subsidiary
in such a manner as to constitute a violation of any of the Applicable
Environmental Laws, except for violations which, either singly or in the
aggregate, would not result in a Material Adverse Effect on PCo or have been
rectified;
(e) No written notice has been served on PCo or any PCo Subsidiary from
any entity, governmental agency or individual regarding any existing, pending or
threatened investigation or inquiry related to alleged violations under any
Applicable Environmental Laws, or regarding any claims for remedial obligations
or contribution under any Applicable Environmental Laws, other
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than any of the foregoing which, either singly or in the aggregate, would not
result in a Material Adverse Effect on PCo; and
(f) PCo does not know of any reason that would preclude it from renewing
or obtaining a reissuance of the material permits, licenses or other
authorizations required pursuant to any Applicable Environmental Laws to operate
and use any of PCo's or the PCo Subsidiaries' assets for their current purposes
and uses.
2.17 Compliance With Other Laws
Neither PCo nor any PCo Subsidiary is in violation of or in default with
respect to, or in alleged violation of or alleged default with respect to any
other applicable law or any applicable rule or regulation, or any writ or decree
of any court or any Governmental Entity or delinquent with respect to any report
required to be filed with any Governmental Entity, except for violations,
defaults and delinquencies which, either singly or in the aggregate, do not and
are not expected to result in a Material Adverse Effect on PCo.
2.18 Taxes
Except with respect to failures which, in the aggregate, would not result
in a Material Adverse Effect on PCo, proper and accurate federal, provincial,
state and local income, capital, withholding, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs duties and any and all other tax returns, reports, and estimates have
been filed with appropriate governmental agencies, domestic and foreign, by PCo
and each of the PCo Subsidiaries for each period for which any returns, reports,
or estimates were due (taking into account any extensions of time to file before
the date hereof); all taxes shown by such returns to be payable and any other
taxes due and payable have been paid other than those being contested in good
faith by PCo or a PCo Subsidiary; and the tax provision reflected in PCo's
financial statements is adequate, in accordance with Canadian or United States
(if applicable) generally accepted accounting principles, to cover liabilities
of PCo and the PCo Subsidiaries for all taxes, including any interest, penalties
and additions to taxes of any character whatsoever applicable to PCo and the PCo
Subsidiaries or their assets or businesses. Neither PCo nor any PCo Subsidiary
has received any notice of reassessment from the Internal Revenue Service,
Canada Customs and Revenue Agency, the Alberta Corporate Tax Administration or
any other revenue or collection agency that would result in a Material Adverse
Effect on PCo. There are no tax liens on any assets of PCo or the PCo
Subsidiaries except for taxes not yet currently due and those which could not
reasonably be expected to result in a Material Adverse Effect on PCo.
2.19 Vote Required
Except as may be provided in the Interim Order, the Final Order or any
other order of a court having jurisdiction, at the PCo Shareholders Meeting at
which a quorum is present, the affirmative vote of the holders of two-thirds of
the securityholders present or represented by proxy, voting as a single class,
is required to approve this Agreement, the Arrangement and the consummation of
the transactions contemplated hereby.
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2.20 Brokers and Finders
Other than RBC Dominion Securities Inc. in accordance with the terms of
its engagement letter dated March 30, 2000, a copy of which has been provided to
MCo, none of PCo or any of the PCo Subsidiaries nor any of their respective
directors, officers or employees has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
similar payments in connection with the transactions contemplated by this
Agreement. The PCo Disclosure Letter includes a description of all of the fees
and other financial obligations and commitments of PCo's engagement arrangement
with such firm.
2.21 Disclosure
No representation or warranty made by PCo in this Agreement or the PCo
Disclosure Letter, nor any document, written information, statement, financial
statement, certificate or Exhibit prepared and furnished or to be prepared and
furnished by PCo or its representatives pursuant hereto or in connection with
the transactions contemplated hereby, when taken together, contains or contained
(as of the date made) any untrue statement of a material fact when made, or
omits or omitted (as of the date made) to state a material fact necessary to
make the statements or facts contained herein or therein not misleading, in any
material way, in light of the circumstances under which they were made.
2.22 Fairness Opinion
PCo's board of directors has received an opinion as of June 11, 2000 (and
have been advised that they will receive a written opinion dated June 11, 2000)
from RBC Dominion Securities Inc. that the Plan of Arrangement is fair from a
financial point of view to PCo shareholders (the "PCo Fairness Opinion").
2.23 Restrictions on Business Activities
There is no material agreement, judgment, injunction, order or court
decree binding upon PCo or any PCo Subsidiary that has or could reasonably be
expected to have the effect of prohibiting or materially impairing any current
business practice of PCo or any PCo Subsidiary, any acquisition of property by
PCo or any PCo Subsidiary, the conduct of any current business by PCo or any PCo
Subsidiary or the transactions contemplated in this Agreement.
2.24 Books and Records
The books, records and accounts of PCo and the PCo Subsidiaries (a) have
been maintained in accordance with good business practices on a basis consistent
with prior years, (b) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets of PCo and the PCo
Subsidiaries and (c) accurately and fairly reflect the basis for the PCo
financial statements. PCo has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that: (a)
transactions are executed in accordance with management's general or specific
authorization; and (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with Canadian generally
accepted accounting principles or any other criteria applicable to such
statements and (ii) to maintain accountability for assets.
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2.25 Pooling Matters
Neither PCo nor any of its Affiliates (as defined in Section 7.6) or the
PCo Subsidiaries has taken or agreed to take any action that, without giving
effect to any action taken or agreed to be taken by MCo or any of its affiliates
or Subsidiaries, would prevent MCo from accounting for the business combination
to be effected by the Arrangement as a pooling of interests. PCo's board of
directors has received preliminary advice from Ernst & Young LLP that they are
not presently aware of any matters which would prevent MCo from accounting for
the business combination to be effected by the Arrangement as a pooling of
interests.
2.26 Takeover Laws
Neither PCo nor any of the PCo Subsidiaries is subject to any
"Moratorium", "Controlled Share", "Fair Price" or other anti-takeover laws and
regulations of any Canadian or United States federal, state or provincial law or
regulation (collectively, "Takeover Laws") that would effect this Agreement, the
Arrangement, or the other transactions contemplated hereby or thereby.
2.27 PCo Rights Plan
The entering into of this Agreement and the consummation of the
Arrangement and the other transactions contemplated hereby or thereby will not
result in the application of Section 3.1 of the PCo Rights Plan in respect of
any outstanding Rights (as defined in the PCo Rights Plan) or otherwise enable
the Rights to be exercised.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF MCO
Except as set forth in a letter dated the date of this Agreement and
delivered by MCo to PCo concurrently herewith (the "MCo Disclosure Letter"), MCo
hereby represents and warrants to, and agrees with, PCo that:
3.1 Organization and Standing
MCo and each body corporate, partnership, joint venture, association or
other business entity of which more than 50% of the total voting power of shares
of stock or units of ownership or beneficial interest entitled to vote in the
election of directors (or members of a comparable governing body) is owned or
controlled, directly or indirectly, by MCo (the "MCo Subsidiaries"), is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization, has full requisite power
and authority to carry on its business as it is currently conducted, and to own,
lease and operate the properties currently owned, leased and operated by it, and
is duly qualified or licensed to do business and is in good standing as a
foreign corporation or organization authorized to do business in all
jurisdictions in which the character of the properties owned or leased or the
nature of the business conducted by it would make such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a Material Adverse Effect on MCo. The MCo Disclosure Letter sets
forth a complete list of the MCo Subsidiaries, the percentage of each
subsidiary's outstanding capital stock or other ownership interest owned by MCo
or another MCo Subsidiary and a description of each Encumbrance on such stock
(if any), or other ownership
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interest (if any) and a complete list of each jurisdiction in which each of MCo
and the MCo Subsidiaries is duly qualified and in good standing to do business.
3.2 Agreement Authorized and its Effect on Other Obligations
(a) MCo has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder and, subject to approval of
MCo's stockholders as provided in this Agreement, to consummate the Arrangement
and the other transactions contemplated by this Agreement. The execution and
delivery of this Agreement by MCo and, subject to approval of MCo's stockholders
as provided in this Agreement, the consummation by MCo of the Arrangement and
the other transactions contemplated hereby have been unanimously approved by the
board of directors of MCo and have been duly authorized by all other necessary
corporate action on the part of MCo. This Agreement has been duly executed and
delivered by MCo and is a valid and binding obligation of MCo, enforceable in
accordance with its terms, except that such enforceability is subject to (i)
bankruptcy, insolvency, reorganization or other similar laws affecting or
relating to enforcement of creditors' rights generally, (ii) general equitable
principles, and (iii) the qualifications that the issuance of shares of MCo
Common Stock (as defined below) to be delivered from time to time in exchange
for the Exchangeable Shares is subject to approval of MCo's stockholders as
provided in this Agreement and that Alberta courts will only render monetary
judgments expressed in Canadian dollars.
(b) Neither the execution, delivery or performance of this Agreement or
the Arrangement by MCo, nor the consummation of the transactions contemplated
hereby or thereby by MCo nor compliance with the provisions hereof or thereof by
MCo will: (i) conflict with, or result in any violations of the articles or by-
laws of MCo or any equivalent document of any of the MCo Subsidiaries; or (ii)
result in any breach of or cause a default (with or without notice or lapse of
time, or both) under; give rise to a right of termination, amendment,
cancellation or acceleration of any obligation contained in, or the loss of any
material benefit or incurrence of any material cost under; or result in the
creation of any Encumbrance upon any of the material properties or assets of MCo
or any of the MCo Subsidiaries under; any term, condition or provision of any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to MCo or any of the MCo Subsidiaries or their respective properties
or assets, other than any such breaches, defaults, rights, losses, or
Encumbrances which, individually or in the aggregate, would not have a Material
Adverse Effect on MCo.
3.3 Governmental and Third Party Consents
(a) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required to be obtained
by MCo or any of the MCo Subsidiaries in connection with the execution and
delivery of this Agreement or the Plan of Arrangement or the consummation of the
transactions contemplated hereby or thereby, except for: (i) the filing with the
Commissions and the SEC and the mailing to stockholders of MCo of the Joint
Proxy Statement relating to the MCo Stockholders Meeting; (ii) the filing and
effectiveness of the Registration Statement; (iii) the filing with the SEC of
such reports and information under the Exchange Act and the rules and
regulations promulgated by the SEC thereunder, as may be required in connection
with this Agreement and the transactions contemplated hereby (the "SEC
Filings"); (iv) approval by the Court of the Arrangement and the
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filings of the articles of arrangement and other required arrangement or other
documents as required by the ABCA; (v) such filings, authorizations, orders and
approvals as may be required under applicable federal, provincial or state
securities laws and the rules of the Nasdaq; (vi) such filings and notifications
as may be necessary under the HSR Act; and (vii) such notices and filings as may
be necessary under the Investment Canada Act and under the Competition Act
(Canada); unless the failure to obtain such consents, approvals, etc., would not
prevent or delay the consummation of the Arrangement or otherwise prevent MCo
from performing its obligations under this Agreement and would not reasonably be
expected to have a Material Adverse Effect on MCo.
(b) Other than as contemplated by Sections 3.3 (a) or 3.19 or as specified
in the MCo Disclosure Letter, no consents, assignments, waivers, authorizations
or other certificates are necessary in connection with the transactions
contemplated hereby to provide for the continuation in full force and effect of
all of MCo's material contracts or leases or for MCo to consummate the
transactions contemplated hereby, except when the failure to receive such
consents or other certificates would not have a Material Adverse Effect on MCo.
3.4 Capitalization
(a) The authorized capital stock of MCo consists of 40,000,000 shares of
common stock, $0.01 par value ("MCo Common Stock", which term shall include for
all purposes of this Agreement the related MCo Preferred Stock purchase rights
issued or issuable under that certain Stockholder Rights Plan dated as of July
24, 1998, (the "MCo Rights Plan") between MCo and Harris Trust and Savings Bank,
as Rights Agent) and 5,000,000 shares of preferred stock, $0.01 par value ("MCo
Preferred Stock"). As of June 9, 2000, 17,899,224 shares of MCo Common Stock
were issued and outstanding. MCo has designated 1,000,000 shares of MCo
Preferred Stock as Series I junior participating stock which may be issued in
connection with the MCo Preferred Stock purchase rights described above. As of
June 9, 2000, MCo has in its authorized capital the number of shares of MCo
Preferred Stock required to be issued upon the exercise of rights provided by
the MCo Rights Plan in accordance with the terms and conditions thereof. As of
June 9, 2000, an aggregate of 709,750 shares of MCo Common Stock were reserved
for issuance pursuant to outstanding MCo Options granted under the 1994 Director
Stock Option Plan, 1999 Director Stock Option Plan, 1990 Stock Option Plan or
1994 Stock Option Plan of MCo and, as at such date, no other shares of MCo
Common Stock were reserved for issuance pursuant to any outstanding rights or
options. Prior to the date hereof, 175,250 shares underlying the MCo Options
have vested in accordance with their terms and 534,000 remain unvested. The
consummation of the transactions contemplated by this Agreement will not
accelerate the vesting of any unvested MCo Options. All of the issued and
outstanding shares of MCo Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable, were not issued in violation of the
terms of any agreement or other understanding binding upon MCo and were issued
in compliance with all applicable charter documents of MCo and all applicable
federal, state and foreign securities laws, rules and regulations. There are,
and have been, no preemptive rights with respect to the issuance of the shares
of MCo Common Stock or any other capital stock of MCo.
(b) Other than as set forth above, there are no outstanding subscriptions,
options, warrants, convertible securities, calls, commitments, agreements or
rights (contingent or
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otherwise) of any character to purchase or otherwise acquire from MCo any shares
of, or any securities convertible into, the capital stock of MCo.
3.5 Securities Reports and Financial Statements
MCo has filed all forms, reports, annual reports and documents required to
be filed by it with the SEC pursuant to relevant United States securities
statutes, regulations, policies and rules (collectively, the "MCo Securities
Reports"), all of which have complied in all material respects with all
applicable requirements of such statutes, regulations, policies and rules. None
of the MCo Securities Reports, at the time filed or as subsequently amended,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The financial statements of MCo contained in the MCo Securities
Reports complied in all material respects with the then applicable accounting
requirements and the published rules and regulations of the relevant United
States securities statutes with respect thereto, were prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may have been indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
applicable laws, rules or regulations) and fairly present (subject, in the case
of the unaudited statements, to normal, year-end audit adjustments) the
consolidated financial position of MCo and its consolidated MCo Subsidiaries as
at the respective dates thereof and the consolidated results of their operations
and cash flows for the respective periods then ended. There has been no change
in MCo's accounting policies or the methods of making accounting estimates or
changes in estimates that are material to such financial statements, except as
described in the notes thereto.
3.6 Liabilities
Neither MCo nor any MCo Subsidiary has any material liabilities or
obligations, either accrued, absolute, contingent or otherwise, or has any
knowledge of any potential material liabilities or obligations, other than those
disclosed in the MCo Securities Reports or incurred in the ordinary course of
business since September 30, 1999.
3.7 Information Supplied
None of the information supplied or to be supplied by MCo for inclusion or
incorporation by reference in the Joint Proxy Statement or the Registration
Statement will, at the time the Joint Proxy Statement is mailed to the
stockholders of MCo and at the time of the MCo Stockholders Meeting and at the
time the Registration Statement is declared effective, contain any untrue
statement which, at the time and in light of the circumstances under which it is
made, is 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 therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading. The Joint Proxy Statement will comply as to form in all material
respects with the provisions of the ABCA and applicable United States and
Canadian securities laws and the rules and regulations promulgated thereunder.
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3.8 No Defaults
Neither MCo nor any MCo Subsidiary is, or has received notice that it
would be with the passage of time, in default or violation of any term,
condition or provision of (a) its charter documents or bylaws; (b) any judgment,
decree or order applicable to it; or (c) any loan or credit agreement, note,
bond, mortgage, indenture, contract, agreement, lease, license or other
instrument to which MCo or any MCo Subsidiary is now a party or by which it or
any of its properties or assets may be bound, except in the case of item (c) for
defaults and violations which, individually or in the aggregate, would not have
a Material Adverse Effect on MCo.
3.9 Litigation; Investigations
There is no claim, action, suit or proceeding pending, or to the knowledge
of MCo threatened against MCo or any of the MCo Subsidiaries, which would, if
adversely determined, individually or in the aggregate, have a Material Adverse
Effect on MCo, nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against MCo or any of the MCo
Subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future could have, any such effect. There is no investigation pending or, to the
knowledge of MCo, threatened, against MCo or any of the MCo Subsidiaries before
any Governmental Entity which could have such effect.
3.10 Absence of Certain Changes and Events
Since September 30, 1999, there has not been:
(a) Any Material Adverse Effect on MCo;
(b) Any material damage, destruction, or loss to the business or
properties of MCo and the MCo Subsidiaries, taken as a whole, not covered by
insurance;
(c) Any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of MCo, or any direct or indirect
redemption, purchase or any other acquisition by MCo of any such stock;
(d) Any change in the capital stock or in the number of shares or classes
of MCo's authorized or outstanding capital stock as described in Section 3.4
(other than as a result of exercises of MCo Options described in Section 3.4
(a));
(e) Any material labor dispute or charge of unfair labor practice (other
than routine individual grievances), any activity or proceedings by a labor
union or, to the knowledge of MCo, by a representative thereof to organize any
employees of MCo or a MCo Subsidiary or any campaign being conducted to solicit
authorization from employees to be represented by such labor union;
(f) Any other event or condition known to MCo particularly pertaining to
and adversely affecting the operations, assets or business of MCo or any of the
MCo Subsidiaries (other than events or conditions which are of a general or
industry-wide nature and of general public knowledge) which would constitute a
Material Adverse Effect on MCo; and
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(g) Any material cancellation of orders which have not been completed and
which have not been replaced by new orders.
3.11 Additional MCo Information
The MCo Disclosure Letter contains true, complete and correct lists of the
following items with respect to MCo and each of the MCo Subsidiaries, and MCo
has furnished or made available to PCo true, complete and correct copies of all
documents referred to in such lists:
(a) All contracts (except those contracts between MCo and any of the MCo
Subsidiaries) which involve, or may involve, aggregate payments by any party
thereto of $5 million or more, which payments or obligations are to be performed
in whole or in part after the Effective Time;
(b) All material option, bonus, incentive compensation, deferred
compensation, indemnification and employment agreements (including change of
control agreements), and profit-sharing, retirement, pension, welfare, group
insurance, death benefit, or other fringe benefit plans, arrangements or trust
agreements;
(c) All material patents, trademarks, copyrights and other intellectual
property rights owned, licensed or used and all applications therefor;
(d) All material trade names and fictitious names used or held, whether
and where such names are registered and where used;
(e) All material long-term and short-term promissory notes, installment
contracts, loan agreements, credit agreements, operating and finance leases, and
any other material agreements relating thereto or with respect to collateral
securing the same;
(f) All material indebtedness, liabilities and commitments of third
parties (other than MCo Subsidiaries) and as to which it is a guarantor,
endorser, co-maker, surety or accommodation maker, or is contingently liable
therefor (excluding liabilities as an endorser of checks and the like in the
ordinary course of business) or has otherwise provided any form of financial
assistance and all letters of credit in excess of $1 million, whether stand-by
or documentary, issued by any third party;
(g) All returns, reports or other information covering income, franchise,
sales, use, property and other taxes imposed by the United States, or any state,
local or foreign government or subdivision or agency thereof, filed since
January 1, 1998;
(h) Summaries of all material insurance policies or bonds currently
maintained, including those covering properties, buildings, machinery,
equipment, fixtures, employees and operations, as well as a listing of any
premiums, audit adjustments or retroactive adjustments due or pending on such
policies or any predecessor policies; and
(i) Any collective bargaining agreements with any labor union or other
representative of employees, including all amendments and supplements, and all
material employment and consulting agreements.
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3.12 Certain Agreements
Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will: (a) result in any payment
(including severance, unemployment compensation, parachute payment, bonus or
otherwise) becoming due to any director, employee or independent contractor of
MCo or any of the MCo Subsidiaries under any MCo Plan (as defined in Section
3.13) or otherwise; (b) materially increase any benefits otherwise payable under
any MCo Plan or otherwise; or (c) result in the acceleration of the time of
payment or vesting of any such benefits.
3.13 Employee Benefit Plans
(a) For purposes of Section 3.12 and this Section 3.13, MCo Subsidiaries
shall include any enterprise which, with MCo, forms or formed a controlled group
of corporations, a group of trades or business under common control or an
affiliated service group, within the meaning of Section 414(b), (c) or (m) of
the Internal Revenue Code of 1986, as amended (the "Code"). All material
employee benefits plans covering active, former or retired employees of MCo and
the MCo Subsidiaries are listed in the MCo Disclosure Letter (the "MCo Plans").
On request, MCo will make available to PCo true, complete and correct copies of
each MCo Plan, any related trust agreement, annuity or insurance contract or
other funding vehicle.
(b) Each MCo Plan has been maintained and administered in material
compliance with its terms and is, to the extent required by applicable law or
contract, fully funded without having any deficit or unfunded actuarial
liability or adequate provision has been made therefor. All required employer
contributions under any MCO Plan have been made and the applicable funds have
been funded in accordance with the terms thereof. Each MCo Plan that is required
or intended to be qualified under applicable law or registered or approved by a
governmental agency or authority has been so qualified, registered or approved
by the appropriate governmental agency or authority, and nothing has occurred
since the date of the last qualification, registration or approval to adversely
affect, or cause, the appropriate governmental agency or authority to revoke
such qualification, registration or approval. To the knowledge of MCo after due
inquiry, there are no pending or anticipated material claims against or
otherwise involving any of the MCo Plans and no suit, action or other litigation
(excluding claims for benefits incurred in the ordinary course of MCo Plan
activities) has been brought against or with respect to any MCo Plan. All
material contributions, reserves or premium payments required to be made to the
MCo Plans have been made or provided for.
(c) To the extent applicable, the MCo Plans comply, in all material
respects, with the requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Code and any other applicable tax act and
other laws, and any MCo Plan intended to be qualified under Section 401 (a) of
the Code has been determined by the Internal Revenue Service to be so qualified
and nothing has occurred to cause the loss of such qualified status. No MCo Plan
is subject to Title IV of ERISA or Section 412 of the Code. Neither MCo nor any
MCo Subsidiary has incurred or reasonably expects to incur any liability under
subtitle C or D of Title IV of ERISA with respect to any "single-employer plan,"
within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by MCo, any MCo Subsidiary or any entity which is considered one
employer with MCo under Section 4001 of ERISA. Neither MCo nor any MCo
Subsidiary is a participating employer in or is required to contribute to any
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multiemployer plan. There have been no non-exempt "Prohibited Transactions" as
defined in ERISA Section 406 and Code Section 4975 with respect to any MCo Plan.
Neither MCo nor any MCo Subsidiary has any obligations for retiree health and
life benefits under any MCo Plan. With respect to each MCo Plan that is an
employee welfare benefit plan to which the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (COBRA) applies, the requirements of
COBRA have been met in all material respects.
3.14 Intellectual Property
MCo or the MCo Subsidiaries own or possess licenses to use all patents,
patent applications, trademarks and service marks (including registrations and
applications therefor), trade names, copyrights and written know-how, trade
secrets and all other similar proprietary data and the goodwill associated
therewith (collectively, the "MCo Intellectual Property") that are either
material to the business of MCo or any MCo Subsidiary or that are necessary for
the manufacture, use, license or sale of any services or products manufactured,
used, licensed or sold by MCo and the MCo Subsidiaries. The MCo Intellectual
Property is owned or licensed by MCo or the MCo Subsidiaries free and clear of
any Encumbrance other than such Encumbrances that would not have a Material
Adverse Effect on MCo. Except in the ordinary course of business, neither MCo
nor any of the MCo Subsidiaries has granted to any other person any license to
use any MCo Intellectual Property. Neither MCo nor any of the MCo Subsidiaries
has received any notice of infringement, misappropriation or conflict with, the
intellectual property rights of others in connection with the use by MCo and the
MCo Subsidiaries of the MCo Intellectual Property that could reasonably be
expected to result in a Material Adverse Effect on MCo.
3.15 Title to Properties
Except for goods and other property sold, used or otherwise disposed of
since September 30, 1999 in the ordinary course of business for fair value, MCo
and the MCo Subsidiaries good and defensible title to all of their properties,
interests in properties and assets, real and personal, reflected in MCo's
September 30, 1999 financial statements, free and clear of any Encumbrance,
except: (a) Encumbrances reflected in the balance sheet of MCo as of September
30, 1999; (b) liens for current taxes not yet due and payable and (c) such
imperfections of title, easements and Encumbrances as would not have a Material
Adverse Effect on MCo. All leases pursuant to which MCo or any MCo Subsidiary
leases (whether as lessee or lessor) any real or personal property are in good
standing, valid, and effective; and there is not, under any such leases, any
existing or prospective default or event of default or event which with notice
or lapse of time, or both, would constitute a default by MCo or any MCo
Subsidiary which, individually or in the aggregate, would have a Material
Adverse Effect on MCo and in respect to which MCo or a MCo Subsidiary has not
taken adequate steps to prevent a default from occurring. The buildings and
premises of MCo and each of the MCo Subsidiaries that are used in its business
are in good operating condition and repair, subject only to ordinary wear and
tear. All major items of operating equipment of MCo and the MCo Subsidiaries
are in good operating condition and in a state of reasonable maintenance and
repair, ordinary wear and tear excepted, and are free from any known defects
except as may be repaired by routine maintenance and such minor defects as do
not substantially interfere with the continued use thereof in the conduct of
normal operations.
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3.16 Environmental Matters
(a) There are no environmental conditions or circumstances, such as the
presence or release of any hazardous substance, on any property presently or, to
the knowledge of MCo, previously owned or leased or occupied or controlled by
MCo or any of the MCo Subsidiaries that could reasonably be expected to result
in a Material Adverse Effect on MCo;
(b) MCo and the MCo Subsidiaries have in full force and effect all
material environmental permits, licenses, approvals and other authorizations
required to conduct their operations and are operating in material compliance
thereunder;
(c) MCo's and MCo's Subsidiaries operations and the use of their assets
do not violate any Applicable Environmental Laws, except for violations which,
either singly or in the aggregate, would not result in a Material Adverse Effect
on MCo;
(d) To the knowledge of MCo, none of the operations or assets of MCo or
any MCo Subsidiary has ever been conducted or used by MCo or any MCo Subsidiary
in such a manner as to constitute a violation of any of the Applicable
Environmental Laws, except for violations which, either singly or in the
aggregate, would not result in a Material Adverse Effect on MCo or have been
rectified;
(e) No written notice has been served on MCo or any MCo Subsidiary from
any entity, governmental agency or individual regarding any existing, pending or
threatened investigation or inquiry related to alleged violations under any
Applicable Environmental Laws, or regarding any claims for remedial obligations
or contribution under any Applicable Environmental Laws, other than any of the
foregoing which, either singly or in the aggregate, would not result in a
Material Adverse Effect on MCo; and
(f) MCo does not know of any reason that would preclude it from renewing
or obtaining a reissuance of the material permits, licenses or other
authorizations required pursuant to any Applicable Environmental Laws to operate
and use any of MCo's or the MCo Subsidiaries' assets for their current purposes
and uses.
3.17 Compliance With Other Laws
Neither MCo nor any MCo Subsidiary is in violation of or in default with
respect to, or in alleged violation of or alleged default with respect to any
other applicable law or any applicable rule or regulation, or any writ or decree
of any court or Governmental Entity or delinquent with respect to any report
required to be filed with any Governmental Entity, except for violations,
defaults and delinquencies which, either singly or in the aggregate, do not and
are not expected to result in a Material Adverse Effect on MCo.
3.18 Taxes
Except with respect to failures which, in the aggregate, would not result
in a Material Adverse Effect on MCo, proper and accurate federal, provincial,
state and local income, capital, withholding, value added, sales, use,
franchise, gross revenue, turnover, excise, payroll, property, employment,
customs duties and any and all other tax returns, reports, and estimates have
been
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filed with appropriate governmental agencies, domestic and foreign, by MCo and
each of the MCo Subsidiaries for each period for which any returns, reports, or
estimates were due (taking into account any extensions of time to file before
the date hereof); all taxes shown by such returns to be payable and any other
taxes due and payable have been paid other than those being contested in good
faith by MCo or a MCo Subsidiary; and the tax provision reflected in MCo's
financial statements is adequate, in accordance with United States or Canadian
(if applicable) generally accepted accounting principles, to cover liabilities
of MCo and the MCo Subsidiaries for all taxes, including any interest, penalties
and additions to taxes of any character whatsoever applicable to MCo and the MCo
Subsidiaries or their assets or businesses. Neither MCo nor any MCo Subsidiary
has received any notice of reassessment from the Internal Revenue Service or any
other revenue or collection agency that would result in a Material Adverse
Effect on MCo. There are no tax liens on any assets of MCo or the MCo
Subsidiaries except for taxes not yet currently due and those which could not
reasonably be expected to result in a Material Adverse Effect on MCo.
3.19 Vote Required
At a stockholders meeting at which a quorum is present, the affirmative
vote of the holders of a majority of the issued and outstanding shares of MCo
Common Stock is necessary to approve the issuance of the shares of MCo Common
Stock issuable upon exchange of the Exchangeable Shares being issued pursuant to
the Plan of Arrangement.
3.20 Brokers and Finders
Other than Raymond James & Associates, Inc. and Deutsche Bank Securities
Inc., none of MCo or any of the MCo Subsidiaries nor any of their respective
directors, officers or employees has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
similar payments in connection with the transactions contemplated by this
Agreement. The MCo Disclosure Letter includes a description of all the fees and
other financial obligations and commitments of MCo's engagement arrangements
with such firms.
3.21 Disclosure
No representation or warranty made by MCo in this Agreement or the MCo
Disclosure Letter, nor any document, written information, statement, financial
statement, certificate or Exhibit prepared and furnished or to be prepared and
furnished by MCo or its representatives pursuant hereto or in connection with
the transactions contemplated hereby, when taken together, contains or contained
(as of the date made) any untrue statement of a material fact when made, or
omits or omitted (as of the date made) to state a material fact necessary to
make the statements or facts contained herein or therein not misleading, in any
material way, in light of the circumstances under which they were made.
3.22 Fairness Opinion
MCo's board of directors has received an opinion, as of June 10, 2000 (and
have been advised that they will receive a written opinion) from Deutsche Bank
Securities Inc. that the Exchange Ratio is fair from a financial point of view
to MCo (the "MCo Fairness Opinion").
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3.23 Restrictions on Business Activities
There is no material agreement, judgment, injunction, order or court
decree binding upon MCo or any MCo Subsidiary that has or could reasonably be
expected to have the effect of prohibiting or materially impairing any current
business practice of MCo or any MCo Subsidiary, any acquisition of property by
MCo or any MCo Subsidiary, the conduct of any current business by MCo or any MCo
Subsidiary or the transactions contemplated in this Agreement.
3.24 Books and Records
The books, records and accounts of MCo and the MCo Subsidiaries (a) have
been maintained in accordance with good business practices on a basis consistent
with prior years, (b) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets of MCo and the MCo
Subsidiaries and (c) accurately and fairly reflect the basis for the MCo
financial statements. MCo has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that: (a)
transactions are executed in accordance with management's general or specific
authorization; and (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with United States generally
accepted accounting principles or any other criteria applicable to such
statements and (ii) to maintain accountability for assets.
3.25 MCo Sub
MCo Sub will be incorporated solely for the purpose of participating in
the transactions contemplated herein, will carry on no other business, and,
except as contemplated herein, will not have any liabilities or obligations,
either accrued, absolute, contingent or otherwise as of the Effective Date.
3.26 Pooling Matters
Neither MCo nor any of its Affiliates (as defined in Section 7.6) or the
MCo Subsidiaries has taken or agreed to take any action that, without giving
effect to any action taken or agreed to be taken by PCo or any of its affiliates
or PCo Subsidiaries, would prevent MCo from accounting for the business
combination to be effected by the Arrangement as a pooling of interests. MCo's
board of directors has received preliminary advice from Ernst & Young LLP that
they are not presently aware of any matters which would prevent MCo from
accounting for the business combination to be effected by the Arrangement as a
pooling of interests.
ARTICLE 4
OBLIGATIONS PENDING EFFECTIVE DATE
4.1 Agreements of MCo and PCo
MCo and PCo agree to take the following actions after the date hereof:
(a) Each party will promptly execute and file or join in the execution
and filing of any application or other document that may be necessary in order
to obtain the authorization, approval or consent of any Governmental Entity
which may be reasonably required, or which the
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other party may reasonably request, in connection with the consummation of the
transactions contemplated by this Agreement. Each party will use its reasonable
best efforts to promptly obtain such authorizations, approvals and consents.
Without limiting the generality of the foregoing, as promptly as practicable
after the execution of this Agreement, each party shall make any required
filings under the HSR Act and shall make such filings as are necessary under the
Investment Canada Act and the Competition Act (Canada);
(b) Each party will allow the other and its agents reasonable access to
the files, books, records, offices and officers of itself and its subsidiaries,
including any and all information relating to such party's tax matters,
contracts, leases, licenses and real, personal and intangible property and
financial condition. Each party will cause its accountants to cooperate with the
other in making available to the other party all financial information
reasonably requested, including the right to examine all working papers
pertaining to tax matters and financial statements prepared or audited by such
accountants. Notwithstanding the foregoing, except as expressly provided for
herein, neither party shall be obligated to make available to the other any of
their respective board of directors' materials relating to the assessment or
evaluation of the transactions contemplated hereby or any alternative
transactions nor any information supplied by any of their respective officers,
directors, employees, financial advisors, legal advisors, representatives and
agents in connection therewith;
(c) MCo and PCo shall cooperate in the preparation and prompt filing by
MCo of the Joint Proxy Statement and the Registration Statement with the SEC;
(d) Each of MCo and PCo will promptly notify the other in writing (i) of
any event occurring subsequent to the date of this Agreement which would render
any representation and warranty of such party contained in this Agreement untrue
or inaccurate in any material respect; (ii) of any event, change or effect
having a Material Adverse Effect on such party; and (iii) of any breach by such
party of any material covenant or agreement contained in this Agreement;
(e) During the term of this Agreement, each of MCo and PCo will use its
reasonable best efforts to satisfy or cause to be satisfied as soon as
reasonably practicable all the conditions precedent that are set forth in
Article 5 hereof, and each of MCo and PCo will use its reasonable best efforts
to cause the Arrangement and the other transactions contemplated by this
Agreement to be consummated as soon as reasonably practicable;
(f) Each of MCo and PCo will use its reasonable best efforts (including,
without limitation, investigations and consultations with its professional
advisors) such that it and its affiliates will not take or agree to take any
action that would prevent MCo from accounting for the business combination to be
effected by the Arrangement as a pooling of interests in accordance with the
United States generally accepted accounting principles and applicable rules and
regulations of the SEC and each of PCo and MCo agrees to consult with the other
and with their respective independent accountants concerning any potential
transaction or other matter or action that might have such effect forthwith upon
such potential transaction, matters or actions having been identified (after
having made all its reasonable best efforts to make such identification); and
(g) Each of MCo and PCo shall use its reasonable best efforts to obtain
from its independent auditor, Ernst & Young LLP, on or before the date for
mailing the Joint Proxy
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Statement to the securityholders of MCo and PCo, the letters referred to in
Section 5.1(h), in form and substance satisfactory to MCo and PCo, acting
reasonably.
4.2 Additional Agreements of PCo
PCo agrees that, except as expressly contemplated by this Agreement or as
otherwise agreed to in writing by MCo or as set forth in the PCo Disclosure
Letter, from the date hereof to the Effective Date it will, and will cause each
of the PCo Subsidiaries to:
(a) Other than as contemplated by this Agreement, operate its business
only in the usual, regular and ordinary manner and, to the extent consistent
with such operation, use all commercially reasonable efforts to preserve intact
its present business organization, keep available the services of its present
officers and employees, and preserve its relationships with customers,
suppliers, distributors and others having business dealings with it;
(b) Maintain all of its property and assets in customary repair, order,
and condition, reasonable wear and use and damage by fire or unavoidable
casualty excepted;
(c) Maintain its books of account and records in the usual, regular and
ordinary manner, in accordance with generally accepted accounting principles
applied on a consistent basis;
(d) Duly comply in all material respects with all laws applicable to it
and to the conduct of its business;
(e) Not: (i) enter into any contracts of employment which: (A) cannot be
terminated on notice of 60 days or less; or (B) provide for any severance
payments or benefits covering a period beyond the termination date of such
employment contract, except as may be required by law; or (ii) amend any
employee benefit plan or stock option plan, except as may be required for
compliance with this Agreement or applicable law;
(f) Not incur any borrowings except: (i) the refinancing of indebtedness
now outstanding or additional borrowings under its existing revolving credit
facilities; (ii) the prepayment by customers of amounts due or to become due for
goods sold or services rendered or to be rendered in the future; (iii) trade
payables incurred in the ordinary course of business; or (iv) other borrowings
incurred in the ordinary course of business to finance normal operations;
(g) Subject to commitments already disclosed to and approved in writing by
MCo, not enter into commitments of a capital expenditure nature or incur any
contingent liability which would exceed $1 million individually or on a project
basis and in aggregate in accordance with the 2000 capital budget of PCo, a copy
of which has been provided to MCo (and PCo shall not amend such budget), except:
(i) as may be necessary for the maintenance of existing facilities, machinery
and equipment in good operating condition and repair in the ordinary course of
business; or (ii) as may be required by law;
(h) Not sell, dispose of, or encumber, any property or assets, except for
sales, dispositions or Encumbrances in the ordinary course of business
consistent with prior practice;
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(i) Maintain insurance upon all its properties and with respect to the
conduct of its business of such kinds and in such amounts as is customary in the
type of business in which it is engaged, but not less than that presently
carried by it;
(j) Not amend its charter documents or bylaws or other organizational
documents or merge or consolidate with or into any other corporation or change
in any manner the rights of its capital stock or the character of its business;
(k) Not issue or sell (except in connection with the PCo Rights Plan or
upon the exercise of outstanding options pursuant to the PCo Stock Option Plan),
or issue options or rights to subscribe to, or enter into any contract or
commitment to issue or sell, any shares of its capital stock or subdivide or in
any way reclassify any shares of its capital stock, or acquire, or agree to
acquire, any shares of its capital stock;
(l) Not declare or pay any dividend on shares of its capital stock (except
for the regular quarterly dividend in respect of the PCo Common Shares not to
exceed $0.05 per share) or make any other distribution of assets to the holders
thereof;
(m) Deliver to MCo, within 45 days after the end of each fiscal quarter of
PCo beginning June 30, 2000, and through the Effective Date, unaudited
consolidated balance sheets and related unaudited statements of income and
changes in financial position as of the end of each fiscal quarter of PCo, and
as of the corresponding fiscal quarter of the previous fiscal year. PCo hereby
represents and warrants that such unaudited consolidated financial statements
shall (i) be complete in all material respects except for the omission of notes
and schedules contained in audited financial statements; (ii) present fairly in
all material respects the financial condition of PCo as at the dates indicated
and the results of operations for the respective periods indicated; (iii) shall
have been prepared in accordance with Canadian generally accepted accounting
principles applied on a consistent basis, except as noted therein and (iv) shall
contain all adjustments which PCo considers necessary for a fair presentation of
its results for each respective fiscal period;
(n) PCo shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted heretofore by PCo, any PCo Subsidiary or their
officers, directors, employees, financial advisors, representatives and agents
("Representatives") with respect to an Acquisition Proposal (as defined herein)
whether or not initiated by PCo and in connection therewith, PCo shall exercise
all rights to require the return of information regarding PCo previously
provided to such parties and shall exercise all rights to require the
destruction of all materials including or incorporating any information
regarding PCo. From and after the date hereof, PCo and the PCo Subsidiaries will
not, and will not authorize or permit any of their Representatives to, directly
or indirectly, solicit, initiate or encourage (including by way of furnishing
information) or participate in or take any other action to facilitate any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to an Acquisition Proposal from any person (other than MCo or
any wholly owned MCo Subsidiary), or engage in any discussion, negotiations or
inquiries relating thereto or accept any Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, PCo may at any time
prior to the time PCo's shareholders shall have voted to approve the Plan of
Arrangement and the other transactions contemplated thereby (i) engage in
discussions or negotiations with a third party who (without
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any solicitation, initiation or encouragement, directly or indirectly, by PCo,
any PCo Subsidiary or their Representatives after the date hereof) seeks to
initiate such discussions or negotiations and may furnish such third party
information concerning PCo and its business, properties and assets which has
previously been provided to MCo if, and only to the extent that: (A) the third
party has first made a written Acquisition Proposal that is financially superior
to the transactions contemplated by this Agreement and has demonstrated that the
funds or other consideration necessary for the Acquisition Proposal are
available (in each case as determined in good faith by PCo's board of directors
after consulting with its financial advisors) (a "Superior Proposal") and PCo's
board of directors has concluded in good faith, after consulting with outside
counsel, that such action is necessary for the PCo board of directors to act in
a manner consistent with fiduciary duties under applicable law; (B) upon receipt
of such written Acquisition Proposal, PCo provides prompt notice to MCo
specifying the identity of such person or entity and prior to furnishing such
information to or entering into discussions or negotiations with such person or
entity, notifies MCo in writing that it is furnishing information to or entering
into discussions or negotiations with such person or entity in respect to a
Superior Proposal and receives from such person or entity an executed
confidentiality agreement having confidentiality terms substantially similar to
those contained in the confidentiality agreement executed by MCo (other than the
standstill and exclusivity provisions contained therein), and providing full
details forthwith of all material terms and conditions of such Superior Proposal
and any amendments thereto; (C) PCo provides notice forthwith to MCo at such
time as it is terminating any such discussions or negotiations with such person
or entity; and (D) PCo promptly provides to MCo any information provided to any
such person or entity whether or not previously made available to MCo; (ii)
comply with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard
to a tender or exchange offer, if applicable, and similar rules under applicable
Canadian securities laws relating to the provision of directors' circulars, and
make appropriate disclosure with respect thereto to PCo's shareholders and (iii)
accept, recommend, approve or implement a Superior Proposal from a third party,
but only (in the case of this clause (iii)) if prior to such acceptance,
recommendation, approval or implementation, PCo's board of directors shall have
concluded in good faith after giving effect to all proposals to adjust the terms
and conditions of this Agreement and the Arrangement which may be offered by MCo
during the five day notice period set forth below, that such action is necessary
for the PCo board of directors to act in a manner consistent with fiduciary
duties under applicable law and PCo terminates this Agreement in accordance with
Sections 6.1 (i) and 6.4 and concurrently therewith has paid the fees payable
thereunder. PCo shall give MCo at least five days advance notice of any decision
by the Board of PCo to accept, recommend, approve or implement a Superior
Proposal which notice shall identify the party making the Superior Proposal and
shall provide full details of all material terms and conditions thereof and any
amendments thereto. PCo shall inform MCo of the status (including all terms and
conditions thereof) of any discussions and negotiations with such party. In
addition PCo shall, and shall cause its respective financial and legal advisors
to, negotiate in good faith with MCo to make such adjustments in the terms and
conditions of this Agreement and of the Plan of Arrangement as would enable PCo
to proceed with the transactions contemplated hereby. Prior to executing any
agreement to implement a Superior Proposal, PCo shall provide MCo with copies of
such final documentation executed by the party making the Superior Proposal. In
the event MCo proposes to amend this Agreement and the Arrangement to provide
equivalent value as is provided under the Superior Proposal, then PCo shall not
enter into any agreement regarding the Superior Proposal. As used herein,
"Acquisition Proposal" shall mean a proposal or offer (other than by MCo),
whether or not subject to a due diligence
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condition or whether or not in writing, to acquire in any manner, directly or
indirectly, beneficial ownership (as defined under Rule 13 (d) of the Exchange
Act) of all or a material portion of the assets of PCo or any material PCo
Subsidiary or to acquire in any manner, directly or indirectly, more than 9.9%
(and for the purposes of Section 6.4(c), 20%) of the outstanding voting shares
of PCo whether by an arrangement, amalgamation, a merger, consolidation or other
business combination, by means of a sale of shares of capital stock, sale of
assets, tender offer or exchange offer or similar transaction involving PCo or
any material PCo Subsidiary including without limitation any single or multi-
step transaction or series of related transactions which is structured to permit
such third party to acquire beneficial ownership of all or a material portion of
the assets of PCo or any material PCo Subsidiary or to acquire in any manner,
directly or indirectly, more than 9.9% (and for the purposes of Section 6.4(c),
20%) of the outstanding voting shares of PCo (other than the transactions
contemplated by this Agreement); and
(o) Refrain from taking any action which would be reasonably likely to
prevent or materially delay the consummation of the Arrangement and the other
transactions contemplated by this Agreement.
4.3 Additional Agreements of MCo
MCo agrees that, except as expressly contemplated by this Agreement or
otherwise agreed to in writing by PCo or as set forth in the MCo Disclosure
Letter, from the date hereof to the Effective Date it will, and will cause each
of the MCo Subsidiaries to:
(a) Other than as contemplated by this Agreement, operate its business
only in the usual, regular and ordinary manner and, to the extent consistent
with such operation, use all commercially reasonable efforts to preserve intact
its present business organization, keep available the services of its present
officers and employees, and preserve its relationships with customers,
suppliers, distributors and others having business dealings with it;
(b) Maintain all of its property and assets in customary repair, order,
and condition, reasonable wear and use and damage by fire or unavoidable
casualty excepted;
(c) Maintain its books of account and records in the usual, regular and
ordinary manner, in accordance with generally accepted accounting principles
applied on a consistent basis;
(d) Duly comply in all material respects with all laws applicable to it
and to the conduct of its business;
(e) Not: (i) enter into any contracts of employment which: (A) cannot be
terminated on notice of 60 days or less; or (B) provide for any severance
payments or benefits covering a period beyond the termination date of such
employment contract, except as may be required by law; or (ii) amend any
employee benefit plan or stock option plan, except as may be required for
compliance with this Agreement or applicable law;
(f) Not incur any borrowings except: (i) the refinancing of indebtedness
now outstanding or additional borrowings under its existing revolving credit
facilities; (ii) the prepayment by customers of amounts due or to become due for
goods sold or services rendered
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or to be rendered in the future; (iii) trade payables incurred in the ordinary
course of business; or (iv) other borrowings incurred in the ordinary course of
business to finance normal operations;
(g) Excluding any expenditures in connection with the construction of the
large diameter tube facility located in Arkansas, not enter into commitments of
a capital expenditure nature or incur any contingent liability which would
exceed $5 million individually or on a project basis and in aggregate in
accordance with the 2000 capital budget of MCo, a copy of which has been
provided to PCo (and MCo shall not amend such budget), except: (i) as may be
necessary for the maintenance of existing facilities, machinery and equipment in
good operating condition and repair in the ordinary course of business; or (ii)
as may be required by law;
(h) Not sell, dispose of, or encumber, any property or assets, except for
sales, dispositions or Encumbrances in the ordinary course of business
consistent with prior practice;
(i) Maintain insurance upon all its properties and with respect to the
conduct of its business of such kinds and in such amounts as is customary in the
type of business in which it is engaged, but not less than that presently
carried by it;
(j) Not amend its charter documents or bylaws or other organizational
documents or merge or consolidate with or into any other corporation or change
in any manner the rights of its capital stock or the character of its business;
(k) Not issue or sell (except in connection with the MCo Rights Plan or
upon the exercise of outstanding options pursuant to the MCo Stock Option Plan),
or issue options or rights to subscribe to, or enter into any contract or
commitment to issue or sell, any shares of its capital stock or subdivide or in
any way reclassify any shares of its capital stock, or acquire, or agree to
acquire, any shares of its capital stock;
(l) Not declare or pay any dividend on shares of its capital stock or make
any other distribution of assets to the holders thereof;
(m) Deliver to PCo, within 90 days after the fiscal year ended September
30, 2000, an audited consolidated balance sheet and related audited statements
of income and changes for the fiscal year and the previous fiscal year. Deliver
to PCo, within 45 days after the end of each fiscal quarter of MCo beginning
June 30, 2000, and through the Effective Date, unaudited consolidated balance
sheets and related unaudited statements of income and changes in financial
position as of the end of each fiscal quarter of MCo, and as of the
corresponding fiscal quarter of the previous fiscal year. MCo hereby represents
and warrants that such audited and unaudited consolidated financial statements
shall: (i) be complete in all material respects except for the omission of notes
and schedules contained in audited financial statements; (ii) present fairly in
all material respects the financial condition of MCo as at the dates indicated
and the results of operations for the respective periods indicated; (iii) shall
have been prepared in accordance with U.S. generally accepted accounting
principles applied on a consistent basis, except as noted therein and (iv) shall
contain all adjustments which MCo considers necessary for a fair presentation of
its results for each respective fiscal period;
(n) MCo shall immediately cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted
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heretofore by MCo, any MCo Subsidiary or their officers, directors, employees,
financial advisors, representatives and agents ("MCo Representatives") with
respect to an Acquisition Proposal for MCo (as defined herein) whether or not
initiated by MCo and in connection therewith, MCo shall exercise all rights to
require the return of information regarding MCo previously provided to such
parties and shall exercise all rights to require the destruction of all
materials including or incorporating any information regarding MCo. From and
after the date hereof, MCo and the MCo Subsidiaries will not, and will not
authorize or permit any of their MCo Representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
participate in or take any other action to facilitate any inquiries or the
making of any proposal which constitutes or may reasonably be expected to lead
to an Acquisition Proposal for MCo from any person, or engage in any discussion,
negotiations or inquiries relating thereto or accept any Acquisition Proposal
for MCo; provided, however, that notwithstanding any other provision hereof, MCo
may at any time prior to the time MCo's shareholders shall have voted to approve
the transactions contemplated hereby (i) engage in discussions or negotiations
with a third party who (without any solicitation, initiation or encouragement,
directly or indirectly, by MCo, any MCo Subsidiary or the MCo Representatives
after the date hereof) seeks to initiate such discussions or negotiations and
may furnish such third party information concerning MCo and its business,
properties and assets which has previously been provided to PCo if, and only to
the extent that: (A) the third party has first made a written Acquisition
Proposal for MCo and has demonstrated that the funds or other consideration
necessary for the Acquisition Proposal for MCo are available (as determined in
good faith by MCo's board of directors) (a "Proposal for MCo") and MCo's board
of directors has concluded in good faith, after consulting with outside counsel,
that such action is necessary for the MCo board of directors to act in a manner
consistent with fiduciary duties under applicable law; (B) upon receipt of such
written Acquisition Proposal for MCo, MCo provides prompt notice to PCo
specifying the identity of such person or entity and, prior to furnishing such
information to or entering into discussions or negotiations with such person or
entity, notifies PCo in writing that it is furnishing information to or entering
into discussions or negotiations with such person or entity in respect to a
Proposal for MCo and receives from such person or entity an executed
confidentiality agreement having confidentiality terms substantially similar to
those contained in the confidentiality agreement executed by PCo (other than the
exclusivity provisions contained therein), and providing full details forthwith
of all material terms and conditions of such Proposal for MCo and any amendments
thereto; (C) MCo provides notice forthwith to PCo at such time as it is
terminating any such discussions or negotiations with such person or entity; and
(D) MCo promptly provides to PCo any information provided to any such person or
entity whether or not previously made available to PCo; (ii) comply with Rules
14d-9 and 14e-2 promulgated under the Exchange Act with regard to a tender or
exchange offer, if applicable, and make appropriate disclosure with respect
thereto to MCo's shareholders and (iii) accept, recommend, approve or implement
a Proposal for MCo from a third party, but only (in the case of this clause
(iii)) if prior to such acceptance, recommendation, approval or implementation,
MCo's board of directors shall have concluded in good faith that such action is
necessary for the MCo board of directors to act in a manner consistent with
fiduciary duties under applicable law and MCo terminates this Agreement in
accordance with Sections 6.1 (j) and 6.4 and concurrently therewith has paid the
fees payable thereunder. As used in this Section 4.3(n), "Acquisition Proposal
for MCo" shall mean a proposal or offer, whether or not subject to a due
diligence condition or whether or not in writing, to acquire in any manner,
directly or indirectly, beneficial ownership (as defined under Rule 13 (d) of
the Exchange Act) of all or a material portion of the
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assets of MCo or any material MCo Subsidiary or to acquire in any manner,
directly or indirectly, more than 9.9% (and for the purposes of Section 6.4(d),
20%) of the outstanding voting shares of MCo whether by an arrangement,
amalgamation, a merger, consolidation or other business combination, by means of
a sale of shares of capital stock, sale of assets, tender offer or exchange
offer or similar transaction involving MCo or any material MCo Subsidiary
including without limitation any single or multi-step transaction or series of
related transactions which is structured to permit such third party to acquire
beneficial ownership of all or a material portion of the assets of MCo or any
material MCo Subsidiary or to acquire in any manner, directly or indirectly,
more than 9.9% (and for the purposes of Section 6.4(d), 20%) of the outstanding
voting shares of MCo.
(o) Refrain from taking any action which would be reasonably likely to
prevent or materially delay the consummation of the Arrangement and the other
transactions contemplated by this Agreement;
(p) Use its reasonable best efforts to cause: (i) the shares of MCo Common
Stock to be issued from time to time after the Effective Time upon exchange of
the Exchangeable Shares to be listed upon the Closing on the New York Stock
Exchange (the "NYSE") or, if the MCo Common Stock shall have been refused or is
not qualified for listing on the NYSE, on the Nasdaq; and (ii) with the
cooperation and assistance of PCo, the Exchangeable Shares to be listed on the
TSE or, in the event that a listing on the TSE is not available or PCo and MCo
determine that a listing on the TSE is not appropriate or in the best interests
of PCo and MCo, on another recognized Canadian stock exchange;
(q) Not take a position for U.S. tax purposes that is contrary to having
the receipt of any Exchangeable Shares pursuant to the Arrangement by holders of
PCo Common Shares who are residents or citizens of the United States of America
qualify as a tax-deferred transaction for such holders either under U.S.
Internal Revenue Code Section 368(a) or 351, and, in particular, MCo will not
file an election under U.S. Internal Revenue Code Section 338 in respect of the
transactions contemplated by the Arrangement; and
(r) MCo shall or shall cause MCo Sub to make application to the applicable
securities regulatory authorities in Canada for an order(s) declaring that: (i)
the first trade of Exchangeable Shares by a holder thereof; (ii) the issuance of
MCo Common Stock on conversion of the Exchangeable Shares; (iii) the first trade
of MCo Common Stock received on conversion of the Exchangeable Shares by a
holder thereof; (iv) the issuance of MCo Common Stock on exercise of the PCo
Options; and (v) the first trade of MCo Common Stock received on exercise of the
PCo Options by a holder thereof; is not a distribution subject to the
registration and prospectus requirements of applicable securities legislation in
Canada.
4.4 Public Announcements
Neither MCo nor PCo, nor any of their respective affiliates, shall issue or
cause the publication of any press release or other public announcement with
respect to this Agreement, the Arrangement or the other transactions
contemplated hereby without the prior notice to and the opportunity for review
by the other party, except as may be required by law or by any listing agreement
with a national securities exchange or Canadian stock exchange.
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4.5 Comfort Letters
(a) Upon request of MCo, PCo shall use its reasonable best efforts to
cause to delivered to MCo a letter (the "PCo Comfort Letter") of Ernst & Young
LLP, Chartered Accountants, addressed to MCo and dated as of a date within five
days before the earlier of (i) the date the Joint Proxy Statement is first
mailed to each company's respective securityholders; and (ii) if a Registration
Statement is required, the date on which the Registration Statement shall become
effective, in form and substance reasonably satisfactory to MCo and customary in
scope and substance for "comfort" letters delivered by independent public
accountants in connection with proxy statements and registration statements
similar to the Joint Proxy Statement and the Registration Statement.
(b) Upon request of PCo, MCo shall use its reasonable best efforts to
cause to be delivered to PCo a letter (the "MCo Comfort Letter") of Ernst &
Young LLP, Chartered Accountants, addressed to PCo and dated as of a date within
five days before the earlier of (i) the date the Joint Proxy Statement is first
mailed to each company's respective securityholders; and (ii) if a Registration
Statement is required, the date on which the Registration Statement shall become
effective, in form and substance reasonably satisfactory to PCo and customary in
scope and substance for "comfort" letters delivered by independent public
accountants in connection with proxy statements and registration statements
similar to the Joint Proxy Statement and the Registration Statement.
4.6 Actions Regarding Rights
Neither PCo or MCo shall take any action or fail to take any action as a
result of which action or failure the stock purchase rights under the MCo Rights
Plan or the PCo Rights Plan, as the case may be, would apply to the Arrangement
or any other transaction contemplated hereby or thereby. In addition, MCo shall,
prior to the Effective Date: (i) cause the MCo Rights Plan to be amended, in
form and substance satisfactory to PCo acting reasonably, such that the
Exchangeable Shares issuable by MCo Sub pursuant to the Plan of Arrangement
shall have attached thereto and the benefit of the equivalent rights as are
associated with the shares of MCo Common Stock under the MCo Rights Plan, or
(ii) cause MCo Sub to enact a plan providing to the holders of Exchangeable
Shares the equivalent rights and benefits as provided to the holders of shares
of MCo Common Stock under the MCo Rights Plan, and in either case, MCo shall
make all filings required by the Securities Act, the Exchange Act and the rules
of any applicable stock exchange.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1 Conditions Precedent to Obligations of Each Party
The obligations of each party to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction or waiver on or
before the Effective Date of the following conditions:
(a) Securityholder Approval. The Arrangement and the other transactions
contemplated hereby shall have been approved and adopted by the PCo
securityholders in
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accordance with applicable law and PCo's articles and bylaws, and PCo shall not
have received on or prior to the Effective Time notice from the holders of more
than 5% of the issued and outstanding PCo Common Shares and PCo Options, in
aggregate, of their intention to exercise their rights of dissent under the Plan
of Arrangement. In addition, the matters referred to in Section 7.1 shall have
been approved by the holders of shares of the MCo Common Stock in accordance
with the rules of the Nasdaq, applicable law and MCo's Certificate of
Incorporation and bylaws;
(b) No Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Arrangement shall have been issued by any Governmental Entity and remain in
effect, nor shall any proceeding seeking any of the foregoing be pending. There
shall be no order, decree or ruling by any governmental agency or threat
thereof, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Arrangement, which would prohibit or render illegal the
transactions contemplated by this Agreement;
(c) Court Approval. The Court shall have issued its final order approving
the Arrangement in form and substance reasonably satisfactory to MCo and PCo
(such approvals not to be unreasonably withheld or delayed by MCo or PCo) and
reflecting the terms hereof;
(d) Commissions, etc. All required orders shall have been obtained from
the Commissions and other relevant United States and Canadian securities
regulatory authorities in connection with the Arrangement. All waiting periods
required by HSR shall have expired with respect to the transactions contemplated
by this Agreement, or early termination with respect thereto shall have been
obtained, without the imposition of any governmental request or order requiring
the sale or disposition or holding separate (through a trust or otherwise) of a
material portion of the assets or businesses of PCo or MCo. MCo and PCo shall
each have filed all notices and information (if any) required under Part IX of
the Competition Act (Canada) and the applicable waiting periods and any
extensions thereof shall have expired or the parties shall have received an
Advance Ruling Certificate pursuant to Section 102 of the Competition Act
(Canada) setting out that the Director under such Act is satisfied he would not
have sufficient grounds on which to apply for an order in respect of the
Arrangement. The Arrangement shall have received the allowance or approval or
deemed allowance or approval by the responsible Minister under the Investment
Canada Act in respect of the Arrangement, to the extent such allowance or
approval is required, on terms and conditions satisfactory to the parties;
(e) SEC Matters. The Registration Statement shall have been declared
effective under the Securities Act on or before the Effective Date, and at its
effective date and on the Closing Date the Registration Statement shall not be
the subject of any stop-order or proceedings seeking a stop-order, and the Joint
Proxy Statement shall, on the Closing Date, not be subject to any similar
proceedings commenced or threatened by the SEC or the Commissions;
(f) Listings. The MCo Common Stock to be issued from time to time after
the Effective Time upon exchange of the Exchangeable Shares shall have been
approved for listing on the NYSE, (or on the Nasdaq National Market, if the MCo
Common Stock shall have been refused or is not qualified for listing on the
NYSE), and the Exchangeable Shares shall be listed on the TSE or, in the absence
of a listing on the TSE, on another recognized Canadian stock exchange;
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(g) Consents of Certain Parties in Privity. MCo and PCo shall have
received all written consents, assignments, waivers, authorizations or other
certificates set forth in the MCo Disclosure Letter and the PCo Disclosure
Letter necessary to provide for the continuation in full force and effect of all
their material contracts and leases and for them to consummate the transactions
contemplated hereby, except when the failure to receive such consents or other
certificates would not have a Material Adverse Effect on either MCo or PCo; and
(h) Pooling Letters. Each of MCo and PCo shall have received letters, at
Closing, from Ernst & Young LLP, regarding that firm's concurrence with the
conclusions of management of MCo and PCo as to the appropriateness of pooling of
interests accounting for the Arrangement under APB 16 if the transactions
contemplated under this Agreement and the Plan of Arrangement are consummated in
accordance herewith and therewith.
5.2 Conditions Precedent to Obligations of PCo
The obligations of PCo to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction or waiver on or
before the Effective Date of the following conditions:
(a) Representations and Warranties. The representations and warranties of
MCo contained in this Agreement shall be true and correct on the date hereof and
(except to the extent such representations and warranties speak as of a date
earlier than the date hereof and except to give effect to the issuance of shares
of MCo Common Stock on exercise of outstanding options or on exercise of options
granted as permitted hereunder) shall also be true and correct on and as of the
Effective Date, with the same force and effect as if made on and as of the
Effective Date except, where the failure of such representations and warranties
to be true and correct would not have a Material Adverse Effect on MCo;
(b) Covenants. MCo shall have performed and complied in all material
respects with all covenants required by this Agreement to be performed or
complied with by MCo on or before the Effective Date;
(c) Certificate. MCo shall have delivered to PCo a certificate, dated the
Effective Date and signed by its chief executive officer and its chief financial
officer, to the effect set forth in Sections 5.2 (a) and (b);
(d) Affiliates Agreements. MCo shall have furnished copies to PCo of the
MCo affiliates agreements referred to Section 7.6(a);
(e) Opinion of MCo Counsel. PCo shall have received opinions, dated as of
the Effective Date, from Gallop, Johnson & Neuman L.C., United States counsel
for MCo, and from McCarthy Tetrault, Canadian counsel for MCo, each in form and
substance reasonably satisfactory to PCo;
(f) Tax Opinion. PCo shall have received opinions in form and substance
reasonably satisfactory to PCo of Bennett Jones, Canadian tax counsel for PCo,
and of Dorsey & Whitney, U.S. tax counsel of PCo, in form and substance
reasonably satisfactory to PCo as to the Canadian and U.S. federal income tax
consequences of the Arrangement to the PCo shareholders;
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(g) Comfort Letter. PCo shall have received the MCo Comfort Letter and an
additional letter from Ernst & Young LLP, dated the Effective Date, in form and
substance reasonably satisfactory to PCo, stating that nothing has come to their
attention, as of a date no earlier than five days prior to the Effective Date,
which would require any change in the MCo Comfort Letter if it were required to
be dated and delivered on the Effective Date; and
(h) Securities Commission Orders. MCo shall have received an order(s) from
applicable securities regulatory authorities in Canada as required pursuant to
Section 4.3(r) in a form acceptable to PCo acting reasonably.
5.3 Conditions Precedent to Obligations of MCo
The obligations of MCo to consummate and effect the transactions
contemplated hereunder shall be subject to the satisfaction or waiver on or
before the Effective Date of the following conditions:
(a) Representations and Warranties. The representations and warranties of
PCo contained in this Agreement shall be true and correct on the date hereof and
(except to the extent such representations and warranties speak as of a date
earlier than the date hereof and except to give effect to the issuance of PCo
Common Shares on exercise of outstanding options or on exercise of options
granted as permitted hereunder or pursuant to rights under the PCo Rights Plan)
shall also be true and correct on and as of the Effective Date, with the same
force and effect as if made on and as of the Effective Date except, where the
failure of such representations and warranties to be true and correct would not
have a Material Adverse Effect on PCo;
(b) Covenants. PCo shall have performed and complied in all material
respects with all covenants required by this Agreement to be performed or
complied with by PCo on or before the Effective Date;
(c) Certificate. PCo shall have delivered to MCo a certificate, dated the
Effective Date and signed by its chief executive officer and its chief financial
officer, to the effect set forth in Sections 5.3 (a) and (b);
(d) Affiliates Agreements. PCo shall have furnished copies to MCo of the
PCo affiliates agreements referred to Section 7.6(a);
(e) Opinion of PCo Counsel. MCo shall have received opinions, dated as of
the Effective Date, from Dorsey and Whitney LLP, United States counsel for PCo,
and from Bennett Jones, Canadian counsel for PCo, each in form and substance
reasonably satisfactory to PCo; and
(f) Comfort Letter. MCo shall have received the PCo Comfort Letter and an
additional letter from Ernst & Young LLP, dated the Effective Date, in form and
substance reasonably satisfactory to MCo, stating that nothing has come to their
attention, as of a date no earlier than five days prior to the Effective Date,
which would require any change in the PCo Comfort Letter if it were required to
be dated and delivered on the Effective Date.
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ARTICLE 6
TERMINATION
6.1 Termination
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of the transactions contemplated hereby by the
securityholders entitled to vote of MCo or PCo, as follows:
(a) by mutual written agreement of PCo and MCo duly authorized by action
taken by or on behalf of their respective boards of directors;
(b) by PCo, if there has been a breach by MCo of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of MCo,
or if any representation or warranty of MCo shall have become untrue, in either
case which has or is reasonably expected to have a Material Adverse Effect on
MCo or which will have a Material Adverse Effect on the completion of the
transactions contemplated in this Agreement, and which MCo fails to cure within
15 business days after written notice thereof from PCo (except that no cure
period shall be provided for a breach by MCo which by its nature cannot be cured
and in no event shall such cure period extend beyond the Termination Date);
(c) by MCo, if there has been a breach by PCo of any representation,
warranty, covenant or agreement set forth in this Agreement on the part of PCo,
or if any representation or warranty of PCo shall have become untrue, in either
case which has or is reasonably expected to have a Material Adverse Effect on
PCo or which will have a Material Adverse Effect on the completion of the
transactions contemplated in this Agreement, and which PCo fails to cure within
15 business days after written notice thereof from MCo (except that no cure
period shall be provided for a breach by PCo which by its nature cannot be cured
and in no event shall such cure period extend beyond the Termination Date);
(d) by either party, if all the conditions for Closing the Arrangement for
the benefit of such party shall not have been satisfied or waived on or before
5:00 p.m., Calgary, Alberta time on December 31, 2000 (the "Termination Date"),
other than as a result of a breach of this Agreement by the terminating party;
(e) by either party: (i) if the securityholders of PCo do not approve the
Arrangement (and the other matters to be approved at such meeting as provided in
Section 7.1 hereof) at the PCo Shareholders Meeting; or (ii) if the stockholders
of MCo do not approve at the MCo Stockholders Meeting the issuance of MCo Common
Stock issuable upon the exchange of the Exchangeable Shares (and the other
matters to be approved at such meeting as provided in Section 7.1 hereof);
(f) by either party if a final and non-appealable order shall have been
entered in any action or proceeding before any Governmental Entity that prevents
or makes illegal the consummation of the Arrangement;
(g) by PCo if the MCo board of directors or any committee of the MCo board
of directors shall (i) withdraw or modify in any adverse manner its approval or
recommendation of
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this Agreement, the Arrangement and the other transactions contemplated hereby
or (ii) fails to reaffirm the approval or recommendation upon request, from time
to time, by PCo to do so or upon an Acquisition Proposal for MCo being publicly
announced or is proposed, offered or made to the MCo Shareholders or to MCo
(such reaffirmation to be made within 10 days of such request being made or such
Acquisition Proposal for MCo being publicly announced, proposed, offered or made
or immediately prior to the meeting of MCo Shareholders, whichever occurs
first);
(h) by MCo if the PCo board of directors or any committee of the PCo board
of directors shall (i) withdraw or modify in any adverse manner its approval or
recommendation in respect of this Agreement, the Arrangement and the other
transactions contemplated hereby or (ii) fails to reaffirm its approval or
recommendation upon request, from time to time, by MCo to do so or upon an
Acquisition Proposal for PCo being publicly announced or is proposed, offered or
made to the PCo Shareholders or to PCo (such reaffirmation to be made within 10
days of such request being made or such Acquisition Proposal being publicly
announced, proposed, offered or made or immediately prior to the meeting of PCo
Shareholders, whichever occurs first);
(i) by PCo, prior to the approval of this Agreement, the Arrangement and
the other transactions contemplated hereby by the securityholders of PCo if, as
a result of a Superior Proposal by a party other than MCo or any of its
affiliates, PCo's board of directors determines in accordance with Section
4.2(n) to accept, recommend, approve or implement such Superior Proposal and has
otherwise complied with the provisions of Section 4.2(n) and Section 6.4; or
(j) by MCo, prior to the approval of the transactions contemplated hereby
by the securityholders of MCo if, as a result of a Proposal for MCo, MCo's board
of directors determines in accordance with Section 4.3(n) to accept, recommend,
approve or implement such Proposal for MCo and has otherwise complied with the
provisions of Section 4.3(n) and Section 6.4.
6.2 Notice of Termination
Any termination of this Agreement under Section 6.1 above will be effected
by the delivery of written notice by the terminating party to the other party
hereto.
6.3 Effect of Termination
Subject to Section 6.4, in the event of termination of this Agreement by
either PCo or MCo pursuant to Section 6.1, this Agreement shall forthwith become
void and have no effect, and there shall be no liability or obligation on the
part of MCo or PCo or their respective officers or directors, except that: (i)
the provisions of Sections 6.4 (c) and (d) and Section 8.9 shall survive such
termination; (ii) the provisions of the Confidentiality Agreements dated May 18
and 31, 2000 shall survive any such termination; and (iii) no party shall be
released or relieved from any liability arising from the willful breach by such
party of any of its representations, warranties, covenants or agreements as set
forth in this Agreement.
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6.4 Termination Fee
(a) If this Agreement is terminated (i) by PCo pursuant to Section 6.1
(b), or (ii) by either party pursuant to Section 6.1 (e) (ii) (and Section
6.4(d) is not applicable) , then MCo shall pay to PCo a cash termination fee of
$3 million at the time of such termination.
(b) If this Agreement is terminated: (i) by MCo pursuant to Section 6.1
(c); or (ii) by either party pursuant to Section 6.1 (e) (i) (and Section 6.4
(c) is not applicable), then PCo shall pay to MCo a cash termination fee of $3
million at the time of such termination.
(c) If: (x) an Acquisition Proposal for PCo is publicly announced or is
proposed, offered or made to the PCo Shareholders or to PCo; (y) this Agreement
is terminated by either party pursuant to Section 6.1 (e) (i); and (z) within
nine months following such termination PCo enters into, directly or indirectly,
an agreement, commitment or understanding with respect to the Acquisition
Proposal or the Acquisition Proposal is consummated, then PCo shall pay to MCo a
cash termination fee of $11 million, payable immediately upon satisfaction of
the requirements contained in (x), (y) and (z).
(d) If: (x) an Acquisition Proposal for MCo is publicly announced or is
proposed, offered or made to the MCo Shareholders or to MCo; (y) this Agreement
is terminated by either party pursuant to Section 6.1 (e) (ii); and (z) within
nine months following such termination MCo enters into, directly or indirectly,
an agreement, commitment or understanding with respect to an Acquisition
Proposal for MCo or an Acquisition Proposal for MCo is consummated, then MCo
shall pay to PCo a cash termination fee of $11 million, payable immediately upon
satisfaction of the requirements contained in (x), (y) and (z).
(e) If this Agreement is terminated by PCo pursuant to Section 6.1 (i),
then PCo shall pay to MCo upon such termination a cash termination fee of $14
million at the time of such termination.
(f) If this Agreement is terminated by MCo pursuant to Section 6.1(j),
then MCo shall pay to PCo upon such termination a cash termination fee of $14
million at the time of such termination.
(g) If this Agreement is terminated by MCo pursuant to Section 6.1 (h),
then PCo shall pay to MCo upon such termination a cash termination fee of $14
million at the time of such termination.
(h) If this Agreement is terminated by PCo pursuant to Section 6.1(g) then
MCo shall pay to PCo upon such termination a cash termination fee of $14
million at the time of such termination.
(i) MCo and PCo each agree that the agreements contained in Sections
6.4(a) through 6.4(h) are an integral part of the transactions contemplated by
this Agreement. If either party fails to promptly pay the other party any fee
due under such Sections 6.4(a) through 6.4(h), it shall pay the other party's
costs and expenses (including legal fees and expenses) in connection with any
action, including the filing of any lawsuit or other legal action, taken to
collect
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payment, together with interest on the amount of any unpaid fee at the publicly
announced U.S. bank prime rate as published in the Wall Street Journal from the
date such fee was first due.
ARTICLE 7
ADDITIONAL AGREEMENTS
MCo and PCo each agree to take the following actions after the execution of
this Agreement.
7.1 Meetings
PCo and MCo shall each duly call a meeting of its securityholders entitled
to vote to be held within 45 days after the SEC has indicated that it has no
further comments on the Joint Proxy Statement for the purpose of (a) in the case
of PCo, voting upon the Plan of Arrangement and the transactions contemplated
hereby and thereby; and (b) in the case of MCo, voting upon a proposal to
approve the issuance of such number of shares of MCo Common Stock as are
necessary to consummate the Arrangement including those issuable on the exchange
of the Exchangeable Shares and to elect directors of MCo, to hold office from
and after the Effective Date until the next annual meeting of securityholders of
MCo or until their successors are elected or appointed, in accordance with the
provisions of Section 7.7, and each shall, through its board of directors,
recommend to its securityholders in the Joint Proxy Statement approval of such
matters and shall coordinate and cooperate with respect to the timing of such
meetings. Each party may only change such recommendation in the event that the
board of directors of such party concludes, in good faith, after receiving the
written advice of outside counsel that such action is necessary for the board of
directors to act in a manner consistent with its fiduciary duty. The meetings of
securityholders of PCo and MCo will be called for the same day at such times as
will result in the completion of the MCo Stockholders Meeting prior to the
commencement of the PCo Shareholders Meeting.
7.2 The Closing
Subject to the termination of this Agreement as provided in Article 6, the
Closing of the transactions contemplated by this Agreement (the "Closing") will
take place at the offices of Bennett Jones, 4500 Bankers Hall East, 855 - 2nd
Street S.W., Calgary, Alberta, T2P 4K7 on a date (the "Closing Date") and at a
time to be mutually agreed upon by the parties, which date shall be no later
than the first business day after all conditions to Closing set forth herein
shall have been satisfied or waived, unless another place, time and date is
mutually selected by PCo and MCo. Each of MCo and PCo hereby agree to use their
reasonable best efforts to cause their respective Canadian and United States
legal counsel to render opinions, dated as of the Effective Date, in respect of
such matters related to the transactions contemplated by this Agreement and the
Arrangement as may be reasonably requested by the other party. Concurrently
with the Closing, the Plan of Arrangement will be filed with the Registrar under
the ABCA.
7.3 Ancillary Documents/Reservation of Shares
(a) Provided all other conditions of this Agreement have been satisfied or
waived and the agreements referred to in Section 7.3(b) have been executed and
delivered, PCo shall, on the
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Closing Date, file Articles of Arrangement pursuant to Section 186 of the ABCA
to give effect to the Plan of Arrangement.
(b) On the Closing Date:
(i) MCo and MCo Sub shall execute and deliver a Support Agreement
containing substantially those terms and conditions set forth in Exhibit C,
together with such other terms and conditions as may be agreed to by the
parties hereto acting reasonably; and
(ii) MCo, MCo Sub and a Canadian trust company to be mutually
agreeable to MCo and PCo, acting reasonably, shall execute and deliver a
Voting and Exchange Trust Agreement containing substantially those terms
and conditions set forth in Exhibit D, together with such other terms and
conditions as may be agreed to by the parties hereto acting reasonably, and
MCo shall issue the Voting Share contemplated in such Agreement to such
trust company in accordance with such agreement.
(c) On or before the Closing Date, MCo will reserve for issuance such
number of shares of MCo Common Stock as shall be necessary to give effect to the
exchanges of options contemplated hereby.
7.4 Exchange of Options
Promptly after the Effective Time, MCo will notify in writing each holder
of a PCo Option of the exchange of such PCo Option for an option to purchase MCo
Common Stock in accordance with the Plan of Arrangement. MCo agrees that it
shall not terminate or cause to be terminated any PCo Options as a result of the
consummation of the Arrangement and the exchange of the PCo Options pursuant to
the Plan of Arrangement at any time after the Effective Time pursuant to the
provisions of Section 9 of the PCo Option Plan.
7.5 Indemnification and Related Matters
(a) MCo agrees that all rights to indemnification existing in favor of the
present or former directors and officers of PCo (as such) or any of the PCo
Subsidiaries or present or former directors and officers (as such) of PCo or any
of the PCo Subsidiaries serving or who served at PCo's or any of the PCo
Subsidiaries' request as a director, officer, employee, agent or representative
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise (each such present or former director or officer of PCo or
any of the PCo Subsidiaries, an "Indemnified Party"), as provided by contract or
in PCo's charter or bylaws or similar documents of any of the PCo Subsidiaries
in effect as of the date hereof with respect to matters occurring prior to the
Effective Time, shall survive and shall continue in full force and effect and
without modification for a period of not less than the statutes of limitations
applicable to such matters.
(b) From and after the Effective Time, MCo and PCo, jointly and severally,
shall and MCo shall cause PCo to indemnify and hold harmless to the fullest
extent permitted under the ABCA, each Indemnified Party against any costs and
expenses (including reasonable attorney's fees), judgments, fines, losses,
claims and damages and liabilities, and amounts paid in
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settlement thereof with the consent of the indemnifying party, such consent not
to be unreasonably withheld, in connection with any actual or threatened claim,
action, suit, proceeding or investigation that is based on, or arises out of,
the fact that such person is or was a director or officer of PCo or any PCo
Subsidiary (including without limitation with respect to any of the transactions
contemplated hereby or the Arrangement) or who is serving or who served at PCo's
or any of the PCo Subsidiaries' request as a director, officer, employee, agent
or representative of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. In the event of any such claim,
action, suit, proceeding or investigation, MCo shall cause PCo to pay the
reasonable fees and expenses of counsel in advance of the final disposition of
any such claim, action, suit, proceeding or investigation to the fullest extent
permitted by law subject to the limitations imposed by the ABCA. Without
limiting the foregoing, in the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Parties: (i) the Indemnified
Parties may retain counsel reasonably satisfactory to MCo and, subject to
limitations imposed by the ABCA, PCo shall (or MCo shall cause PCo to) pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; and (ii) MCo will use all
reasonable efforts to assist in the defense of such matter; provided, however,
that neither PCo nor MCo shall be liable for any settlement effected without its
prior written consent which shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 7.5(b), upon learning
of any such claim, action, suit, proceeding or investigation, shall notify MCo
(but the failure to so notify shall not relieve a party from any liability which
it may have under this Section 7.5 (b) unless such failure results in actual
prejudice to such party and then only to the extent of such prejudice). The
Indemnified Parties as a group may retain only one law firm in any jurisdiction
to represent them with respect to each such matter unless such counsel
determines that there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties, in which event additional counsel may be required to be
retained by the Indemnified Parties.
(c) Subject to limitations imposed by the ABCA, provided the Arrangement
becomes effective, PCo shall (or MCo shall cause PCo to) pay all expenses,
including reasonable attorney's fees, as the same may be incurred by any
Indemnified Parties in any action by any Indemnified Party or parties seeking to
enforce the indemnity or other obligations provided for in this Section 7.5;
provided, however, that PCo will be entitled to reimbursement for any advances
made under this Section 7.5 to any Indemnified Party who ultimately proves
unsuccessful in enforcing the indemnity as finally determined by a non-
appealable judgment in a court of competent jurisdiction, and payment of such
expenses in advance of the final disposition of the action shall be made only
upon receipt of any undertaking by the Indemnified Party to reimburse all
amounts advanced if such action ultimately proves unsuccessful.
(d) Provided the Arrangement becomes effective, for a period of six years
after the Effective Date, MCo shall continue in effect director and officer
liability insurance for the benefit of the Indemnified Parties in such amounts,
and with such deductibles, retained amounts, coverages and exclusions as PCo
provides for its own directors and officers at the date hereof.
(e) This Section 7.5, which shall survive the consummation of this
Agreement and the Arrangement, is intended to benefit each person or entity
indemnified hereunder.
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7.6 Affiliate Agreements
(a) PCo will use its reasonable best efforts to have its Affiliates sign
and deliver to MCo the PCo Affiliate Agreements in substantially the form of
Exhibit E concurrently with the execution hereof. MCo will use its reasonable
best efforts to have its Affiliates sign and deliver to MCo the MCo Affiliate
Agreements in substantially the form of Exhibit F concurrently with the
execution hereof. For purposes of this Agreement, an "Affiliate" shall have the
meaning referred to in SEC Accounting Series Releases 130 and 135 and in Rule
145 under the Securities Act. In the event that either MCo or PCo does not
succeed in getting its respective Affiliates to sign and deliver the Affiliate
Agreements, such party shall continue to use its reasonable best efforts to have
its Affiliates sign and deliver the Affiliate Agreements.
(b) MCo agrees that it shall publicly release the combined financial
results (including combined sales and net income) of MCo and PCo for a period
which includes at least 30 days of post-combination combined operations of MCo
and PCo as soon as possible following Closing, notwithstanding that such release
may not coincide with a financial quarterly report or be in the form of a report
filed with the SEC on Form 10-Q.
7.7 MCo Board of Directors
The Board of Directors of MCo shall be reconstituted as of the Effective
Date so that there shall be eleven (11) directors, six of whom shall be nominees
of MCo and five of whom shall be nominees of PCo.
7.8 Tax Elections
Holders of PCo Common Shares who are residents of Canada for the purposes
of the Income Tax Act (Canada) (the "ITA") and who receive Exchangeable Shares
pursuant to the Plan of Arrangement shall be entitled to make an income tax
election pursuant to subsection 85(1) or (2) of the ITA with respect to the
transfer of their PCo Common Shares to MCo Sub by providing two signed copies of
the necessary election forms to MCo Sub within 90 days following the Effective
Date, fully completed with the details of the number of PCo Common Shares
transferred and the applicable agreed amounts for the purposes of such
elections. Thereafter, subject to the election forms complying with the
provisions of the ITA, the forms will be signed by MCo Sub and returned to such
holders for filing with the Canada Customs and Revenue Agency.
ARTICLE 8
MISCELLANEOUS
8.1 No Survival of Representations and Warranties
All representations and warranties of the parties contained in this
Agreement will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the parties to this Agreement, until the
earlier of the valid termination of this Agreement or the Closing Date,
whereupon such representations and warranties will expire and be of no further
force or effect. All agreements and covenants of the parties shall survive the
Closing Date, except as otherwise set forth in this Agreement.
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8.2 Notices
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by recognized overnight
courier, by facsimile (receipt confirmed) or mailed by certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Maverick:
Maverick Tube Corporation
16401 Swingley Ridge Road
Suite 700
Chesterfield, Missouri 63017
Attention: Mr. Gregg Eisenberg
Fax: (636) 733-1671
with a copy to:
Robert H. Wexler, Esq.
Gallop, Johnson & Neuman, L.C.
101 South Hanley
St. Louis, Missouri 63105
Fax: (314) 862-1219
(b) if to Prudential:
Prudential Steel Ltd.
140 - 4/th/ Avenue S.W.
Suite 1800
Calgary, Alberta T2P 3N4
Canada
Attention: Mr. J. Donald Wilson
Fax: (403) 265-3426
with a copy to:
J. G. Smeltzer
Bennett Jones
4500 Bankers Hall East
855 - 2nd Street S.W.
Calgary, Alberta T2P 4K7
Fax: (403) 265-7219
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8.3 Interpretation
When a reference is made in this Agreement to Sections or Exhibits, such
reference shall be to a Section or Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used therein
shall be deemed in each case to be followed by the words "without limitation."
Any references in this Agreement to "the date hereof" refers to the date of
execution of this Agreement. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.4 Severability
If any provision of this Agreement or the application thereof to any person
or circumstance is held invalid or unenforceable in any jurisdiction, the
remainder hereof, and the application of such provision to such person or
circumstance in any other jurisdiction or to other persons or circumstances in
any jurisdiction, shall not be affected thereby, and to this end the provisions
of this Agreement shall be severable.
8.5 Counterparts
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to each of the other parties, it being understood that all parties need not sign
the same counterpart and that delivery may be effected by means of facsimile
transmission.
8.6 Miscellaneous
This Agreement, which includes the PCo Disclosure Letter, the MCo
Disclosure Letter and the Exhibits hereto and the Confidentiality Agreements
dated May 18 and 31, 2000 between MCo and PCo, and any other documents referred
to herein or contemplated hereby (a) constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder (except that Section 7.5 is for
the benefit of PCo's directors and officers and is intended to confer rights on
such persons and it is agreed that PCo shall hold such benefits in trust for
PCo's directors and officers); and (c) shall not be assigned by operation of law
or otherwise except as otherwise specifically provided.
8.7 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Alberta (regardless of the laws that might otherwise
govern under applicable principles of conflicts of law) as to all matters,
including without limitation validity, construction, effect, performance and
remedies.
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8.8 Amendment and Waivers
Any term or provision of this Agreement may be amended, and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a writing signed by
the party to be bound thereby which writing expressly refers to this Agreement
and the operation of the provisions of this Section 8.8. The waiver by a party
of any breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
This Agreement may be amended by the parties hereto at any time before or after
approval of the PCo securityholders, or the MCo stockholders, but, after such
approval, no amendment will be made which by applicable law requires the further
approval of the PCo securityholders or the MCo stockholders without obtaining
such further approval.
8.9 Expenses
Except as otherwise provided herein, each party will bear its respective
expenses and legal fees incurred with respect to this Agreement and the
transactions contemplated hereby.
8.10 Further Assurances
Each of the parties hereto will from time to time execute and deliver all
such further documents and instruments and do all such acts and things as the
other parties may reasonably require to effectively carry out or better evidence
or perfect the terms and provisions of this Agreement. The parties agree to
amend the structure of the transactions contemplated hereby if necessary to have
the transactions treated as "pooling of interests" under United States generally
accepted accounting principles, provided that any such amendment will not have a
Material Adverse Effect on each party.
IN WITNESS WHEREOF, MCo and PCo have caused this Agreement to be signed by
their respective officers thereunder duly authorized, all as of the date first
written above.
MAVERICK TUBE CORPORATION
Per: /s/ Gregg M. Eisenberg
---------------------------------
Gregg M. Eisenberg
Chairman of the Board and
Chief Executive Officer
PRUDENTIAL STEEL LTD.
Per: /s/ J. Donald Wilson
--------------------------------
J. Donald Wilson
President and Chief Executive
Officer
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ANNEX C
IN THE COURT OF QUEEN'S BENCH OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
IN THE MATTER OF Section 186 of the Business Corporations Act (Alberta),
being Chapter B-15, of the Statutes of Alberta, 1981, as amended;
AND IN THE MATTER OF an Arrangement proposed by Prudential Steel Ltd.,
involving Prudential Steel Ltd., its shareholders and optionholders, Maverick
Tube Corporation and Maverick Tube Canada Ltd.
BEFORE THE HONOURABLE ____________________ ) AT THE COURT HOUSE, IN THE CITY
_____________________ IN CHAMBERS ) OF CALGARY, IN THE
) PROVINCE OF ALBERTA ON __________
) THE ______ DAY OF ________, 2000.
)
INTERIM ORDER
UPON the application by Petition of Prudential Steel Ltd. ("Prudential")
pursuant to Section 186 of the Business Corporations Act (Alberta);
AND UPON reading the said Petition, and the Affidavit of Norman E. Hall,
Vice-President, Legal & Business Affairs of Prudential and the documents
referred to therein, filed;
AND UPON it appearing that notice of this application has been given to the
Executive Director of the Alberta Securities Commission;
AND UPON hearing counsel for Prudential and counsel for Maverick Tube
Corporation ("Maverick") and Maverick Tube Canada Ltd. ("Maverick Canada");
IT IS HEREBY ORDERED THAT:
1. Prudential shall convene a special meeting (the "Prudential Meeting") of
the holders of its issued and outstanding common shares (the "Common
Shares") and options to purchase Common Shares (the "Options") to consider,
and if deemed advisable, to pass, with or without variation, a resolution
(the "Prudential Arrangement Resolution") to approve a proposed Plan of
Arrangement (the "Plan of Arrangement") involving Prudential, its said
holders of Common Shares (the "Shareholders") and Options (the
"Optionholders"), Maverick Canada and Maverick, a true copy of which Plan
of Arrangement in its substantially final form is included as Annex to
Exhibit "A" to the Affidavit of Norman E. Hall sworn the _____ day of
__________, 2000.
2. The Prudential Meeting shall be called, held and conducted in accordance
with the Business Corporations Act (Alberta) (the "ABCA") and the Articles
and the By-laws of Prudential subject to what may be provided hereafter.
3. The only persons entitled to notice of the Prudential Meeting shall be the
registered Shareholders and the Optionholders as they may appear on the
records of Prudential as at the close of business on the _____ day of
_________________, 2000, the directors and auditors of Prudential, the
Registrar of Corporations under the ABCA and the Alberta Securities
Commission, and the only
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persons entitled to be represented and to vote at the Prudential Meeting,
either in person or by proxy, shall be such Shareholders and Optionholders,
subject to the provisions of Section 132 of the ABCA.
4. Prudential shall send the Notice of the Special Meeting of Shareholders and
Optionholders, Notice of Petition, and Joint Management Information Circular
and Proxy Statement (the "Proxy Circular") in substantially the form
contained in Exhibit "A" to the Affidavit of Norman E. Hall, with such
amendments thereto as counsel for Prudential may advise are necessary or
desirable, provided that such amendments are not inconsistent with the terms
of this Order, to the Shareholders, to the Optionholders, to the directors
and auditors of Prudential, the Registrar of Corporations under the ABCA and
to the Alberta Securities Commission by mailing the same by prepaid ordinary
mail, or by sending the same by direct courier at the expense of Prudential,
to such persons at least 21 days prior to the date of the Prudential
Meeting, excluding the date of mailing or sending by courier and excluding
the date of the Prudential Meeting. Such mailing or sending by courier shall
constitute good and sufficient service of notice of the Petition, the
Prudential Meeting and the hearing in respect of the Petition.
5. The accidental omission to give notice of the Prudential Meeting, or the
non- receipt of such notice by one or more of the persons specified in
paragraph 7 hereof, shall not invalidate any resolution passed or
proceedings taken at the Prudential Meeting.
6. Each Common Share and each Option shall be entitled to one vote on each
matter to be acted upon at the Prudential Meeting. The majority required to
pass the Prudential Arrangement Resolution shall be not less than two-thirds
of the aggregate votes cast by the Shareholders and the Optionholders
(present in person or by proxy), voting together as a single class, in
respect of the Prudential Arrangement Resolution at the Prudential Meeting.
7. The Shareholders who are registered Shareholders, and the Optionholders,
shall have the right to dissent from the Prudential Arrangement Resolution
in accordance with the provisions of Section 184 of the ABCA, as modified
hereby, and to be paid the fair value of their Common Shares, or Options,
provided that:
(a) notwithstanding subsection 184(5) of the ABCA, the written objection
to the Prudential Arrangement Resolution referred to in subsection
184(5) of the ABCA which is required to be sent to Prudential must be
received by Prudential, c/o Bennett Jones LLP, Attention: Anthony L.
Friend, Q.C. at the address set out below, or the Chairman of the
Prudential Meeting, before commencement of the Prudential Meeting; and
(b) the holders exercising such right of dissent otherwise comply with the
requirements of Section 184 of the ABCA.
8. Upon approval of the Plan of Arrangement at the Prudential Meeting in the
manner set forth in this Order, Prudential may jointly apply before this
Court for approval of the Plan of Arrangement, which application (the "Final
Application") shall be heard by this Honourable Court at the Court House,
611 -- 4th Street S.W., in the City of Calgary, on the _____ day of
_________________, 2000 at _________or so soon thereafter as counsel may be
heard.
9. Any Shareholder, Optionholder and any other interested person may appear on
the application for the approval of the Arrangement, provided that such
holder or person shall file with this Court and serve on the solicitors for
Prudential on or before _______________, 2000, a Notice of Intention to
Appear setting out the address for service in respect of such holder or
person, and
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indicating whether such holder or person intends to support or oppose the
application or make submissions thereat together with any evidence or
materials which are to be presented to this Court, such Notice of
Appearance to be effected by delivery, at the address set forth below:
Bennett Jones LLP
4500 Bankers Hall East
855 -- 2nd Street S.W.
Calgary, Alberta T2P 4K7
Attention: Anthony L. Friend, Q.C.
10. In the event the Final Application is adjourned, only those persons who
have filed and served a Notice of Appearance shall be served with notice of
the adjourned date.
11. Prudential shall be entitled at any time to seek leave to vary this Order.
______________________________________________________
J.C.Q.B.A.
ENTERED this _____ day of __________, 2000.
____________________________________
Clerk of the Court of Queen's Bench
of Alberta
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ACTION NO: , 2000
________________________________________________________________________________
IN THE COURT OF QUEEN'S BENCH
OF ALBERTA
JUDICIAL DISTRICT OF CALGARY
________________________________________________________________________________
IN THE MATTER OF Section 186 of the Business Corporations Act (Alberta),
being Chapter B-15, of the Statutes of Alberta, 1981, as amended;
AND IN THE MATTER OF an Arrangement proposed by Prudential Steel Ltd.
involving Prudential Steel Ltd., its shareholders and optionholders, Maverick
Tube Corporation and Maverick Tube Canada Ltd.
________________________________________________________________________________
INTERIM ORDER
________________________________________________________________________________
BENNETT JONES LLP
Barristers and Solicitors
4500 Bankers Hall East
855 -- 2nd Street S.W.
CALGARY, Alberta
T2P 4K7
Anthony L. Friend, Q.C. 298-3182
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ANNEX D
FORM OF PLAN OF ARRANGEMENT
UNDER SECTION 186
OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
INVOLVING AND AFFECTING PCO AND
THE HOLDERS OF ITS COMMON SHARES AND OPTIONS
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Plan of Arrangement unless there is something in the subject matter
or context inconsistent therewith, the following terms shall have the respective
meanings set out below and grammatical variations of such terms shall have
corresponding meanings:
"ABCA" means the Business Corporations Act (Alberta), as amended;
"Arrangement" means the arrangement under section 186 of the ABCA on the
terms and subject to the conditions set out in this Plan of Arrangement, subject
to any amendments thereto made (i) in accordance with Section 8.8 of the
Combination Agreement; (ii) in accordance with Section 5.1 hereof or (iii) at
the direction of the Court in the Final Order;
"Arrangement Resolution" means the special resolution passed by the
Shareholders and the Optionholders at the Meeting;
"Automatic Redemption Date" has the meaning provided in the Exchangeable
Share Provisions;
"Business Day" has the meaning provided in the Exchangeable Share
Provisions;
"Change of Control Agreements" mean the agreements between PCo and certain
executive officers of PCo governing the termination or modification of the
employment of the executive officers in the event of a change of control of PCo;
"Combination Agreement" means the combination agreement by and between MCo
and PCo dated effective as of June 11, 2000, as amended and restated from time
to time, providing for, among other things, this Plan of Arrangement and the
Arrangement;
"Court" means the Court of Queen's Bench of Alberta;
"Depositary" means CIBC Mellon Trust Company at its principal transfer
offices in Calgary, Alberta and Toronto, Ontario;
"Dissent Procedures" has the meaning provided in Section 3.1;
"Effective Date" means the registration date shown on the registration
statement issued upon the filing of the Articles of Arrangement under the ABCA
giving effect to the Arrangement;
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"Effective Time" means 12:01 a.m. (Calgary time) on the Effective Date;
"Exchange Ratio" means the ratio of 0.52 Exchangeable Shares for each whole
PCo Common Share, subject to adjustment as provided in accordance with Section
1.2 of the Combination Agreement;
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares;
"Exchangeable Shares" means the Exchangeable Shares in the capital of MCo
Sub;
"Final Order" means the final order of the Court approving the Arrangement,
as such order may be amended by the Court at any time and from time to time
prior to the Effective Time;
"Interim Order" means the interim order of the Court in relation to the
Arrangement, as such order may be amended by the Court at any time and from time
to time;
"ITA" means the Income Tax Act (Canada), as amended;
"MCo" has the meaning provided in the Exchangeable Share Provisions;
"MCo Average Price" means the weighted average trading price of the shares
of MCo Common Stock on Nasdaq (as reported by Nasdaq and converted, as
hereinafter provided, to Canadian dollars and expressed to the fourth decimal
place) for the Measurement Period. For these purposes, (i) the U.S.
dollar/Canadian dollar exchange rate for determining the MCo Average Price shall
be based upon the average of the noon buying rate (expressed to the fourth
decimal place) for each of the days in the Measurement Period as reported by the
Bank of Canada; and (ii) the "weighted average trading price" shall be
determined by dividing the aggregate sale price of all shares of MCo Common
Stock sold on Nasdaq during the Measurement Period by the total number of shares
of MCo Common Stock sold;
"MCo Common Stock" has the meaning provided in the Exchangeable Share
Provisions;
"MCo Sub" means, a corporation organized and existing under the laws of
Alberta and any successor corporation;
"Measurement Period" means the period of 10 consecutive trading days ending
on the third trading day prior to the date of the Meeting (including any
adjournment thereof);
"Meeting" means the special meeting of the Shareholders and of the
Optionholders of PCo to be held to consider this Plan of Arrangement;
"Nasdaq" means the National Association of Securities Dealers Automatic
Quotation System, National Market;
"Options" means all options to purchase PCo Common Shares outstanding as at
the Effective Date, including all options outstanding under PCo's stock option
plan;
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"Optionholders" means holders of Options;
"PCo" means Prudential Steel Ltd., a corporation organized and existing
under the ABCA;
"PCo Common Shares" means the common shares in the capital of PCo and the
related PCo Rights;
"PCo Rights" means the PCo Common Share purchase rights issued or issuable
under the PCo Rights Plan;
"PCo Rights Plan" means the Shareholder Protection Rights Plan Agreement
made effective as of May 1, 2000 between PCo and CIBC Mellon Trust Company, as
Rights Agent;
"Proxy Statement" means the Management Information Circular and Proxy
Statement of PCo prepared in connection with the Arrangement;
"Shareholders" means holders of PCo Common Shares;
"Support Agreement" means the agreement so entitled between MCo and MCo Sub
to be dated as of the Effective Date and provided for in the Combination
Agreement;
"Transfer Agent" means the duly appointed transfer agent for the time being
of the Exchangeable Shares, and, if there is more than one such transfer agent,
then the principal Canadian transfer agent;
"Voting and Exchange Trust Agreement" means the agreement so entitled
between MCo, MCo Sub and the Trustee named therein to be dated as of the
Effective Date and provided for in the Combination Agreement; and
"Voting Share" has the meaning ascribed to such term in the Voting and
Exchange Trust Agreement.
1.2 Sections and Headings
The division of this Plan of Arrangement into sections and the insertion of
headings are for reference purposes only and shall not affect the interpretation
of this Plan of Arrangement. Unless otherwise indicated, any reference in this
Plan of Arrangement to a section refers to the specified section of this Plan of
Arrangement.
1.3 Number, Gender and Persons
In this Plan of Arrangement, unless the context otherwise requires, words
importing the singular number include the plural and vice versa, words importing
any gender include all genders and words importing persons include individuals,
bodies corporate, partnerships, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business entities of any
kind.
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1.4 Date for any Action
In the event that any date on or by which any action is required or
permitted to be taken hereunder is not a Business Day, such action shall be
required or permitted to be taken on or by the next succeeding day which is a
Business Day.
1.5 Currency
Unless otherwise expressly stated herein, all references to currency and
payments in cash or money in this Plan of Arrangement are to United States
dollars.
1.6 Statutory References
Any reference in this Plan of Arrangement to a statute includes such
statute as amended, consolidated or re-enacted from time to time, all
regulations made thereunder, all amendments to such regulations from time to
time, and any statute or regulation which supersedes such statute or
regulations.
ARTICLE 2
ARRANGEMENT
2.1 Arrangement
At the Effective Time, the following transactions shall occur and shall be
deemed to occur in the following order without any further act or formality:
(a) each of the outstanding PCo Common Shares (other than PCo Common
Shares held by Shareholders who have exercised their right of dissent in
accordance with Article 3 hereof and are ultimately entitled to be paid the fair
value of their PCo Common Shares) will, without any further action on behalf of
the Shareholders, be transferred to MCo Sub in consideration for a number of
Exchangeable Shares determined in accordance with the Exchange Ratio;
(b) each Shareholder will receive only a whole number of Exchangeable
Shares resulting from the transfer of such Shareholder's PCo Common Shares to
MCo Sub. In lieu of fractional Exchangeable Shares, each Shareholder who
otherwise would be entitled to receive such fractional share shall be paid by
MCo Sub an amount determined in accordance herewith in full satisfaction of such
fractional entitlement;
(c) upon the transfer of shares referred to in Section 2.1(a) above: (i)
each Shareholder shall cease to be such a holder of PCo Common Shares, shall
have his name removed from the register of holders of PCo Common Shares and
shall become a holder of the number of fully paid Exchangeable Shares to which
he is entitled as a result of the transfer of shares referred to in Section
2.1(a) and such Shareholder's name shall be added to the register of holders of
such securities accordingly; and (ii) MCo Sub shall become the legal and
beneficial owner of all of the PCo Common Shares so transferred;
(d) each of the outstanding Options (other than Options held by holders
who have exercised their rights of dissent in accordance with Section 3.1 hereof
and who are ultimately
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entitled to be paid the fair value for such Options) will, without any further
action on the part of any Optionholder: (i) vest in accordance with the terms
and conditions of the stock option agreements issued pursuant to PCo's stock
option plan or the Change of Control Agreements; and (ii) be converted into or
exchanged for an option to purchase the number of shares of MCo Common Stock
determined by multiplying the number of PCo Common Shares subject to such Option
at the Effective Time by the Exchange Ratio, at an exercise price per share of
MCo Common Stock equal to the exercise price per share of such Option
immediately prior to the Effective Time divided by the Exchange Ratio, and
expressed in U.S. dollars. For the purposes of determining the exercise price
per share of MCo Common Stock, the exercise price per share of PCo Common Shares
subject to such Option shall be adjusted using the Canadian dollar exchange rate
based upon the average of the noon buying rate expressed to the fourth decimal
place for each of the trading days in the Measurement Period, as reported by the
Bank of Canada. If the foregoing calculation results in a converted Option being
exercisable for a fraction of a share of MCo Common Stock, then the number of
shares of MCo Common Stock subject to such Option will be rounded down to the
nearest whole number of shares, and the exercise price per whole share of MCo
Common Stock will be as determined above. The obligations of PCo under the
Options as so converted shall be assumed by MCo and MCo shall be substituted for
PCo under, and as sponsor of, PCo's stock option plan. Except as provided in
this paragraph (d), the term and all other terms and conditions of the Options
in effect immediately prior to giving effect to the Arrangement shall govern the
Options; and
(e) all outstanding PCo Common Share purchase rights issued pursuant to
the Shareholder Protection Rights Plan Agreement made effective as of May 1,
2000 between PCo and CIBC Mellon Trust Company, as Rights Agent, shall be
cancelled.
2.2 Allocation of Consideration
A Shareholder who has transferred his PCo Common Shares to MCo Sub as
contemplated under Section 2.1(a) shall be considered to have disposed of a
portion (the "share portion") of such Shareholder's PCo Common Shares solely in
consideration for Exchangeable Shares and to have disposed of the remaining
portion of such PCo Common Shares for all other ancillary rights and benefits
(the "Ancillary Rights") associated with the Exchangeable Shares and the Voting
Share under the Exchangeable Share Provisions, the Voting and Exchange Trust
Agreement and the Support Agreement. The share portion (expressed as a number)
shall be equal to the number of PCo Common Shares obtained when the total number
of PCo Common Shares held by the Shareholder is multiplied by the aggregate fair
market value of the Exchangeable Shares received by the Shareholder divided by
the sum of such aggregate fair market value and the aggregate fair market value
of the Ancillary Rights received by the Shareholder.
ARTICLE 3
RIGHTS OF DISSENT
3.1 Rights of Dissent
Registered Shareholders and Optionholders may exercise rights of dissent
with respect to their PCo Common Shares or Options pursuant to and in the manner
set forth in section 184 of
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the ABCA (as modified by the Interim Order) and this Section 3.1 (the "Dissent
Procedures") in connection with the Arrangement, and holders who duly exercise
such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for the PCo Common
Shares or Options shall be deemed to have transferred such PCo Common Shares or
Options to PCo for cancellation on the Effective Date; or
(b) are ultimately not entitled, for any reason, to be paid the fair value
for their PCo Common Shares or Options shall be deemed to have participated in
the Arrangement on the same basis as any nondissenting Shareholder or
Optionholder, as the case may be,
but in no case shall PCo be required to recognize such holders as Shareholders
or Optionholders on and after the Effective Time, and the names of such persons
shall be deleted from the registers of Shareholders or Optionholders on the
Effective Time.
ARTICLE 4
CERTIFICATES AND FRACTIONAL SHARES
4.1 Issuance of Certificates Representing Exchangeable Shares
At or promptly after the Effective Time, MCo Sub shall deposit with the
Depositary, for the benefit of the Shareholders who exchanged their PCo Common
Shares pursuant to the Arrangement, certificates representing the Exchangeable
Shares issued pursuant to the Arrangement upon the exchange. Upon surrender to
the Depositary of a certificate which immediately prior to the Effective Time
represented outstanding PCo Common Shares, and such additional documents and
instruments as the Depositary may reasonably require, the holder of such
surrendered certificate shall be entitled to receive in exchange therefor, and
the Depositary shall forthwith deliver to such holder, a certificate
representing that number (rounded down to the nearest whole number) of
Exchangeable Shares which such holder has the right to receive pursuant to the
Arrangement (together with any dividends or distributions with respect thereto
pursuant to Section 4.2 and any cash in lieu of fractional Exchangeable Shares
pursuant to Section 4.3), and any certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of PCo Common Shares which is
not registered in the transfer records of PCo, a certificate representing the
proper number of Exchangeable Shares (together with any dividends or
distributions with respect thereto pursuant to Section 4.2 and any cash in lieu
of fractional Exchangeable Shares pursuant to Section 4.3) shall be delivered to
a transferee if the certificate representing such PCo Common Shares is presented
to the Depositary, accompanied by all documents required to evidence and effect
such transfer. Until surrendered as contemplated by this Section 4.1, each
certificate which immediately prior to the Effective Time represented
outstanding PCo Common Shares shall be deemed at any time after the Effective
Time, but subject to Section 4.5, to represent only the right to receive upon
such surrender (a) the certificate representing Exchangeable Shares as
contemplated by this Section 4.1, (b) a cash payment in lieu of any fractional
Exchangeable Shares as contemplated by Section 4.3 and (c) any dividends or
distributions with a record date after the Effective Time theretofore paid or
payable with respect to Exchangeable Shares as contemplated by Section 4.2.
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4.2 Dividends and Other Distributions
No dividends or other distributions declared or made after the Effective
Time with respect to the Exchangeable Shares with a record date after the
Effective Time shall be paid to the holder of any formerly outstanding PCo
Common Shares which were not exchanged pursuant to Section 2.1, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 4.3 (and no interest will be earned and payable thereon), unless and
until the certificate representing such PCo Common Shares shall be surrendered
in accordance with Section 4.1. Subject to applicable law and to Section 4.5, at
the time of such surrender of any such certificate (or, in the case of clause
(c) below, at the appropriate payment date), there shall be paid to the holder
of the Exchangeable Shares resulting from such exchange, in all cases without
interest, (a) the amount of any cash payable in lieu of a fractional
Exchangeable Share to which such holder is entitled pursuant to Section 4.3, (b)
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such Exchangeable Shares, and
(c) the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such Exchangeable Shares.
4.3 No Fractional Shares
No certificates or scrip representing fractional Exchangeable Shares shall
be issued upon the surrender for exchange of certificates pursuant to Section
4.1, and such fractional interests shall not entitle the owner thereof to vote
or to possess or exercise any rights as a security holder of MCo Sub. In lieu
of any such fractional interests, each person entitled thereto will receive an
amount of cash (rounded to the nearest whole cent), without interest, equal to
the product of (a) such fractional interest, multiplied by (b) the MCo Average
Price, such amount to be provided to the Depositary by MCo Sub upon request.
4.4 Lost Certificates
If any certificate which immediately prior to the Effective Time
represented outstanding PCo Common Shares which were exchanged pursuant to
Section 2.1 has been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such certificate to be lost, stolen or
destroyed, the Depositary will issue in exchange for such lost, stolen or
destroyed certificate, certificates representing Exchangeable Shares (together
with any dividends or distributions with respect thereto pursuant to Section 4.2
and any cash in lieu of fractional Exchangeable Shares pursuant to Section 4.3)
deliverable in respect thereof as determined in accordance with Section 2.1.
When seeking such certificate and payment in exchange for any lost, stolen or
destroyed certificate, the person to whom certificates representing Exchangeable
Shares are to be issued shall, as a condition precedent to the issuance thereof,
give a bond satisfactory to MCo Sub, MCo and the Transfer Agent, as the case may
be, in such sum as MCo Sub may direct or otherwise indemnify MCo Sub, MCo and
the Transfer Agent in a manner satisfactory to MCo Sub, MCo and the Transfer
Agent against any claim that may be made against MCo Sub, MCo or the Transfer
Agent with respect to the certificate alleged to have been lost, stolen or
destroyed.
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4.5 Extinguishment of Rights
Any certificate which immediately prior to the Effective Time represented
outstanding PCo Common Shares which were exchanged pursuant to Section 2.1 and
has not been deposited, with all other instruments required by Section 4.1, on
or prior to the tenth anniversary of the Effective Date shall cease to represent
a claim or interest of any kind or nature as a Shareholder or a holder of
Exchangeable Shares or shares of MCo Common Stock. On such date, the
Exchangeable Shares (and any dividends or distributions with respect thereto and
any cash pursuant to Section 4.3) to which the former registered holder of the
certificate referred to in the preceding sentence was ultimately entitled (or,
if the Automatic Redemption Date has occurred, the resulting shares of MCo
Common Stock) shall be deemed to have been surrendered to MCo Sub (or, in the
event that the Automatic Redemption Date has occurred, MCo), together with all
entitlements to dividends, distributions, cash and interest thereon held for
such former registered holder, for no consideration and such shares shall
thereupon be canceled and the name of the former registered holder shall be
removed from the register of holders of such shares.
ARTICLE 5
AMENDMENT
5.1 Plan of Arrangement Amendment
PCo reserves the right to amend, modify and/or supplement this Plan of
Arrangement from time to time at any time prior to the Effective Time provided
that any such amendment, modification or supplement must be contained in a
written document that is (a) agreed to by MCo and MCo Sub, (b) filed with the
Court and, if made following the Meeting, approved by the Court and (c)
communicated to Shareholders and Optionholders in the manner required by the
Court (if so required).
Any amendment, modification or supplement to this Plan of Arrangement may
be proposed by PCo at any time prior to or at the Meeting (provided that MCo and
MCo Sub shall have consented thereto) with or without any other prior notice or
communication, and if so proposed and accepted by the persons voting at the
Meeting (other than as may be required under the Interim Order), shall become
part of this Plan of Arrangement for all purposes.
Any amendment, modification or supplement to this Plan of Arrangement which
is approved by the Court following the Meeting shall be effective only (a) if it
is consented to by PCo, (b) if it is consented to by MCo and MCo Sub and (c) if
required by the Court or applicable law, it is consented to by the Shareholders,
Optionholders or the holders of Exchangeable Shares, as the case may be.
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ANNEX E
SHARE CAPITAL AND OTHER PROVISIONS
TO BE INCLUDED IN THE ARTICLES OF INCORPORATION OF MCO SUB
A. SHARE CAPITAL
PROVISIONS ATTACHING TO THE COMMON SHARES
The common shares ("Common Shares") in the capital of the Corporation shall
have attached thereto the following rights, privileges, restrictions and
conditions:
Dividends
Subject to the prior rights of the Exchangeable Shares and any other shares
ranking prior to the Common Shares, holders of Common Shares have a right to
receive dividends when declared by the Board of Directors out of property of the
Corporation legally available therefor.
Liquidation
Subject to the prior rights of the Exchangeable Shares and any other shares
ranking prior to the Common Shares, the holders of Common Shares shall, upon any
liquidation, dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or other distribution of the assets of the Corporation for the
purpose of winding-up its affairs, be entitled to receive the remaining property
and assets of the Corporation.
Voting
The holders of the Common Shares shall be entitled to receive notice of and
to attend all meetings of shareholders (other than separate meetings of other
classes or series of shares), and shall be entitled to one vote for each Common
Share held.
PROVISIONS ATTACHING TO THE EXCHANGEABLE SHARES
The Exchangeable Shares in the capital of the Corporation shall have the
following rights, privileges, restrictions and conditions:
ARTICLE 1
INTERPRETATION
1.1 For the purposes of these rights, privileges, restrictions and conditions:
"Act" means the Business Corporations Act (Alberta), as amended,
consolidated or reenacted from time to time.
"Aggregate Equivalent Vote Amount" means, with respect to any matter,
proposition or question on which holders of MCo Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of Exchangeable
Shares then issued and outstanding and held by holders (other than MCo and its
Subsidiaries) multiplied by (ii) the number of votes to which a
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holder of one share of MCo Common Stock is entitled with respect to such matter,
proposition or question.
"Automatic Redemption Date" means the date for the automatic redemption by
the Corporation of Exchangeable Shares pursuant to Article 7 of these share
provisions, which date shall be the first to occur of (a) the date, if any,
selected pursuant to this clause (a) by the Board of Directors of the
Corporation, such date to be no earlier than the fifth anniversary of the
Effective Date, (b) the date selected by the Board of Directors of the
Corporation (such date to be no earlier than the third anniversary of the
Effective Date of the Arrangement) at a time when less than 10% of the number of
Exchangeable Shares issuable on the Effective Date(other than Exchangeable
Shares held by MCo and its Subsidiaries, and as such number of shares may be
adjusted as deemed appropriate by the Board of Directors to give effect to any
subdivision or consolidation of or stock dividend on the Exchangeable Shares,
any issuance or distribution of rights to acquire Exchangeable Shares or
securities exchangeable for or convertible into or carrying rights to acquire
Exchangeable Shares, any issue or distribution of other securities or rights or
evidences of indebtedness or assets, or any other capital reorganization or
other transaction involving or affecting the Exchangeable Shares), are
outstanding, (c) the Business Day prior to the record date for any meeting or
vote of the shareholders of the Corporation to consider any matter on which the
holders of Exchangeable Shares would be entitled to vote as shareholders of the
Corporation, but excluding any meeting or vote as described in clause (d) below,
or (d) the Business Day following the day on which the holders of Exchangeable
Shares fail to take the necessary action at a meeting or other vote of holders
of Exchangeable Shares, if and to the extent such action is required, to approve
or disapprove, as applicable, any change to, or in the rights of the holders of,
Exchangeable Shares, if the approval or disapproval, as applicable, of such
change would be required to maintain the economic and legal equivalence of the
Exchangeable Shares and the MCo Common Stock.
"Board of Directors" means the board of directors of the Corporation and
any committee thereof acting within its authority.
"Business Day" means any day other than a Saturday, a Sunday or a day when
banks are not open for business in either or both of St. Louis, Missouri and
Calgary, Alberta.
"Common Shares" means the common shares in the capital of the Corporation.
"Corporation" means ., a corporation organized and existing under the Act
and includes any successor corporation.
"Current Market Price" means, in respect of a share of MCo Common Stock on
any date, the average of the closing sale prices per share (computed and rounded
to the third decimal point) of shares of MCo Common Stock during the period of
20 consecutive trading days ending not more than five trading days before such
date on the New York Stock Exchange, or, if MCo Common Stock is not then traded
on the New York Stock Exchange, on such other principal U.S. stock exchange or
automated quotation system on which the MCo Common Stock is then listed or
quoted, as the case may be, as may be selected by the Board of Directors for
such purpose; provided, however, that if, in the opinion of the Board of
Directors the public distribution or trading activity of MCo Common Stock during
such period does not create a market which reflects the fair market value of a
share of MCo Common Stock, then the Current Market Price of a share of MCo
Common Stock shall be determined by the Board of Directors
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based upon the advice of such qualified independent financial advisors as the
Board of Directors may deem to be appropriate, and provided further than any
such selection, opinion or determination by the Board of Directors shall be
conclusive and binding.
"Effective Date" has the meaning ascribed thereto in the Plan of
Arrangement.
"Exchange Put Date" has the meaning provided in Section 8.2.
"Exchange Put Right" has the meaning provided in Section 8.1.
"Exchangeable Share Consideration" means, with respect to each Exchangeable
Share, for any acquisition of or redemption of or distribution of assets of the
Corporation in respect of or purchase pursuant to these share provisions, the
Plan of Arrangement, the Support Agreement or the Voting and Exchange Trust
Agreement:
(a) the Current Market Price of one share of MCo Common Stock deliverable
in connection with such action;
(b) a cheque or cheques payable at par at any branch of the bankers of the
payor in the amount of all declared, payable and unpaid, and all
undeclared but payable, cash dividends deliverable in connection with
such action; and
(c) such stock or other property constituting any declared and unpaid, and
all undeclared but payable, non-cash dividends deliverable in
connection with such action,
provided that (i) that part of the consideration which represents (a) above,
shall be fully paid and satisfied by the delivery of one share of MCo Common
Stock, such share to be duly issued as a fully paid and non-assessable share,
(ii) that part of the consideration which represents (c), above, shall be fully
paid and satisfied by delivery of such non-cash items, and (iii) any such
consideration shall be delivered free and clear of any lien, claim, encumbrance,
security interest or adverse claim or interest less any tax required to be
deducted and withheld therefrom and without interest.
"Exchangeable Share Price" means, for each Exchangeable Share, an amount
equal to the aggregate of:
(a) the Current Market Price of a share of MCo Common Stock; plus
(b) an additional amount equal to the full amount of all cash dividends
declared, payable and unpaid, on such Exchangeable Share; plus
(c) an additional amount equal to all dividends declared and payable on
MCo Common Stock which have not been declared on Exchangeable Shares
in accordance herewith; plus
(d) an additional amount representing non-cash dividends declared, payable
and unpaid, on such Exchangeable Share.
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"Exchangeable Shares" means the Exchangeable Shares of the Corporation
having the rights, privileges, restrictions and conditions set forth herein.
"Liquidation Amount" has the meaning provided in Section 5.1.
"Liquidation Call Right" has the meaning provided in the Articles of
Incorporation of the Corporation.
"Liquidation Call Purchase Price" has the meaning provided in the Articles
of Incorporation of the Corporation.
"Liquidation Date" has the meaning provided in Section 5.1.
"MCo" means Maverick Tube Corporation, a corporation organized and existing
under the laws of the State of Delaware and includes any successor corporation
or any corporation in which the holders of MCo Common Stock hold securities
resulting from the application of Section 2.7 of the Support Agreement;
"MCo Call Notice" has the meaning provided in Section 6.3.
"MCo Common Stock" means the shares of common stock of MCo, with a par
value of U.S. $0.01 per share, having voting rights of one vote per share, and
any other securities resulting from the application of Section 2.7 of the
Support Agreement.
"MCo Dividend Declaration Date" means the date on which the board of
directors of MCo declares any dividend on the MCo Common Stock.
"MCo Holdco" has the meaning provided in the Voting and Exchange Trust
Agreement.
"MCo Special Share" means the one share of Special Voting Stock of MCo,
with a par value of U.S. $., and having voting rights at meetings of holders of
MCo Common Stock equal to the Aggregate Equivalent Voting Amount.
"PCo" means Prudential Steel Ltd., a corporation organized and existing
under the Act.
"Plan of Arrangement" means the plan of arrangement involving and affecting
PCo, MCo, the Corporation and the holders of common shares and options of PCo
under section 186 of the Act contemplated in the Combination Agreement by and
among MCo and PCo, dated effective as of June 11, 2000, as further amended and
restated from time to time.
"Purchase Price" has the meaning provided in Section 6.3.
"Redemption Call Purchase Price" has the meaning provided in the Articles
of Incorporation of the Corporation.
"Redemption Call Right" has the meaning provided in the Articles of
Incorporation of the Corporation.
"Redemption Price" has the meaning provided in Section 7.1.
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"Retracted Shares" has the meaning provided in subsection 6.1 (a).
"Retraction Call Right" has the meaning provided in subsection 6.1 (c).
"Retraction Date" has the meaning provided in subsection 6.1 (b).
"Retraction Price" has the meaning provided in Section 6. 1.
"Retraction Request" has the meaning provided in Section 6.1.
"Subsidiary", in relation to any person, means any body corporate,
partnership, joint venture, association or other entity of which more than 50%
of the total voting power of shares of stock or units of ownership or beneficial
interest entitled to vote in the election of directors (or members of a
comparable governing body) is owned or controlled, directly or indirectly, by
such person.
"Support Agreement" means the Support Agreement between MCo and the
Corporation, made as of the Effective Date.
"Transfer Agent" means the duly appointed transfer agent for the time being
of the Exchangeable Shares, and, if there is more than one such transfer agent,
then the principal Canadian transfer agent.
"Trustee" means the Trustee appointed under the Voting and Exchange Trust
Agreement, and any successor trustee.
"Voting and Exchange Trust Agreement" means the Voting and Exchange Trust
Agreement among the Corporation, MCo and the Trustee, made as of the Effective
Date.
ARTICLE 2
RANKING OF EXCHANGEABLE SHARES
2.1 The Exchangeable Shares shall be entitled to a preference over the Common
Shares and any other shares ranking junior to the Exchangeable Shares, with
respect to the payment of dividends and the distribution of assets in the event
of the liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of the
Corporation among its shareholders for the purpose of winding-up its affairs.
ARTICLE 3
DIVIDENDS
3.1 A holder of an Exchangeable Share shall be entitled to receive and the
Board of Directors shall, subject to applicable law, on each MCo Dividend
Declaration Date, declare a dividend on each Exchangeable Share (a) in the case
of a cash dividend declared on the MCo Common Stock, in an amount in cash for
each Exchangeable Share equal to the cash dividend declared on each share of MCo
Common Stock, (b) in the case of a stock dividend declared on the MCo Common
Stock to be paid in MCo Common Stock, in such number of Exchangeable Shares for
each Exchangeable Share as is equal to the number of shares of MCo Common Stock
to be paid on each share of MCo Common Stock, (c) in the case of a dividend
declared on the MCo
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Common Stock in property other than cash or securities of MCo, in such type and
amount of property for each Exchangeable Share as is the same as the type and
amount of property declared as a dividend on each share of MCo Common Stock or
(d) in the case of a dividend declared on the MCo Common Stock to be paid in
securities of MCo other than MCo Common Stock, in such number of either such
securities or economically equivalent securities of the Corporation, as the
Board of Directors determines, for each Exchangeable Share as is equal to the
number of securities of MCo to be paid on each share of MCo Common Stock. Such
dividends (less any tax required to be deducted and withheld from such
dividends) shall be paid out of money, assets or property of the Corporation
properly applicable to the payment of dividends, or out of authorized but
unissued shares of the Corporation.
3.2 Cheques of the Corporation payable at par at any branch of the bankers of
the Corporation shall be issued in respect of any cash dividends contemplated by
subsection 3.1 (a) hereof and the sending of such a cheque to each holder of an
Exchangeable Share (less any tax required to be deducted and withheld from such
dividends paid or credited by the Corporation) shall satisfy the cash dividends
represented thereby unless the cheque is not paid on presentation. Certificates
registered in the name of the registered holder of Exchangeable Shares shall be
issued or transferred in respect of any stock dividends contemplated by
subsections 3.1 (b) or (d) hereof and the sending of such a certificate to each
holder of an Exchangeable Share shall satisfy the stock dividend represented
thereby or dividend payable in other securities represented thereby. Such other
type and amount of property in respect of any dividends contemplated by
subsection 3.1 (c) hereof shall be issued, distributed or transferred by the
Corporation in such manner as it shall determine and the issuance, distribution
or transfer thereof by the Corporation to each holder of an Exchangeable Share
shall satisfy the dividend represented thereby. In all cases, any such dividends
shall be subject to any reduction or adjustment for tax required to be deducted
and withheld from such dividends, and the Corporation shall be entitled to
liquidate some of the property which would otherwise be deliverable in payment
of such dividends to a particular holder of Exchangeable Shares to fund any
statutory withholding obligation. No holder of an Exchangeable Share shall be
entitled to recover by action or other legal process against the Corporation any
dividend which is represented by a cheque that has not been duly presented to
the Corporation's bankers for payment or which otherwise remains unclaimed for a
period of six years from the date on which such dividend was payable.
3.3 The record date for the determination of the holders of Exchangeable Shares
entitled to receive payment of, and the payment date for, any dividend declared
on the Exchangeable Shares under Section 3.1 hereof shall be the same dates as
the record date and payment date, respectively, for the corresponding dividend
declared on the MCo Common Stock.
3.4 If on any payment date for any dividends declared on the Exchangeable
Shares under Section 3.1 hereof the dividends are not paid in full on all of the
Exchangeable Shares then outstanding, any such dividends which remain unpaid
shall be paid on a subsequent date or dates determined by the Board of Directors
on which the Corporation shall have sufficient moneys, assets or property
properly applicable to the payment of such dividends.
3.5 Except as provided in this Article 3, the holders of Exchangeable Shares
shall not be entitled to receive dividends in respect thereof.
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ARTICLE 4
CERTAIN RESTRICTIONS
4.1 So long as any of the Exchangeable Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the approval of the
holders of the Exchangeable Shares given as specified in Article 10 of these
share provisions:
(a) pay any dividends on the Common Shares, or any other shares ranking
junior to the Exchangeable Shares, other than stock dividends payable
in any such other shares ranking junior to the Exchangeable Shares;
(b) redeem or purchase or make any capital distribution in respect of
Common Shares or any other shares ranking junior to the Exchangeable
Shares with respect to the payment of dividends or on any liquidation
distribution;
(c) redeem or purchase any other shares of the Corporation ranking equally
with the Exchangeable Shares with respect of the payment of dividends
or on any liquidation distribution; or
(d) amend the articles or by-laws of the Corporation, in either case in
any manner that would affect the rights or privileges of the holders
of the Exchangeable Shares.
The restrictions in subsections 4.1 (a), 4.1 (b) and 4.1 (c) above shall
not apply if all dividends on the outstanding Exchangeable Shares corresponding
to dividends declared with a record date on or following the effective date of
the Plan of Arrangement on the MCo Common Stock shall have been declared on the
Exchangeable Shares and paid in full. Nothing herein shall be interpreted to
restrict the Corporation from issuing additional Common Shares or Exchangeable
Shares.
ARTICLE 5
DISTRIBUTION ON LIQUIDATION
5.1 In the event of the liquidation, dissolution or winding-up of the
Corporation or any other distribution of the assets of the Corporation among its
shareholders for the purpose of winding-up its affairs, provided that neither
MCo nor MCo Holdco shall have exercised the Liquidation Call Right, a holder of
Exchangeable Shares shall be entitled, subject to applicable law, to receive
from the assets of the Corporation in respect of each Exchangeable Share held by
such holder on the effective date of such liquidation, dissolution or winding-up
(the "Liquidation Date"), before any distribution of any part of the assets of
the Corporation to the holders of the Common Shares or any other shares ranking
junior to the Exchangeable Shares, an amount equal to the Exchangeable Share
Price applicable on the last Business Day prior to the Liquidation Date (the
"Liquidation Amount") in accordance with Section 5.2. In connection with payment
of the Liquidation Amount, the Corporation shall be entitled to liquidate some
of the MCo Common Stock which would otherwise be deliverable as Exchangeable
Share Consideration to the particular holder of Exchangeable Shares in order to
fund any statutory withholding tax obligation.
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5.2 Within 10 Business Days after the Liquidation Date, and subject to the
exercise by MCo or MCo Holdco of the Liquidation Call Right, the Corporation
shall cause to be delivered to the holders of the Exchangeable Shares the
Liquidation Amount for each such Exchangeable Share upon presentation and
surrender of the certificates representing such Exchangeable Shares, together
with such other documents and instruments as may be required to effect a
transfer of Exchangeable Shares under applicable law and the by-laws of the
Corporation and such additional documents and instruments as the Transfer Agent
may reasonably require, at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified by the Corporation in Schedule
A hereto or by notice to the holders of the Exchangeable Shares. Payment of the
total Liquidation Amount for such Exchangeable Shares shall be made by delivery
to each holder, at the address of the holder recorded in the securities register
of the Corporation for the Exchangeable Shares or by holding for pick up by the
holder at the registered office of the Corporation or at any office of the
Transfer Agent as may be specified by the Corporation in Schedule A hereto or by
notice to the holders of Exchangeable Shares, on behalf of the Corporation of
the Exchangeable Share Consideration representing the total Liquidation Amount.
On and after the Liquidation Date, the holders of the Exchangeable Shares shall
cease to be holders of such Exchangeable Shares and shall not be entitled to
exercise any of the rights of holders in respect thereof, other than the right
to receive their proportionate part of the total Liquidation Amount, unless
payment of the total Liquidation Amount for such Exchangeable Shares shall not
be made upon presentation and surrender of share certificates in accordance with
the foregoing provisions, in which case the rights of the holders shall remain
unaffected until the total Liquidation Amount has been paid in the manner
hereinbefore provided. The Corporation shall have the right at any time on or
after the Liquidation Date to deposit or cause to be deposited the Exchangeable
Share Consideration in respect of the Exchangeable Shares represented by
certificates that have not at the Liquidation Date been surrendered by the
holders thereof in a custodial account or for safe keeping, in the case of non-
cash items, with any chartered bank or trust company in Canada. Upon such
deposit being made, the rights of the holders of Exchangeable Shares after such
deposit shall be limited to receiving their proportionate part of the total
Liquidation Amount for such Exchangeable Shares so deposited, against
presentation and surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment or deposit of
such Exchangeable Share Consideration, the holders of the Exchangeable Shares
shall thereafter be considered and deemed for all purposes to be the holders of
the MCo Common Stock delivered to them. Notwithstanding the foregoing, until
such payment or deposit of such Exchangeable Share Consideration, the holder
shall be deemed to still be a holder of Exchangeable Shares for purposes of all
voting rights with respect thereto under the Voting and Exchange Trust
Agreement.
5.3 After the Corporation has satisfied its obligations to pay the holders of
the Exchangeable Shares the Liquidation Amount per Exchangeable Share, such
holders shall not be entitled to share in any further distribution of the assets
of the Corporation.
5.4 If MCo or MCo Holdco exercises the Liquidation Call Right, each holder of
Exchangeable Shares shall be obligated to sell the Exchangeable Shares held by
such holder to MCo or MCo Holdco, as the case may be, on the Liquidation Date on
payment to such holder by MCo or MCo Holdco, as the case may be, of the
Exchangeable Share Consideration representing the Liquidation Call Purchase
Price for each Exchangeable Share.
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ARTICLE 6
RETRACTION OF EXCHANGEABLE SHARES BY HOLDER
6.1 A holder of Exchangeable Shares shall be entitled at any time, subject to
applicable law and the exercise by MCo or MCo Holdco of the Retraction Call
Right (which, if exercised by MCo or MCo Holdco, shall be binding on the holder
of Exchangeable Shares) and otherwise upon compliance with the provisions of
this Article 6, to require the Corporation to redeem any or all of the
Exchangeable Shares registered in the name of such holder for an amount equal to
the Exchangeable Share Price applicable on the last Business Day prior to the
Retraction Date (the "Retraction Price") which as set forth in Section 6.4,
shall be fully paid and satisfied by the delivery by or on behalf of the
Corporation of the Exchangeable Share Consideration representing such holder's
Retraction Price. In connection with payment of the Retraction Price, the
Corporation shall be entitled to liquidate some of the MCo Common Stock that
would otherwise be deliverable as Exchangeable Share Consideration to the
particular holder of Exchangeable Shares in order to fund any statutory
withholding tax obligation. To effect such redemption, the holder shall present
and surrender at the registered office of the Corporation or at any office of
the Transfer Agent as may be specified by the Corporation in Schedule A hereto
or by notice to the holders of Exchangeable Shares the certificate or
certificates representing the Exchangeable Shares which the holder desires to
have the Corporation redeem, together with such other documents and instruments
as may be required to effect a transfer of Exchangeable Shares under applicable
law and the by-laws of the Corporation and such additional documents and
instruments as the Transfer Agent may reasonably require, and together with a
duly executed statement (the "Retraction Request") in the form of Schedule "A"
hereto or in such other form as may be acceptable to the Corporation:
(a) specifying that the holder desires to have all or any number specified
therein of the Exchangeable Shares represented by such certificate or
certificates (the "Retracted Shares") redeemed by the Corporation;
(b) stating the Business Day on which the holder desires to have the
Corporation redeem the Retracted Shares (the "Retraction Date"),
provided that the Retraction Date shall be not less than five Business
Days nor more than 10 Business Days after the date on which the
Retraction Request is received by the Corporation and further provided
that, in the event that no such Business Day is specified by the
holder in the Retraction Request, the Retraction Date shall be deemed
to be the tenth Business Day after the date on which the Retraction
Request is received by the Corporation; and
(c) acknowledging the overriding right (the "Retraction Call Right") of
MCo or MCo Holdco to purchase all but not less than all the Retracted
Shares directly from the holder and that the Retraction Request shall
be deemed to be a revocable offer by the holder to sell the Retracted
Shares in accordance with the Retraction Call Right on the terms and
conditions set out in Section 6.3 below.
6.2 Subject to the exercise by MCo of the Retraction Call Right, upon receipt
by the Corporation or the Transfer Agent in the manner specified in Section 6.1
hereof of a certificate or certificates representing the number of Exchangeable
Shares which the holder desires to have the Corporation redeem, together with a
Retraction Request, and provided that the Retraction Request is not revoked by
the holder in the manner specified in Section 6.7, the Corporation shall
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redeem the Retracted Shares effective at the close of business on the Retraction
Date and shall cause to be delivered to such holder the total Retraction Price
with respect to such shares in accordance with Section 6.4 hereof. If only a
part of the Exchangeable Shares represented by any certificate are redeemed or
purchased by MCo pursuant to the Retraction Call right, a new certificate for
the balance of such Exchangeable Shares shall be issued to the holder at the
expense of the Corporation.
6.3 Upon receipt by the Corporation of a Retraction Request, the Corporation
shall immediately notify MCo and MCo Holdco thereof. In order to exercise the
Retraction Call Right, MCo or MCo Holdco must notify the Corporation in writing
of its determination to do so (the "MCo Call Notice") within two Business Days
of such notification. If MCo or MCo Holdco does not so notify the Corporation
within such two Business Days, the Corporation will notify the holder as soon as
possible thereafter that neither MCo nor MCo Holdco will exercise the Retraction
Call Right. If MCo or MCo Holdco delivers the MCo Call Notice within such two
Business Days, and provided that the Retraction Request is not revoked by the
holder in the manner specified in Section 6.7 hereof, the Retraction Request
shall thereupon be considered only to be an offer by the holder to sell the
Retracted Shares to MCo or MCo Holdco, as the case may be, in accordance with
the Retraction Call Right. In such event, the Corporation shall not redeem the
Retracted Shares and MCo or MCo Holdco, as the case may be, shall purchase from
such holder and such holder shall sell to MCo or MCo Holdco, as the case may be,
on the Retraction Date the Retracted Shares for a purchase price per share (the
"Purchase Price") equal to the Retraction Price, which as set forth in Section
6.4 hereof, shall be fully paid and satisfied by the delivery by or on behalf of
MCo or MCo Holdco, as the case may be, of the Exchangeable Share Consideration
representing such holder's Purchase Price. For the purposes of completing a
purchase pursuant to the Retraction Call Right, MCo or MCo Holdco, as the case
may be, shall deposit with the Transfer Agent, on or before the Retraction Date,
the Exchangeable Share Consideration representing the total Purchase Price.
Provided that such Exchangeable Share Consideration has been so deposited with
the Transfer Agent, the closing of the purchase and sale of the Retracted Shares
pursuant to the Retraction Call Right shall be deemed to have occurred as at the
close of business on the Retraction Date and, for greater certainty, no
redemption by the Corporation of such Retracted Shares shall take place on the
Retraction Date. In the event that MCo or MCo Holdco, as the case may be, does
not deliver a MCo Call Notice within two Business Days or otherwise comply with
these Exchangeable Share provisions in respect thereto, and provided that
Retraction Request is not revoked by the holder in the manner specified in
Section 6.7 hereof, the Corporation shall redeem the Retracted Shares on the
Retraction Date and in the manner otherwise contemplated in this Article 6 .
6.4 Subject to receipt by the Corporation of a Retraction Request, the
Corporation, MCo or MCo Holdco, as the case may be, shall deliver or cause the
Transfer Agent to deliver to the relevant holder, at the address of the holder
recorded in the securities register of the Corporation for the Exchangeable
Shares or at the address specified in the holder's Retraction Request or by
holding for pick up by the holder at the registered office of the Corporation or
at any office of the Transfer Agent as may be specified by the Corporation in
Schedule A hereto or by notice to the holders of Exchangeable Shares, the
Exchangeable Share Consideration representing the total Retraction Price or the
total Purchase Price, as the case may be, and such delivery of such Exchangeable
Share Consideration to the Transfer Agent shall be deemed to be payment of and
shall satisfy and discharge all liability for the total Retraction Price or
total Purchase Price, as the case may be, except as to any cheque included
therein which is not paid on due presentation.
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6.5 On and after the close of business on the Retraction Date, the holder of
the Retracted Shares shall cease to be a holder of such Retracted Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive such holder's proportionate part of the
total Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of certificates in accordance with the foregoing
provisions, payment of the total Retraction Price or the total Purchase Price,
as the case may be, shall not be made, in which case the rights of such holder
shall remain unaffected until the Exchangeable Share Consideration representing
the total Retraction Price or the total Purchase Price, as the case may be, has
been paid in the manner hereinbefore provided. On and after the close of
business on the Retraction Date, provided that presentation and surrender of
certificates and payment of the Exchangeable Share Consideration representing
the total Retraction Price or the total Purchase Price, as the case may be, has
been made in accordance with the foregoing provisions, the holder of the
Retracted Shares so redeemed by the Corporation or purchased by MCo or MCo
Holdco shall thereafter be considered and deemed for all purposes to be a holder
of the MCo Common Stock delivered to it. Notwithstanding the foregoing, until
such payment of such Exchangeable Share Consideration to the holder, the holder
shall be deemed to still be a holder of Exchangeable Shares for purposes of all
voting rights with respect thereto under the Voting and Exchange Trust
Agreement.
6.6 Notwithstanding any other provision of this Article 6, the Corporation
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to liquidity or solvency requirements or other provisions of
applicable law. If the Corporation believes that on any Retraction Date it would
not be permitted by any of such provisions to redeem the Retracted Shares
tendered for redemption on such date, and provided that neither MCo nor MCo
Holdco shall have exercised the Retraction Call Right with respect to the
Retracted Shares, the Corporation shall only be obligated to redeem Retracted
Shares specified by a holder in a Retraction Request to the extent of the
maximum number that may be so redeemed (rounded down to a whole number of
shares) as would not be contrary to such provisions and shall notify the holder
at least two Business Days prior to the Retraction Date as to the number of
Retracted Shares which will not be redeemed by the Corporation. In any case in
which the redemption by the Corporation of Retracted Shares would be contrary to
liquidity or solvency requirements or other provisions of applicable law, the
Corporation shall redeem Retracted Shares in accordance with Section 6.2 of
these share provisions on a pro rata basis and shall issue to each holder of
Retracted Shares a new certificate, at the expense of the Corporation,
representing the Retracted Shares not redeemed by the Corporation pursuant to
Section 6.2 hereof. Provided that the Retraction Request is not revoked by the
holder in the manner specified in Section 6.7 hereof, the holder of any such
Retracted Shares not redeemed by the Corporation pursuant to Section 6.2 hereof
as a result of liquidity or solvency requirements or applicable law shall be
deemed by giving the Retraction Request to require MCo or MCo Holdco, as the
case may be, to purchase such Retracted Shares from such holder on the
Retraction Date or as soon as practicable thereafter on payment by MCo or MCo
Holdco, as the case may be, to such holder of the Purchase Price for each such
Retracted Share, all as more specifically provided in the Voting and Exchange
Trust Agreement, and MCo shall make such purchase.
6.7 A holder of Retracted Shares may, by notice in writing given by the holder
to the Corporation before the close of business on the Business Day immediately
preceding the Retraction Date, withdraw its Retraction Request in which event
such Retraction Request shall
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be null and void and, for greater certainty, the revocable offer constituted by
the Retraction Request to sell the Retracted Shares to MCo or MCo Holdco, as the
case may be, shall be deemed to have been revoked.
ARTICLE 7
REDEMPTION OF EXCHANGEABLE SHARES BY THE CORPORATION
7.1 Subject to applicable law, and if neither MCo or MCo Holdco exercises the
Redemption Call Right (which, if exercised, shall be binding on the holders of
Exchangeable Shares), the Corporation shall on the Automatic Redemption Date
redeem the whole of the then outstanding Exchangeable Shares for an amount equal
to the Exchangeable Share Price applicable on the last Business Day prior to the
Automatic Redemption Date (the "Redemption Price") which, as set forth in
Section 7.3 hereof, shall be fully paid and satisfied by the delivery by or on
behalf of the Corporation of the Exchangeable Share Consideration representing
the total Redemption Price. In connection with payment of the Exchangeable
Share Consideration representing the Redemption Price, the Corporation shall be
entitled to liquidate some of the MCo Common Stock which would otherwise be
deliverable as Exchangeable Share Consideration to the particular holder of
Exchangeable Shares in order to fund any statutory withholding tax obligation.
7.2 In any case of a redemption of Exchangeable Shares under this Article 7,
the Corporation, or the Transfer Agent on behalf of the Corporation, shall, at
least 45 days before an Automatic Redemption Date or before a possible Automatic
Redemption Date which may result from a failure of the holders of Exchangeable
Shares to take necessary action as described in clause (d) of the definition of
Automatic Redemption Date send or cause to be sent to each holder of
Exchangeable Shares a notice in writing of the redemption or possible redemption
by the Corporation or the purchase by MCo or MCo Holdco under the Redemption
Call Right, as the case may be, of the Exchangeable Shares held by such holder.
Such notice shall set out the Redemption Price or the Redemption Call Purchase
Price, as the case may be, the Automatic Redemption Date and, if applicable,
particulars of the Redemption Call Right. In the case of any notice given in
connection with a possible Automatic Redemption Date, such notice will be given
contingently and will be withdrawn if the contingency does not occur.
7.3 On or after the Automatic Redemption Date, and subject to the exercise by
-
MCo or MCo Holdco of the Redemption Call Right, the Corporation shall cause to
be delivered to the holders of the Exchangeable Shares to be redeemed the
Exchangeable Share Consideration representing the Redemption Price for each such
Exchangeable Share upon presentation and surrender at the registered office of
the Corporation or at any office of the Transfer Agent as may be specified by
the Corporation in such notice of the certificates representing such
Exchangeable Shares, together with such other documents and instruments as may
be required to effect a transfer of Exchangeable Shares under applicable law and
the by-laws of the Corporation and such additional documents and instruments as
the Transfer Agent may reasonably require. Payment of the total Redemption Price
for such Exchangeable Shares shall be made by delivery to each holder, at the
address of the holder recorded in the securities register or at any office of
the Transfer Agent as may be specified by the Corporation in such notice, on
behalf of the Corporation, of the Exchangeable Share Consideration representing
the total Redemption Price. On and after the Automatic Redemption Date, the
holders of the Exchangeable Shares called for redemption shall cease to be
holders of such Exchangeable Shares and shall not be entitled to
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exercise any of the rights of holders in respect thereof, other than the right
to receive their proportionate part of the Exchangeable Share Consideration
representing the total Redemption Price, unless payment of the Exchangeable
Share Consideration representing the total Redemption Price for such
Exchangeable Shares shall not be made upon presentation and surrender of
certificates in accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the Exchangeable Share
Consideration representing the total Redemption Price has been paid in the
manner hereinbefore provided. The Corporation shall have the right at any time
after the sending of notice of its intention to redeem the Exchangeable Shares
as aforesaid to deposit or cause to be deposited the Exchangeable Share
Consideration with respect to the Exchangeable Shares so called for redemption,
or of such of the said Exchangeable Shares represented by certificates that have
not at the date of such deposit been surrendered by the holders thereof in
connection with such redemption, in a custodial account or for safe keeping, in
the case of non-cash items, with any chartered bank or trust company in Canada
named in such notice. Upon the later of such deposit being made and the
Automatic Redemption Date, the Exchangeable Shares in respect whereof such
deposit shall have been made shall be redeemed and the rights of the holders
thereof after such deposit or Automatic Redemption Date, as the case may be,
shall be limited to receiving their proportionate part of the Exchangeable Share
Consideration representing the total Redemption Price for such Exchangeable
Shares so deposited, against presentation and surrender of the said certificates
held by them, respectively, in accordance with the foregoing provisions. Upon
such payment or deposit of such Exchangeable Share Consideration, the holders of
the Exchangeable Shares shall thereafter be considered and deemed for all
purposes to be holders of the MCo Common Stock delivered to them.
Notwithstanding the foregoing, until such payment or deposit of such
Exchangeable Share Consideration is made, the holder shall be deemed to still be
a holder of Exchangeable Shares for purposes of all voting rights with respect
thereto under the Voting and Exchange Trust Agreement.
7.4 If MCo or MCo Holdco exercises the Redemption Call Right, each holder of
Exchangeable Shares shall be obligated to sell all the Exchangeable Shares held
by such holder to MCo or MCo Holdco, as the case may be, on the Automatic
Redemption Date against payment to such holder by MCo of the Exchangeable Share
Consideration representing the Redemption Call Purchase Price for each such
share.
ARTICLE 8
EXCHANGE PUT RIGHT
8.1 Upon and subject to the terms and conditions contained in these share
provisions and the Voting and Exchange Trust Agreement:
(a) a holder of Exchangeable Shares shall have the right (the "Exchange
Put Right") at any time to require MCo to purchase, or cause MCo
Holdco to purchase, all or any part of the Exchangeable Shares of the
holder; and
(b) upon the exercise by the holder of the Exchange Put Right and provided
that, at the time of purchase, the Exchangeable Shares are listed on a
recognized Canadian stock exchange, the holder shall be required to
sell to MCo or MCo Holdco, as the case may be, and MCo shall be
required to purchase, or cause MCo Holdco to purchase, from the
holder, that number of Exchangeable Shares in
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respect of which the Exchange Put Right is exercised, in consideration
of the payment by MCo or MCo Holdco, as the case may be, of the
Exchangeable Share Price applicable thereto (which shall be the
Exchangeable Share Price applicable on the last Business Day prior to
receipt of notice required under Section 8.2 hereof) and delivery by
or on behalf of MCo or MCo Holdco, as the case may be, of the
Exchangeable Share Consideration representing the total applicable
Exchangeable Share Price. In connection with payment of the
Exchangeable Share Consideration, the Corporation shall be entitled to
liquidate some of the MCo Common Stock which would otherwise be
deliverable to the particular holder of Exchangeable Shares in order
to fund any statutory withholding tax obligation.
8.2 The Exchange Put Right provided in Section 8.1 hereof and in Article 5 of
the Voting and Exchange Trust Agreement may be exercised at any time by notice
in writing given by the holder to and received by the Trustee (the date of such
receipt, the "Exchange Put Date") and accompanied by presentation and surrender
of the certificates representing such Exchangeable Shares, together with such
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the Act and the by-laws of the Corporation and such
additional documents and instruments as the Trustee may reasonably require, at
the principal transfer offices in Calgary, Alberta or Toronto, Ontario of the
Trustee, or at such other office or offices of the Trustee or of other persons
designated by the Trustee for that purpose as may from time to time be
maintained by the Trustee for that purpose. Such notice may be (i) in the form
of the panel, if any, on the certificates representing Exchangeable Shares, (ii)
in the form of the notice and election contained in any letter of transmittal
distributed or made available by the Corporation for that purpose, or (iii) in
other form satisfactory to the Trustee (or such other persons aforesaid), shall
stipulate the number of Exchangeable Shares in respect of which the right is
exercised (which may not exceed the number of shares represented by certificates
surrendered to the Trustee), shall be irrevocable unless the exchange is not
completed in accordance herewith and with the Voting and Exchange Trust
Agreement and shall constitute the holder's authorization to the Trustee (and
such other persons aforesaid) to effect the exchange on behalf of the holder.
8.3 The completion of the sale and purchase referred to in Section 8.1 hereof
shall be required to occur, and MCo shall be required to take all actions on its
part necessary to permit it to occur, not later than the close of business on
the third Business Day following the Exchange Put Date.
8.4 The surrender by the holder of Exchangeable Shares under Section 8.2 hereof
shall constitute the representation, warranty and covenant of the holder that
the Exchangeable Shares so surrendered are sold free and clear of any lien,
encumbrance, security interest or adverse claim or interest.
8.5 If a part only of the Exchangeable Shares represented by any certificate
are to be sold and purchased pursuant to the exercise of the Exchange Put Right,
a new certificate for the balance of such Exchangeable Shares shall be issued to
the holder at the expense of the Corporation.
8.6 Upon receipt by the Trustee of the notice, certificates and other documents
or instruments required by Section 8.2, the Trustee shall deliver or cause to be
delivered, on behalf of MCo and subject to receipt by the Trustee from MCo of
the applicable Exchangeable Share Consideration,
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to the relevant holder at the address of the holder specified in the notice or
by holding for pick-up by the holder at the registered office of the Corporation
or at any office of the Trustee (or other persons aforesaid) maintained for that
purpose, the Exchangeable Share Consideration representing the total applicable
Exchangeable Share Price, within the time stipulated in Section 8.3 hereof.
Delivery by MCo to the Trustee of such Exchangeable Share Consideration shall be
deemed to be payment of and shall satisfy and discharge all liability for the
total applicable Exchangeable Share Price, except as to any cheque included
therein which is not paid on due presentation.
8.7 On and after the close of business on the Exchange Put Date, the holder of
the Exchangeable Shares in respect of which the Exchange Put Right is exercised
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive the total applicable Exchangeable Share
Price, unless upon presentation and surrender of certificates in accordance with
the foregoing provisions, payment of the Exchangeable Share Consideration shall
not be made, in which case the rights of such holder shall remain unaffected
until such payment has been made. On and after the close of business on the
Exchange Put Date provided that presentation and surrender of certificates and
payment of the Exchangeable Share Consideration has been made in accordance with
the foregoing provisions, the holder of the Exchangeable Shares so purchased by
MCo shall thereafter be considered and deemed for all purposes to be a holder of
the MCo Common Stock delivered to it. Notwithstanding the foregoing, until
payment of the Exchangeable Share Consideration to the holder, the holder shall
be deemed to still be a holder of Exchangeable Shares for purposes of all voting
rights with respect thereto under the Voting and Exchange Trust Agreement.
ARTICLE 9
VOTING RIGHTS
9.1 Except as required by applicable law and the provisions hereof, the
holders of the Exchangeable Shares shall not be entitled as such to receive
notice of or to attend any meeting of the shareholders of the Corporation or to
vote at any such meeting.
ARTICLE 10
AMENDMENT AND APPROVAL
10.1 The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed but, except as
hereinafter provided, only with the approval of the holders of the Exchangeable
Shares given as hereinafter specified.
10.2 Any approval given by the holders of the Exchangeable Shares to add to,
change or remove any right, privilege, restriction or condition attaching to the
Exchangeable Shares or any other matter requiring the approval or consent of the
holders of the Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable law subject to a
minimum requirement that such approval be evidenced by resolution passed by not
less than 66 2/3% of the votes cast on such resolution by persons represented in
person or by proxy at a meeting of holders of Exchangeable Shares (excluding
Exchangeable Shares beneficially owned by MCo or its Subsidiaries) duly called
and held at which the holders of at least 20% of the outstanding Exchangeable
Shares at that time are present or represented by
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proxy. If at any such meeting the holders of at least 20% of the outstanding
Exchangeable Shares at that time are not present or represented by proxy within
one-half hour after the time appointed for such meeting, then the meeting shall
be adjourned to such date not less than 10 days thereafter and to such time and
place as may be designated by the Chairman of such meeting. At such adjourned
meeting, the holders of Exchangeable Shares present or represented by proxy
thereat may transact the business for which the meeting was originally called
and a resolution passed thereat by the affirmative vote of not less than 66 2/3%
of the votes cast on such resolution by persons represented in person or by
proxy at such meeting (excluding Exchangeable Shares beneficially owned by MCo
or its Subsidiaries) shall constitute the approval or consent of the holders of
the Exchangeable Shares. For the purposes of this Section, any spoiled votes,
illegible votes, defective votes and abstinences shall be deemed to be votes not
cast.
ARTICLE 11
RECIPROCAL CHANGES, ETC. IN RESPECT OF MCO COMMON STOCK
11.1 (a) Each holder of an Exchangeable Share acknowledges that the Support
Agreement provides, in part, that MCo will not:
(i) issue or distribute shares of MCo Common Stock (or securities
exchangeable for or convertible into or carrying rights to
acquire shares of MCo Common Stock) to the holders of all or
substantially all of the then outstanding shares of MCo Common
Stock by way of stock dividend or other distribution; or
(ii) issue or distribute rights, options or warrants to the holders
of all or substantially all of the then outstanding shares of
MCo Common Stock entitling them to subscribe for or to purchase
shares of MCo Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of MCo
Common Stock); or
(iii) issue or distribute to the holders of all or substantially all
of the then outstanding shares of MCo Common Stock (A) shares or
securities of MCo of any class other than MCo Common Stock
(other than shares convertible into or exchangeable for or
carrying rights to acquire shares of MCo Common Stock), (B)
rights, options or warrants other than those referred to in
subsection 11.1 (a) (ii) above, (C) evidences of indebtedness of
MCo or (D) assets of MCo;
unless
(iv) one or both of MCo and the Corporation is permitted under
applicable law to issue or distribute the economic equivalent on
a per share basis of such rights, options, warrants, securities,
shares, evidences of indebtedness or other assets to the holders
of the Exchangeable Shares; and
(v) one or both of MCo and the Corporation shall issue or distribute
the economic equivalent on a per share basis of such rights,
options, warrants,
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securities, shares, evidences of indebtedness
or other assets simultaneously to the holders of the
Exchangeable Shares.
(b) Each holder of an Exchangeable Share acknowledges that the Support
Agreement further provides, in part, that MCo will not:
(i) subdivide, redivide or change the then outstanding shares of MCo
Common Stock into a greater number of shares of MCo Common
Stock; or
(ii) reduce, combine or consolidate or change the then outstanding
shares of MCo Common Stock into a lesser number of shares of MCo
Common Stock; or
(iii) reclassify or otherwise change the shares of MCo Common Stock or
effect an amalgamation, merger, reorganization or other
transaction involving or affecting the shares of MCo Common
Stock;
unless
(iv) the Corporation is permitted under applicable law to
simultaneously make the same or an economically equivalent
change to, or in the rights of the holders of, the Exchangeable
Shares; and
(v) the same or an economically equivalent change is simultaneously
made to, or in the rights of the holders of, the Exchangeable
Shares.
The Support Agreement further provides, in part, that, with the exception
of certain ministerial amendments, the aforesaid provisions of the Support
Agreement shall not be changed without the approval of the holders of the
Exchangeable Shares given in accordance with Article 10 of these share
provisions.
ARTICLE 12
ACTIONS BY THE CORPORATION UNDER SUPPORT AGREEMENT
12.1 The Corporation will take all such actions and do all such things as
shall be necessary or advisable to perform and comply with and to ensure
performance and compliance by MCo with all provisions of the Support Agreement,
the Voting Trust and Exchange Agreement and MCo's Certificate of Incorporation
applicable to the Corporation and MCo, respectively, in accordance with the
terms thereof including, without limitation, taking all such actions and doing
all such things as shall be necessary or advisable to enforce to the fullest
extent possible for the direct benefit of the Corporation all rights and
benefits in favour of the Corporation under or pursuant thereto.
12.2 The Corporation shall not propose, agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or obligations under,
the Support Agreement, the Voting Trust and Exchange Agreement or MCo's
Certificate of Incorporation without the approval of the holders of the
Exchangeable Shares given in accordance with Section 10.2 hereof other than such
amendments, waivers and/or forgiveness as may be necessary or advisable for the
purpose of:
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(a) adding to the covenants of the other party or parties to such
agreement for the protection of the Corporation or the holders of
Exchangeable Shares; or
(b) making such provisions or modifications not inconsistent with such
agreement or certificate as may be necessary or desirable with
respect to matters or questions arising thereunder which, in the
opinion of the Board of Directors, it may be expedient to make,
provided that the Board of Directors shall be of the opinion, after
consultation with counsel, that such provisions and modifications
will not be prejudicial to the interests of the holders of the
Exchangeable Shares; or
(c) making such changes in or corrections to such agreement or
certificate which, on the advice of counsel to the Corporation, are
required for the purpose of curing or correcting any ambiguity or
defect or inconsistent provision or clerical omission or mistake or
manifest error contained therein, provided that the Board of
Directors shall be of the opinion, after consultation with counsel,
that such changes or corrections will not be prejudicial to the
interests of the holders of the Exchangeable Shares.
ARTICLE 13
LEGEND
13.1 The certificates evidencing the Exchangeable Shares shall contain or have
affixed thereto a legend, in form and on terms approved by the Board of
Directors, with respect to the Support Agreement, the provisions of the Articles
of the Corporation relating to the Liquidation Call Right, the Retraction Call
Right and the Redemption Call Right, and the Voting and Exchange Trust Agreement
(including the provisions with respect to the voting rights and exchange
provisions thereunder).
ARTICLE 14
MISCELLANEOUS
14.1 Any notice, request or other communication to be given to the Corporation
by a holder of Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or by delivery to
the registered office of the Corporation and addressed to the attention of the
President. Any such notice, request or other communication, if given by mail,
telecopy or delivery, shall only be deemed to have been given and received upon
actual receipt thereof by the Corporation.
14.2 Any presentation and surrender by a holder of Exchangeable Shares to the
Corporation or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding-up of the
Corporation or the retraction, redemption or exchange of Exchangeable Shares
shall be made by registered mail (postage prepaid) or by delivery to the
registered office of the Corporation or to such office of the Transfer Agent as
may be specified by the Corporation, in each case addressed to the attention of
the President of the Corporation. Any such presentation and surrender of
certificates shall only be deemed to have been made and to be effective upon
actual receipt thereof by the Corporation or the Transfer
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Agent, as the case may be, and the method of any such presentation and surrender
of certificates shall be at the sole risk of the holder.
14.3 Any notice, request or other communication to be given to a holder of
Exchangeable Shares by or on behalf of the Corporation shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the securities register of the
Corporation or, in the event of the address of any such holder not being so
recorded, then at the last address of such holder known to the Corporation. Any
such notice, request or other communication, if given by mail, shall be deemed
to have been given and received on the fifth Business Day following the date of
mailing and, if given by delivery, shall be deemed to have been given and
received on the date of delivery. Accidental failure or omission to give any
notice, request or other communication to one or more holders of Exchangeable
Shares shall not invalidate or otherwise alter or affect any action or
proceeding to be or intended to be taken by the Corporation.
14.4 For greater certainty, the Corporation shall not be required for any
purpose under these share provisions to recognize or take account of persons who
are not so recorded in such securities register.
14.5 All Exchangeable Shares acquired by the Corporation upon the redemption
or retraction thereof shall be cancelled.
14.6 For greater certainty, any payments to the holders of Exchangeable Shares
shall be net of applicable taxes, if any, and the payor shall not be obliged to
gross up or increase the amount of such payment which would otherwise be made to
take into account such taxes. Any such taxes which have been withheld or
deducted by the payor thereof shall be remitted to the applicable tax authority
within the time required for such remittance.
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SCHEDULE"A"
RETRACTION REQUEST
To . (the "Corporation") and . ("MCo") and . ("MCo Holdco")
This request is given pursuant to Article 6 of the provisions (the "Share
Provisions") attaching to the Exchangeable Shares of the Corporation and all
capitalized words and expressions used in this request which are defined in the
Share Provisions have the meaning attributed to such words and expressions in
such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned requests the
Corporation to redeem in accordance with Article 6 of the Share Provisions:
[_]: all share(s) represented by the accompanying certificate(s); or
[_]: _____________ share(s) only.
The undersigned hereby notifies the Corporation that the Retraction Date
shall be ___________________.
NOTE: The Retraction Date must be a Business Day and must not be less
than five Business Days nor more than 10 Business Days after the
date upon which this notice and the accompanying shares are
received at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified in this
Retraction Request or as may be specified by the Corporation by
notice to the holders of the Exchangeable Shares. In the event
that no such Business Day is correctly specified above, the
Retraction Date shall be deemed to be the tenth Business Day
after the date on which this request is received by the
Corporation.
The undersigned acknowledges the Retraction Call Right of MCo and MCo
Holdco (as defined in the Share Provisions) to purchase all but not less than
all the Retracted Shares from the undersigned and that this request shall be
deemed to be a revocable offer by the undersigned to sell the Retracted Shares
to MCo or MCo Holdco, as the case may be, in accordance with the Retraction Call
Right on the Retraction Date for the Retraction Price and on the other terms and
conditions set out in Section 6.3 of the Share Provisions. If neither MCo or MCo
Holdco, as the case may be, determines to exercise the Retraction Call Right,
the Corporation will notify the undersigned of such fact as soon as possible.
This retraction request, and offer to sell the Retracted Shares to MCo or MCo
Holdco, as the case may be, may be revoked and withdrawn by the undersigned by
notice in writing given to the Corporation at any time before the close of
business on the Business Date immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of liquidity or solvency
provisions of applicable law, the Corporation is unable to redeem all Retracted
Shares, the undersigned will be deemed to have exercised the Exchange Right (as
defined in the Voting and Exchange Trust Agreement) so as to require MCo to
purchase, or cause MCo Holdco to purchase, the unredeemed Retracted Shares.
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The undersigned hereby represents and warrants to the Corporation and MCo
that the undersigned has good title to, and owns, the share(s) represented by
the accompanying certificate free and clear of all liens, claims, encumbrances,
security interests and adverse claims or interests.
-------------- ------------------------------- -------------------------
(Date) (Signature of Shareholder) Guarantee of Signature
[_] Please check box if the legal or beneficial owner of the Retracted Shares
is a non-resident of Canada.
[_] Please check box if the securities and any cheque(s) or other non-cash
assets resulting from the retraction of the Retracted Shares are to be held
for pick-up by the shareholder at the principal transfer offices of . (the
"Transfer Agent") in Calgary, Alberta or Toronto, Ontario, failing which
the securities and any cheque(s) or other non-cash assets will be delivered
to the shareholder in accordance with the share provisions.
NOTE: This panel must be completed and the accompanying share
certificate(s), together with such additional documents as the
Transfer Agent may require, must be deposited with the Transfer Agent
at its principal transfer offices in Calgary, Alberta or Toronto,
Ontario. The securities and any cheque(s) or other non-cash assets
resulting from the retraction or purchase of the Retracted Shares will
be issued and registered in, and made payable to, or transferred into,
respectively, the name of the shareholder as it appears on the
register of the Corporation and the securities, cheque (s) and other
non-cash assets resulting from such retraction or purchase will be
delivered to the shareholder in accordance with the Share Provisions.
----------------------------------------------------- -------------------------
Name of Person in Whose Name Securities or Cheque(s) Date
or Other Non-cash Assets Are To Be Registered,
Issued or Delivered (please print)
----------------------------------------------------- -------------------------
Street Address or P.O. Box Signature of Shareholder
----------------------------------------------------- -------------------------
City, Province Signature Guaranteed by
NOTE: If this retraction request is for less than all of the share(s)
represented by the accompanying certificate, a certificate
representing the remaining shares of the Corporation will be issued
and registered in the name of the shareholder as it appears on the
register of the Corporation or its lawful transferee.
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B. OTHER PROVISIONS
1.1 Meetings
Meetings of shareholders of the Corporation shall be held in the location
determined by the directors of the Corporation, and may be held in St. Louis,
Missouri, or at any location within Alberta.
1.2 Definitions
Unless there is something in the subject matter or context inconsistent
therewith in Sections 1.3, 1.4 and 1.5 below, the following terms shall have the
respective meanings set out below and grammatical variations of such terms shall
have corresponding meanings:
"Act" means the Business Corporations Act (Alberta), as amended;
"Automatic Redemption Date" has the meaning provided in the Exchangeable
Share Provisions;
"Business Day" has the meaning provided in the Exchangeable Share
Provisions;
"Exchange Put Right" has the meaning provided in the Exchangeable Share
Provisions;
"Exchangeable Share Consideration" has the meaning provided in the
Exchangeable Share Provisions;
"Exchangeable Share Price" has the meaning provided in the Exchangeable
Share Provisions;
"Exchangeable Share Provisions" means the rights, privileges, restrictions
and conditions attaching to the Exchangeable Shares;
"Exchangeable Shares" means the Exchangeable Shares in the capital of the
Corporation;
"Liquidation Call Purchase Price" has the meaning provided in Section 1.3;
"Liquidation Call Right" has the meaning provided in Section 1.3;
"Liquidation Date" has the meaning provided in the Exchangeable Share
Provisions;
"MCo" has the meaning provided in the Exchangeable Share Provisions;
"MCo Common Stock" has the meaning provided in the Exchangeable Share
Provisions;
"Redemption Call Purchase Price" has the meaning provided in Section 1.4;
"Redemption Call Right" has the meaning provided in Section 1.4;
"Subsidiary" has the meaning provided in the Exchangeable Share Provisions;
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"Transfer Agent" means the duly appointed transfer agent for the time being
of the Exchangeable Shares, and, if there is more than one such transfer agent,
then the principal Canadian transfer agent; and
"Voting and Exchange Trust Agreement" has the meaning provided in the
Exchangeable Share Provisions.
1.3 MCo Liquidation Call Right
(a) MCo shall have the overriding right (the "Liquidation Call Right"), in
the event of and notwithstanding any proposed liquidation, dissolution
or winding-up of the Corporation as referred to in Article 5 of the
Exchangeable Share Provisions, to purchase from all but not less than
all of the holders (other than MCo or any Subsidiary thereof) of
Exchangeable Shares on the Liquidation Date all but not less than all
of the Exchangeable Shares held by such holders on payment by MCo to
each holder of the Exchangeable Share Price applicable on the last
Business Day prior to the Liquidation Date (the "Liquidation Call
Purchase Price") in accordance with subsection 1.3(c). In the event
of the exercise of the Liquidation Call Right by MCo, each holder
shall be obligated to sell all the Exchangeable Shares held by such
holder to MCo on the Liquidation Date on payment by MCo to the holder
of the Liquidation Call Purchase Price for each such share.
(b) To exercise the Liquidation Call Right, MCo must notify the
Corporation's Transfer Agent in writing, as agent for the holders of
Exchangeable Shares, and the Corporation of MCo's intention to
exercise such right at least 55 days before the Liquidation Date in
the case of a voluntary liquidation, dissolution or winding-up of the
Corporation and at least five Business Days before the Liquidation
Date in the case of an involuntary liquidation, dissolution or
winding-up of the Corporation. The Transfer Agent will notify the
holders of Exchangeable Shares as to whether or not MCo has exercised
the Liquidation Call Right forthwith after the expiry of the date by
which the same may be exercised by MCo. If MCo exercises the
Liquidation Call Right, on the Liquidation Date, MCo will purchase and
the holders will sell all of the Exchangeable Shares then outstanding
for a price per share equal to the Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Liquidation Call Right, MCo shall deposit with the
Transfer Agent, on or before the Liquidation Date, the Exchangeable
Share Consideration representing the total Liquidation Call Purchase
Price. Provided that such Exchangeable Share Consideration has been so
deposited with the Transfer Agent, on and after the Liquidation Date,
the right of each holder of Exchangeable Shares will be limited to
receiving such holder's proportionate part of the total Liquidation
Call Purchase Price payable by MCo, without interest, upon
presentation and surrender by the holder of certificates representing
the Exchangeable Shares held by such holder and the holder shall, on
and after the Liquidation Date, be considered and deemed for all
purposes to be the holder of the MCo Common Stock delivered to such
holder. Upon surrender to the Transfer Agent of a certificate or
certificates representing Exchangeable Shares, together with such
other documents and
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instruments as may be required to effect a transfer of Exchangeable
Shares under the Act and the by-laws of the Corporation and such
additional documents and instruments as the Transfer Agent may
reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and
the Transfer Agent on behalf of MCo shall deliver to such holder, the
Exchangeable Share Consideration to which such holder is entitled. If
MCo does not exercise the Liquidation Call Right in the manner
described above, on the Liquidation Date, the holders of the
Exchangeable Shares will be entitled to receive in exchange therefor
the liquidation price otherwise payable by the Corporation in
connection with the liquidation, dissolution or winding-up of the
Corporation pursuant to Article 5 of the Exchangeable Share
Provisions. Notwithstanding the foregoing, until such Exchangeable
Share Consideration is delivered to the holder, the holder shall be
deemed to still be a holder of Exchangeable Shares for purposes of all
voting rights with respect thereto under the Voting and Exchange Trust
Agreement.
1.4 MCo Redemption Call Right
(a) MCo shall have the overriding right (the "Redemption Call Right"),
notwithstanding any proposed redemption of the Exchangeable Shares by
the Corporation pursuant to Article 7 of the Exchangeable Share
Provisions, to purchase from all but not less than all of the holders
(other than MCo or any Subsidiary thereof) of Exchangeable Shares on
the Automatic Redemption Date all but not less than all of the
Exchangeable Shares held by each such holder on payment by MCo to the
holder of the Exchangeable Share Price applicable on the last Business
Day prior to the Automatic Redemption Date (the "Redemption Call
Purchase Price") in accordance with subsection 1.4(c). In the event of
the exercise of the Redemption Call Right by MCo, each holder shall be
obligated to sell all the Exchangeable Shares held by the holder to
MCo on the Automatic Redemption Date on payment by MCo to the holder
of the Redemption Call Purchase Price for each such share.
(b) To exercise the Redemption Call Right, MCo must notify the Transfer
Agent in writing, as agent for the holders of Exchangeable Shares, and
the Corporation of the Corporation's intention to exercise such right
not later than the date by which the Corporation is required to give
notice of the Automatic Redemption Date. The Transfer Agent will
notify the holders of the Exchangeable Shares as to whether or not MCo
has exercised the Redemption Call Right forthwith after the date by
which the same may be exercised by MCo. If MCo exercises the
Redemption Call Right, on the Automatic Redemption Date, MCo will
purchase and the holders will sell all of the Exchangeable Shares then
outstanding for a price per share equal to the Redemption Call
Purchase Price.
(c) For the purposes of completing the purchase of the Exchangeable Shares
pursuant to the Redemption Call Right, MCo shall deposit with the
Transfer Agent, on or before the Automatic Redemption Date, the
Exchangeable Share Consideration representing the total Redemption
Call Purchase Price. Provided that such Exchangeable Share
Consideration has been so deposited with the Transfer Agent, on and
after the Automatic Redemption Date, the rights of each holder of
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Exchangeable Shares will be limited to receiving such holder's
proportionate part of the total Redemption Call Purchase Price payable
by MCo upon presentation and surrender by the holder of certificates
representing the Exchangeable Shares held by such holder and the
holder shall on and after the Automatic Redemption Date be considered
and deemed for all purposes to be the holder of the MCo Common Stock
delivered to such holder. Upon surrender to the Transfer Agent of a
certificate or certificates representing Exchangeable Shares, together
with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the Act and the by-laws of the
Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of MCo shall deliver to
such holder, the Exchangeable Share Consideration to which such holder
is entitled. If MCo does not exercise the Redemption Call Right in the
manner described above, on the Automatic Redemption Date, the holders
of the Exchangeable Shares will be entitled to receive in exchange
therefor the redemption price otherwise payable by the Corporation in
connection with the redemption of the Exchangeable Shares pursuant to
Article 7 of the Exchangeable Share Provisions. Notwithstanding the
foregoing, until such Exchangeable Share Consideration is delivered to
the holder, the holder shall be deemed to still be a holder of
Exchangeable Shares for purposes of all voting rights with respect
thereto under the Voting and Exchange Trust Agreement.
1.5 Exchange Put Right
Upon and subject to the terms and conditions contained in the Exchangeable
Share Provisions and the Voting and Exchange Trust Agreement, a holder of
Exchangeable Shares shall have the Exchange Put Right.
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ANNEX F
FORM OF SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT is entered into as of ., 2000, between Maverick Tube
Corporation, a Delaware corporation ("MCo"), and ., an Alberta corporation ("MCo
Sub").
RECITALS
WHEREAS, pursuant to a Combination Agreement dated effective as of June 11,
2000, by and between MCo and Prudential Steel Ltd. ("PCo") (such agreement, as
it may be amended or restated, is hereinafter referred to as the "Combination
Agreement"), the parties agreed that on the Effective Date (as defined in the
Combination Agreement), MCo and MCo Sub would execute and deliver a Support
Agreement containing the terms and conditions set forth in Exhibit C to the
Combination Agreement together with such other terms and conditions as may be
agreed to by the parties to the Combination Agreement acting reasonably;
AND WHEREAS, pursuant to an arrangement (the "Arrangement") effected by
Articles of Arrangement dated ., 2000 filed pursuant to the Business
Corporations Act (Alberta) (or any successor or other corporate statute by which
PCo may in the future be governed) (the "Act") each issued and outstanding
common share of PCo (a "PCo Common Share") was exchanged for Exchangeable Shares
of MCo Sub (the "Exchangeable Shares");
AND WHEREAS, the Articles of Incorporation of MCo Sub set forth the rights,
privileges, restrictions and conditions (collectively, the "Exchangeable Share
Provisions") attaching to the Exchangeable Shares;
AND WHEREAS, the parties hereto desire to make appropriate provision and to
establish a procedure whereby MCo will take certain actions and make certain
payments and deliveries necessary to ensure that MCo Sub will be able to make
certain payments and to deliver or cause to be delivered shares of MCo Common
Stock in satisfaction of the obligations of MCo Sub under the Exchangeable Share
Provisions with respect to the payment and satisfaction of dividends,
Liquidation Amounts, Retraction Prices and Redemption Prices, all in accordance
with the Exchangeable Share Provisions;
NOW, THEREFORE, in consideration of the respective covenants and agreements
provided in this agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Defined Terms
Each term denoted herein by initial capital letters and not otherwise
defined herein shall have the meaning attributed thereto in the Exchangeable
Share Provisions, unless the context requires otherwise.
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1.2 Interpretation Not Affected by Headings, Etc.
The division of this agreement into articles, sections and paragraphs and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this agreement.
1.3 Number, Gender, Etc.
Words importing the singular number only shall include the plural and vice
versa. Words importing the use of any gender shall include all genders.
1.4 Date for Any Action
If any date on which any action is required to be taken under this
agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day.
ARTICLE 2
COVENANTS OF MCO AND MCO SUB
2.1 Covenants of MCo Regarding Exchangeable Shares
So long as any Exchangeable Shares are outstanding, MCo will:
(a) not declare or pay any dividend on MCo Common Stock unless (i) MCo Sub
will have sufficient assets, funds and other property available to enable
the due declaration and the due and punctual payment in accordance with
applicable law of an equivalent dividend on the Exchangeable Shares and
(ii) subsection 2.1 (b) shall have been complied with in connection with
such dividend;
(b) cause MCo Sub to declare simultaneously with the declaration of any
dividend on MCo Common Stock an equivalent dividend on the Exchangeable
Shares and, when such dividend is paid on MCo Common Stock, cause MCo Sub
to pay simultaneously therewith such equivalent dividend on the
Exchangeable Shares, in each case in accordance with the Exchangeable Share
Provisions;
(c) advise MCo Sub sufficiently in advance of the declaration by MCo of
any dividend on MCo Common Stock and take all such other actions as are
necessary, in cooperation with MCo Sub, to ensure that the respective
declaration date, record date and payment date for a dividend on the
Exchangeable Shares shall be the same as the record date, declaration date
and payment date for the corresponding dividend on MCo Common Stock and
that such dividend on the Exchangeable Shares will correspond with any
requirement of the principal stock exchange on which the Exchangeable
Shares are listed;
(d) ensure that the record date for any dividend declared on MCo Common
Stock is not less than ten Business Days after the declaration date for
such dividend;
(e) take all such actions and do all such things as are necessary or
desirable to enable and permit MCo Sub, in accordance with applicable law,
to pay and otherwise perform its obligations with respect to the
satisfaction of the Liquidation Amount in respect of each issued and
outstanding Exchangeable Share upon the liquidation, dissolution or
winding-up of MCo Sub or any other distribution of the assets of MCo Sub
for the purpose of
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<PAGE>
winding-up its affairs, including without limitation all such actions and
all such things as are necessary or desirable to enable and permit MCo Sub
to cause to be delivered shares of MCo Common Stock to the holders of
Exchangeable Shares in accordance with the provisions of Article 5 of the
Exchangeable Share Provisions;
(f) take all such actions and do all such things as are necessary or
desirable to enable and permit MCo Sub , in accordance with applicable law,
to pay and otherwise perform its obligations with respect to the
satisfaction of the Retraction Price and the Redemption Price, including
without limitation all such actions and all such things as are necessary or
desirable to enable and permit MCo Sub to cause to be delivered shares of
MCo Common Stock to the holders of Exchangeable Shares, upon the retraction
or redemption of the Exchangeable Shares in accordance with the provisions
of Article 6 or Article 7 of the Exchangeable Share Provisions, as the case
may be;
(g) not exercise its vote as a direct or indirect shareholder to initiate
the voluntary liquidation, dissolution or winding-up of MCo Sub nor take
any action that, or omit to take any action the omission of which (i) is
designed to result in the liquidation, dissolution or winding-up of MCo Sub
or (ii) would result in a meeting or vote of the shareholders of MCo Sub to
consider any matter on which the holders of Exchangeable Shares would be
entitled to vote as shareholders of MCo Sub, other than a meeting as
described in clause (d) of the definition of "Automatic Redemption Date" in
the Exchangeable Share Provisions; and
(h) use its best efforts to take all such actions and do all such things
as are necessary to ensure that there is no meeting or vote of the
shareholders of MCo Sub to consider any matter on which the holders of
Exchangeable Shares would be entitled to vote as shareholders of MCo Sub,
other than a meeting as described in clause (d) of the definition of
"Automatic Redemption Date" in the Exchangeable Share Provisions.
2.2 Segregation of Funds
MCo will cause MCo Sub to deposit a sufficient amount of funds in a
separate account and segregate a sufficient amount of such assets and other
property as is necessary to enable MCo Sub to pay or otherwise satisfy the
applicable dividends, Liquidation Amount, Retraction Price or Redemption Price,
in each case for the benefit of holders from time to time of the Exchangeable
Shares, and MCo Sub will use such funds, assets and other property so segregated
exclusively for the payment of dividends and the payment or other satisfaction
of the Liquidation Amount, the Retraction Price or the Redemption Price, as
applicable, net of any corresponding withholding tax obligations and for the
remittance of such withholding tax obligations.
2.3 Reservation of Shares of MCo Common Stock
MCo hereby represents, warrants and covenants that it has irrevocably
reserved for issuance and will at all times keep available, free from pre-
emptive and other rights, out of its authorized and unissued capital stock such
number of shares of MCo Common Stock (or other shares or securities into which
MCo Common Stock may be reclassified or changed as contemplated by section 2.7
hereof) (i) as is equal to the sum of (A) the number of Exchangeable Shares
issued and outstanding from time to time and (B) the number of Exchangeable
Shares issuable upon the exercise of all rights to acquire Exchangeable Shares
outstanding from time to time and (ii) as are now and may hereafter be required
to enable and permit MCo Sub to meet its
F-3
<PAGE>
obligations hereunder, under the Voting and Exchange Trust Agreement, under the
Exchangeable Share Provisions and under any other security or commitment
pursuant to the Arrangement with respect to which MCo may now or hereafter be
required to issue shares of MCo Common Stock.
2.4 Notification of Certain Events
In order to assist MCo to comply with its obligations hereunder, MCo Sub
will give MCo notice of each of the following events at the time set forth
below:
(a) immediately, in the event of any determination by the Board of
Directors of MCo Sub to take any action which would require a vote of the
holders of Exchangeable Shares for approval;
(b) immediately, upon the earlier of (i) receipt by MCo Sub of notice of,
and (ii) MCo Sub otherwise becoming aware of, any threatened or instituted
claim, suit, petition or other proceedings with respect to the involuntary
liquidation, dissolution or winding-up of MCo Sub or to effect any other
distribution of the assets of MCo Sub among its shareholders for the
purpose of winding-up its affairs;
(c) immediately, upon receipt by MCo Sub of a Retraction Request (as
defined in the Exchangeable Share Provisions);
(d) at least 45 days prior to any Automatic Redemption Date determined by
the Board of Directors of MCo Sub in accordance with clause (b) of the
definition of Automatic Redemption Date in the Exchangeable Share
Provisions;
(e) as soon as practicable upon the issuance by MCo Sub of any
Exchangeable Shares or rights to acquire Exchangeable Shares; and
(f) in the event of any determination by the Board of Directors of MCo Sub
to institute voluntary liquidation, dissolution or winding-up proceedings
with respect to MCo Sub or to effect any other distribution of the assets
of MCo Sub among its shareholders for the purpose of winding-up its
affairs, at least 30 days prior to the proposed effective date of such
liquidation, dissolution, winding-up or other distribution.
2.5 Delivery of Shares of MCo Common Stock
In furtherance of its obligations hereunder, upon notice of any event which
requires MCo Sub to cause to be delivered shares of MCo Common Stock to any
holder of Exchangeable Shares, MCo shall forthwith issue and deliver the
requisite shares of MCo Common Stock to or to the order of the former holder of
the surrendered Exchangeable Shares, as MCo Sub shall direct. All such shares of
MCo Common Stock shall be duly issued as fully paid and non-assessable and shall
be free and clear of any lien, claim, encumbrance, security interest or adverse
claim or interest.
2.6 Qualification of Shares of MCo Common Stock
MCo covenants that if any shares of MCo Common Stock (or other shares or
securities into which MCo Common Stock may be reclassified or changed as
contemplated by Section 2.7 hereof) to be issued and delivered hereunder
(including for greater certainty, pursuant to the
F-4
<PAGE>
Exchangeable Share Provisions, or pursuant to the Exchange Put Right, the
Exchange Right or the Automatic Exchange Rights (all as defined in the Voting
and Exchange Trust Agreement)) require registration or qualification with or
approval of or the filing of any document including any prospectus or similar
document, the taking of any proceeding with or the obtaining of any order,
ruling or consent from any governmental or regulatory authority under any
Canadian or United States federal, provincial or state law or regulation or
pursuant to the rules and regulations of any regulatory authority, or the
fulfillment of any other legal requirement (collectively, the "Applicable Laws")
before such shares (or other shares or securities into which MCo Common Stock
may be reclassified or changed as contemplated by Section 2.7 hereof) may be
issued and delivered by MCo to the initial holder thereof (other than MCo Sub)
or in order that such shares may be freely traded thereafter (other than any
restrictions on transfer by reason of a holder being a "control person" of MCo
for purposes of Canadian federal or provincial securities law or an "affiliate"
of MCo for purposes of United States federal or state securities law), MCo will
in good faith expeditiously take all such actions and do all such things as are
necessary to cause such shares of MCo Common Stock (or other shares or
securities into which MCo Common Stock may be reclassified or changed as
contemplated by Section 2.7 hereof) to be and remain duly registered, qualified
or approved. MCo represents and warrants that it has in good faith taken all
actions and done all things as are necessary under Applicable Laws as they exist
on the date hereof to cause the shares of MCo Common Stock (or other shares or
securities into which MCo Common Stock may be reclassified or changed as
contemplated by Section 2.7 hereof) to be issued and delivered hereunder
(including, for greater certainty, pursuant to the Exchangeable Share
Provisions, or pursuant to the Exchange Put Right, the Exchange Right and the
Automatic Exchange Rights) to be freely tradeable thereafter (other than
restrictions on transfer by reason of a holder being a "control person" of MCo
for the purposes of Canadian federal and provincial securities law or an
"affiliate" of MCo for purposes of United States federal or state securities
law). MCo will in good faith expeditiously take all such actions and do all such
things as are necessary to cause all shares of MCo Common Stock (or other shares
or securities into which MCo Common Stock may be reclassified or changed as
contemplated by Section 2.7 hereof) to be delivered hereunder (including, for
greater certainty, pursuant to Exchangeable Share Provisions, or pursuant to the
Exchange Put Right, the Exchange Right or the Automatic Exchange Rights) to be
listed, quoted or posted for trading on all stock exchanges and quotation
systems on which such shares are listed, quoted or posted for trading at such
time. MCo will in good faith expeditiously take all such action and do all such
things as are necessary to cause all Exchangeable Shares to be and to continue
to be listed and posted for trading on The Toronto Stock Exchange or, in the
event that a listing on The Toronto Stock Exchange is not available, on another
recognized Canadian stock exchange.
2.7 Equivalence
(a) MCo will not:
(i) issue or distribute shares of MCo Common Stock (or securities
exchangeable for or convertible into or carrying rights to acquire shares
of MCo Common Stock) to the holders of all or substantially all of the then
outstanding shares of MCo Common Stock by way of stock dividend or other
distribution; or
(ii) issue or distribute rights, options or warrants to the holders
of all or substantially all of the then outstanding shares of MCo Common
Stock entitling them to subscribe for or to purchase shares of MCo Common
Stock (or securities exchangeable for or convertible into or carrying
rights to acquire shares of MCo Common Stock); or
F-5
<PAGE>
(iii) issue or distribute to the holders of all or substantially all
of the then outstanding shares of MCo Common Stock (A) shares or securities
of MCo of any class other than MCo Common Stock (other than shares
convertible into or exchangeable for or carrying rights to acquire shares
of MCo Common Stock), (B) rights, options or warrants other than those
referred to in subsection 2.7 (a) (ii) above, (C) evidences of indebtedness
of MCo or (D) assets of MCo;
unless
(iv) one or both of MCo and MCo Sub is permitted under applicable
law to issue or distribute the economic equivalent on a per share basis of
such rights, options, warrants, securities, shares, evidences of
indebtedness or other assets to the holders of the Exchangeable Shares; and
(v) one or both of MCo and MCo Sub shall issue or distribute the
economic equivalent on a per share basis of such rights, options, warrants,
securities, shares, evidences of indebtedness or other assets
simultaneously to the holders of the Exchangeable Shares.
(b) MCo will not:
(i) subdivide, redivide or change the then outstanding shares of
MCo Common Stock into a greater number of shares of MCo Common Stock; or
(ii) reduce, combine or consolidate or change the then outstanding
shares of MCo Common Stock into a lesser number of shares of MCo Common
Stock; or
(iii) reclassify or otherwise change the shares of MCo Common Stock
or effect an amalgamation, merger, reorganization or other transaction involving
or affecting the shares of MCo Common Stock;
unless
(iv) MCo Sub is permitted under applicable law to simultaneously
make the same or an economically equivalent change to, or in the rights of
the holders of, the Exchangeable Shares; and
(v) the same or an economically equivalent change is simultaneously
made to, or in the rights of the holders of, the Exchangeable Shares.
(c) MCo will ensure that the record date for any event referred to in
section 2.7 (a) or 2.7 (b) above, or (if no record date is applicable for
such event) the effective date for any such event, is not less than 10
Business Days after the date on which such event is declared or announced
by MCo (with simultaneous notice thereof to be given by MCo to MCo Sub).
2.8 Tender Offers, Etc.
In the event that a tender offer, share exchange offer, issuer bid, take-
over bid or similar transaction with respect to MCo Common Stock (an "Offer") is
proposed by MCo or is proposed to MCo or its shareholders and is recommended by
the Board of Directors of MCo, or is
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<PAGE>
otherwise effected or to be effected with the consent or approval of the Board
of Directors of MCo, MCo shall, in good faith, take all such actions and do all
such things as are necessary or desirable to enable and permit holders of
Exchangeable Shares to participate in such Offer to the same extent and on an
equivalent basis as the holders of shares of MCo Common Stock, without
discrimination, including, without limiting the generality of the foregoing, MCo
will use its good faith efforts expeditiously to (and shall, in the case of a
transaction proposed by MCo or where MCo is a participant in the negotiation
thereof) ensure that holders of Exchangeable Shares may participate in all such
Offers without being required to retract Exchangeable Shares as against MCo Sub
(or, if so required, to ensure that any such retraction shall be effective only
upon, and shall be conditional upon, the closing of the Offer and only to the
extent necessary to tender or deposit to the Offer).
2.9 Ownership of Outstanding Shares
Without the prior approval of MCo Sub and the prior approval of the holders
of the Exchangeable Shares given in accordance with Section 10.2 of the
Exchangeable Share Provisions, MCo covenants and agrees in favor of MCo Sub
that, as long as any outstanding Exchangeable Shares are owned by any person or
entity other than MCo or any of its Subsidiaries, MCo, alone or together with
any direct or indirect wholly-owned subsidiary of MCo, will be and remain the
beneficial owner of all issued and outstanding securities of MCo Sub.
Notwithstanding the foregoing, MCo shall not be in violation of this Section if
any person or group of persons acting jointly or in concert acquires MCo Common
Stock pursuant to any merger of MCo pursuant to which MCo was not the surviving
corporation.
2.10 MCo Not to Vote Exchangeable Shares
MCo covenants and agrees that it will appoint and cause to be appointed
proxy holders with respect to all Exchangeable Shares held by MCo and its
Subsidiaries for the sole purpose of attending each meeting of holders of
Exchangeable Shares in order to be counted as part of the quorum for each such
meeting. MCo further covenants and agrees that it will not, and will cause its
Subsidiaries not to, exercise any voting rights which may be exercisable by
holders of Exchangeable Shares from time to time pursuant to the Exchangeable
Share Provisions or pursuant to the provisions of the Act with respect to any
Exchangeable Shares held by it or by its Subsidiaries in respect of any matter
considered at any meeting of holders of Exchangeable Shares.
2.11 Due Performance
On and after the Effective Date, MCo shall duly and timely perform all of
its obligations provided for in connection with the Plan of Arrangement and the
Articles of Incorporation of MCo Sub, including any obligations that may arise
upon the exercise of MCo's rights under the Exchangeable Share Provisions.
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<PAGE>
ARTICLE 3
GENERAL
3.1 Term
This agreement shall come into force and be effective as of the date hereof
and shall terminate and be of no further force and effect at such time as no
Exchangeable Shares (or securities or rights convertible into or exchangeable
for or carrying rights to acquire Exchangeable Shares) are held by any party
other than MCo and any of its Subsidiaries.
3.2 Changes in Capital of MCo and MCo Sub
Notwithstanding the provisions of section 3.4 hereof, at all times after
the occurrence of any event effected pursuant to section 2.7 or 2.8 hereof, as a
result of which either MCo Common Stock or the Exchangeable Shares or both are
in any way changed, this agreement shall forthwith be amended and modified as
necessary in order that it shall apply with full force and effect, mutatis
mutandis, to all new securities into which MCo Common Stock or the Exchangeable
Shares or both are so changed, and the parties hereto shall as soon as possible
execute and deliver an agreement in writing giving effect to and evidencing such
necessary amendments and modifications.
3.3 Severability
If any provision of this agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remainder of this
agreement shall not in any way be affected or impaired thereby and this
agreement shall be carried out as nearly as possible in accordance with its
original terms and conditions.
3.4 Amendments, Modifications, Etc.
This agreement may not be amended, modified or waived except by an
agreement in writing executed by MCo Sub and MCo and approved by the holders of
the Exchangeable Shares in accordance with Section 10.2 of the Exchangeable
Share Provisions.
3.5 Ministerial Amendments
Notwithstanding the provisions of section 3.4, the parties to this
agreement may in writing, at any time and from time to time, without the
approval of the holders of the Exchangeable Shares, amend or modify this
agreement for the purposes of:
(a) adding to the covenants of either or both parties for the protection
of the holders of the Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with this
agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the board of directors of each of MCo
Sub and MCo, it may be expedient to make, provided that each such board of
directors shall be of the opinion that such amendments or modifications
will not be prejudicial to the interests of the holders of the Exchangeable
Shares; or
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<PAGE>
(c) making such changes or corrections which, on the advice of counsel to
MCo Sub and MCo, are required for the purpose of curing or correcting any
ambiguity or defect or inconsistent provision or clerical omission or
mistake or manifest error; provided that the boards of directors of each of
MCo Sub and MCo shall be of the opinion that such changes or corrections
will not be prejudicial to the interests of the holders of the Exchangeable
Shares.
3.6 Meeting to Consider Amendments
MCo Sub, at the request of MCo, shall call a meeting or meetings of the
holders of the Exchangeable Shares for the purpose of considering any proposed
amendment or modification requiring approval of such shareholders. Any such
meeting or meetings shall be called and held in accordance with the by-laws of
MCo Sub, the Exchangeable Share Provisions and all Applicable Laws.
3.7 Amendments Only in Writing
No amendment to or modification or waiver of any of the provisions of this
agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by both of the parties hereto.
3.8 Inurement
This agreement shall be binding upon and inure to the benefit of the
parties hereto and the holders, from time to time, of Exchangeable Shares and
each of their respective heirs, successors and assigns.
3.9 Notices to Parties
All notices and other communications between the parties shall be in
writing and shall be deemed to have been given if delivered personally or by
confirmed telecopy to the parties at the following addresses (or at such other
address for either such party as shall be specified in like notice):
(a) if to Maverick:
Maverick Tube Corporation
16401 Swingley Ridge Road
Suite 700
Chesterfield, Missouri 63017
Attention: Mr. Gregg Eisenberg
Fax: (636) 733-1671
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<PAGE>
with a copy to:
Robert H. Wexler, Esq.
Gallop, Johnson & Neuman, L.C.
101 South Hanley
St. Louis, Missouri 63105
Fax: (314) 862-1219
(b) if to MCo Sub to:
.
Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof,
unless such day is not a Business Day, in which case it shall be deemed to have
been given and received upon the immediately following Business Day.
3.10 Counterparts
This agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which taken together shall constitute one and the
same instrument.
3.11 Jurisdiction
This agreement shall be construed and enforced in accordance with the laws
of the Province of Alberta and the federal laws of Canada applicable therein.
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3.12 Attornment
MCo agrees that any action or proceeding arising out of or relating to this
agreement may be instituted in the courts of the Province of Alberta, waives any
objection which it may have now or hereafter to the venue of any such action or
proceeding, irrevocably submits to the jurisdiction of such courts in any such
action or proceeding, agrees to be bound by any judgment of such courts and not
to seek, and hereby waives, any review of the merits of any such judgment by the
courts of any other jurisdiction and hereby appoints MCo Sub at its registered
office in the Province of Alberta as MCo's attorney for service of process.
IN WITNESS WHEREOF, MCo and MCo Sub have caused this agreement to be signed
by their respective officers thereunder duly authorized, all as of the date
first written above.
MAVERICK TUBE CORPORATION
Per: ________________________
.
Per: ________________________
.
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<PAGE>
ANNEX G
FORM OF VOTING AND EXCHANGE TRUST AGREEMENT
THIS VOTING AND EXCHANGE TRUST AGREEMENT is entered into as of ., 2000, by
and between Maverick Tube Corporation, a Delaware corporation ("MCo"), ., an
Alberta corporation ("MCo Sub"), and . Trust Company, a Canadian trust company
("Trustee").
WHEREAS, pursuant to a Combination Agreement dated effective as of June 11,
2000 by and between MCo and Prudential Steel Ltd. ("PCo") (such agreement as it
may be amended or restated is hereinafter referred to as the "Combination
Agreement"), the parties agreed that on the Effective Date (as defined in the
Combination Agreement), MCo and MCo Sub would execute and deliver a Voting and
Exchange Trust Agreement containing the terms and conditions set forth in
Exhibit D to the Combination Agreement together with such other terms and
conditions as may be agreed to by the parties to the Combination Agreement
acting reasonably.
AND WHEREAS, pursuant to an arrangement (the "Arrangement") effected by
Articles of Arrangement dated ., 2000 filed pursuant to the Business
Corporations Act (Alberta) (or any successor or other corporate statute by which
PCo may in the future be governed) (the "Act"), each issued and outstanding
common share of PCo (a "PCo Common Share") was exchanged for Exchangeable Shares
of MCo Sub (the "Exchangeable Shares");
AND WHEREAS, the Articles of Incorporation of MCo Sub set forth the rights,
privileges, restrictions and conditions attaching to the Exchangeable Shares
(collectively, the "Exchangeable Share Provisions"), and a copy of such Articles
of Incorporation is attached hereto as Exhibit A;
AND WHEREAS, MCo is to provide voting rights in MCo to each holder (other
than MCo and its Subsidiaries) from time to time of Exchangeable Shares, such
voting rights per Exchangeable Share to be equivalent to the voting rights per
share of MCo Common Stock;
AND WHEREAS, MCo is to grant to and in favor of the holders (other than MCo
and its Subsidiaries) from time to time of Exchangeable Shares the right, in the
circumstances set forth herein, to require MCo to purchase from each such holder
all or any part of the Exchangeable Shares held by the holder;
AND WHEREAS, the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in MCo shall be exercisable by
holders (other than MCo and its Subsidiaries) from time to time of Exchangeable
Shares by and through the Trustee, which will hold legal title to and a share
certificate in respect of one share of MCo Special Voting Stock (the "MCo
Special Voting Stock") to which voting rights attach for the benefit of such
holders of Exchangeable Shares and whereby the rights to require MCo or, at the
option of MCo, MCo Holdco, to purchase Exchangeable Shares from the holders
thereof (other than MCo and its Subsidiaries) shall be exercisable by such
holders from time to time of Exchangeable Shares by and through the Trustee,
which will hold legal title to such rights for the benefit of such holders;
AND WHEREAS, these recitals and any statements of fact in this agreement
are made by MCo and MCo Sub and not by the Trustee;
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<PAGE>
NOW THEREFORE, in consideration of the respective covenants and agreements
provided in this agreement and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties agree as
follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this agreement, the following terms shall have the following meanings:
"Act" has the meaning in the recitals hereto;
"Aggregate Equivalent Vote Amount" means, with respect to any matter,
proposition or question on which holders of MCo Common Stock are entitled to
vote, consent or otherwise act, the product of (i) the number of shares of
Exchangeable Shares issued and outstanding and held by Holders multiplied by
(ii) the Equivalent Vote Amount.
"Arrangement" has the meaning provided in the recitals hereto.
"Automatic Exchange Rights" means the benefit of the obligation of MCo to
effect the automatic exchange of shares of MCo Common Stock for Exchangeable
Shares pursuant to Section 5.12 hereof.
"Board of Directors" means the Board of Directors of MCo Sub.
"Business Day" has the meaning provided in the Exchangeable Share
Provisions.
"Combination Agreement" has the meaning in the recitals hereto.
"Equivalent Vote Amount" means, with respect any matter, proposition or
question on which holders of MCo Common Stock are entitled to vote, consent or
otherwise act, the number of votes to which a holder of one share of MCo Common
Stock is entitled with respect to such matter, proposition or question.
"Exchange Put Right" has the meaning provided in the Exchangeable Share
Provisions.
"Exchange Right" has the meaning provided in Section 5.1(b) hereof.
"Exchangeable Share Consideration" has the meaning provided in the
Exchangeable Share Provisions.
"Exchangeable Share Price" has the meaning provided in the Exchangeable
Share Provisions.
"Exchangeable Share Provisions" has the meaning provided in the recitals
hereto.
"Exchangeable Shares" has the meaning provided in the recitals hereto.
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"Holder Votes" has the meaning provided in Section 4.2 hereof.
"Holders" means the registered holders from time to time of Exchangeable
Shares, other than MCo and its Subsidiaries.
"Insolvency Event" means the institution by MCo Sub of any proceeding to be
adjudicated a bankrupt or insolvent or to be dissolved or wound-up, or the
consent of MCo Sub to the institution of bankruptcy, insolvency, dissolution or
winding-up proceedings against it, or the filing of a petition, answer or
consent seeking dissolution or winding-up under any bankruptcy, insolvency or
analogous laws, including without limitation the Companies Creditors Arrangement
Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the failure by
MCo Sub to contest in good faith any such proceedings commenced in respect of
MCo Sub within 15 days of becoming aware thereof, or if so contested the
adjudication that MCo Sub is bankrupt or insolvent or is to be dissolved or
wound-up, or the consent by MCo Sub to the filing of any such petition or to the
appointment of a receiver, or the making by MCo Sub of a general assignment for
the benefit of creditors, or the admission in writing by MCo Sub of its
inability to pay its debts generally as they become due, or MCo Sub's not being
permitted, pursuant to liquidity or solvency requirements of applicable law, to
redeem any Retracted Shares pursuant to Section 6.6 of the Exchangeable Share
Provisions.
"Liquidation Call Right" has the meaning provided in the Exchangeable Share
Provisions.
"Liquidation Event" has the meaning provided in subsection 5.12(b) hereof.
"Liquidation Event Effective Time" has the meaning provided in subsection
5.12(c) hereof.
"List" has the meaning provided in Section 4.6 hereof.
"MCo" has the meaning in the recitals hereto.
"MCo Common Stock" has the meaning provided in the Exchangeable Share
Provisions.
"MCo Consent" has the meaning provided in Section 4.2 hereof.
"MCo Holdco" means the Subsidiary, if any, of MCo (other than MCo Sub)
established by MCo for the purpose of purchasing Exchangeable Shares and
delivering MCo Common Stock as provided for in this Agreement, the Exchangeable
Share Provisions or the Support Agreement.
"MCo Meeting" has the meaning provided in Section 4.2 hereof.
"MCo Special Voting Stock" has the meaning provided in the recitals hereto.
"MCo Sub" has the meaning in the recitals hereto.
"Officer's Certificate" means, with respect to MCo or MCo Sub, as the case
may be, a certificate signed by any one of the Chairman of the Board, the Vice-
Chairman of the Board (if there be one), the President or any Vice-President of
MCo or MCo Sub, as the case may be.
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"PCo" has the meaning in the recitals hereto.
"PCo Stock Options" means the outstanding options entitling the holders to
acquire upon exercise thereof up to . PCo Common Shares in the aggregate.
"Person" includes an individual, body corporate, partnership, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"Plan of Arrangement" has the meaning provided in the Exchangeable Share
Provisions.
"Redemption Call Right" has the meaning provided in the Exchangeable Share
Provisions.
"Retracted Shares" has the meaning provided in Section 5.7 hereof.
"Retraction Call Right" has the meaning provided in the Exchangeable Share
Provisions.
"Subsidiary" has the meaning provided in the Exchangeable Share Provisions.
"Successor" has the meaning provided in subsection 11. 1 (a) hereof.
"Support Agreement" means that certain support agreement made as of even
date hereof by and between MCo and MCo Sub.
"Trust" means the trust created by this agreement.
"Trust Estate" means the Voting Share, any other securities, the Exchange
Put Right, the Exchange Right, the Automatic Exchange Rights and any money or
other property which may be held by the Trustee from time to time pursuant to
this agreement.
"Trustee" means . Trust Company and, subject to the provisions of Article
10 hereof, includes any successor trustee or permitted assigns.
"Voting Rights" means the voting rights attached to the Voting Share.
"Voting Share" means the one share of MCo Special Voting Stock, U.S. $. par
value, issued by MCo to and deposited with the Trustee, which entitles the
holder of record to a number of votes at meetings of holders of MCo Common Stock
equal to the Aggregate Equivalent Vote Amount.
1.2 Interpretation Not Affected by Headings, Etc.
The division of this agreement into articles, sections and paragraphs and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this agreement.
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1.3 Number, Gender, Etc.
Words importing the singular number only shall include the plural and vice
versa. Words importing the use of any gender shall include all genders.
1.4 Date for Any Action
If any date on which any action is required to be taken under this
agreement is not a Business Day, such action shall be required to be taken on
the next succeeding Business Day.
1.5 Payments
All payments to be made hereunder will be made without interest and less
any tax required by Canadian law to be deducted or withheld.
ARTICLE 2
PURPOSE OF AGREEMENT
The purpose of this agreement is to create the Trust for the benefit of the
Holders, as herein provided. The Trustee will hold the Voting Share in order to
enable the Trustee to exercise the Voting Rights and will hold the Exchange Put
Right, the Exchange Right and the Automatic Exchange Rights in order to enable
the Trustee to exercise such rights, in each case as trustee for and on behalf
of the Holders as provided in this agreement.
ARTICLE 3
VOTING SHARE
3.1 Issuance and Ownership of the Voting Share
MCo hereby issues to and deposits with the Trustee the Voting Share to be
hereafter held of record by the Trustee as trustee for and on behalf of, and for
the use and benefit of, the Holders and in accordance with the provisions of
this agreement. MCo hereby acknowledges receipt from the Trustee as trustee for
and on behalf of the Holders of good and valuable consideration (and the
adequacy thereof) for the issuance of the Voting Share by MCo to the Trustee.
During the term of the Trust and subject to the terms and conditions of this
agreement, the Trustee shall possess and be vested with full legal ownership of
the Voting Share and shall be entitled to exercise all of the rights and powers
of an owner with respect to the Voting Share, provided that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee solely
for the use and benefit of the Holders in accordance with the provisions of this
agreement; and
(b) except as specifically authorized by this agreement, have no power or
authority to sell, transfer, vote or otherwise deal in or with the Voting Share,
and the Voting Share shall not be used or disposed of by the Trustee for any
purpose other than the purposes for which this Trust is created pursuant to this
agreement.
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3.2 Legended Share Certificates
MCo Sub will cause each certificate representing Exchangeable Shares to
bear an appropriate legend notifying the Holders of their right to instruct the
Trustee with respect to the exercise of the Voting Rights with respect to the
Exchangeable Shares held by a Holder.
3.3 Safe Keeping of Certificate
The certificate representing the Voting Share shall at all times be held in
safe keeping by the Trustee or its agent.
3.4 Holders' Benefit
For greater certainty, the Trustee holds the benefit of the Voting Rights
for the Holders, but all other rights in respect of the Voting Share, including
without limitation any rights to receive dividends on the Voting Share, are for
benefit of MCo.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 Voting Rights
The Trustee, as the holder of record of the Voting Share, shall be entitled
to all of the Voting Rights, including the right to consent to or to vote in
person or by proxy the Voting Share, on any matter, question or proposition
whatsoever that may properly come before the stockholders of MCo at a MCo
Meeting or in connection with a MCo Consent (in each case, as hereinafter
defined). The Voting Rights shall be and remain vested in and exercised by the
Trustee. Subject to Section 7.15 hereof, the Trustee shall exercise the Voting
Rights only on the basis of instructions received pursuant to this Article 4
from Holders entitled to instruct the Trustee as to the voting thereof at the
time at which a MCo Consent is sought or a MCo Meeting is held. To the extent
that no instructions are received from a Holder with respect to the Voting
Rights to which such Holder is entitled, the Trustee shall not exercise or
permit the exercise of such Holder's Voting Rights.
4.2 Number of Votes
With respect to all meetings of stockholders of MCo at which holders of
shares of MCo Common Stock are entitled to vote (a "MCo Meeting") and with
respect to all written consents sought by MCo from its stockholders including
the holders of shares of MCo Common Stock (a "MCo Consent"), each Holder shall
be entitled to instruct the Trustee to cast and exercise, in the manner
instructed, a number of votes equal to the Equivalent Vote Amount for each
Exchangeable Share owned of record by such Holder on the record date established
by MCo or by applicable law for such MCo Meeting or MCo Consent, as the case may
be, (the "Holder Votes") in respect of each matter, question or proposition to
be voted on at such MCo Meeting or to be consented to in connection with such
MCo Consent.
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4.3 Mailings to Shareholders
With respect to each MCo Meeting and MCo Consent, the Trustee will mail or
cause to be mailed (or otherwise communicate in the same manner as MCo utilizes
in communications to holders of MCo Common Stock, subject to the Trustee's
ability to provide this method of communication and upon being advised in
writing of such method) to each of the Holders named in the List on the same day
as the initial mailing or notice (or other communication) with respect thereto
is given by MCo to its stockholders:
(a) a copy of such notice, together with any proxy or information
statement and related materials to be provided to holders of MCo Common Stock;
(b) a statement of the number of Holder Votes which the Holder is entitled
to exercise;
(c) a statement that such Holder is entitled to instruct the Trustee as to
the exercise of the Holder Votes with respect to such MCo Meeting or MCo
Consent, as the case may be, or, pursuant to Section 4.7 hereof, to attend such
MCo Meeting and to exercise personally the Holder Votes thereat;
(d) a statement as to the manner in which such instructions may be given
to the Trustee, including an express indication that instructions may be given
to the Trustee to give:
(i) a proxy to such Holder or such Holder's designee to exercise
personally the Holder Votes; or
(ii) a proxy to a designated agent or other representative of the
management of MCo to exercise such Holder Votes;
(e) a statement that if no voting instructions are received from the
Holder, the Holder Votes to which such Holder is entitled will not be exercised;
(f) a form of direction whereby the Holder may so direct and instruct the
Trustee as contemplated herein; and
(g) a statement of (i) the time and date by which such instructions must
be received by the Trustee in order to be binding upon it, which in the case of
a MCo Meeting shall not be earlier than the close of business on the Business
Day prior to such meeting, and (ii) the method for revoking or amending such
instructions.
The materials referred to above are to be provided by MCo to the Trustee,
but shall be subject to review and comment by the Trustee.
For the purpose of determining Holder Votes to which a Holder is entitled
in respect of any such MCo Meeting or MCo Consent, the number of Exchangeable
Shares owned of record by the Holder shall be determined at the close of
business on the record date established by MCo or by applicable law for purposes
of determining stockholders entitled to vote at such MCo Meeting or to give
written consent in connection with such MCo Consent. MCo will notify the Trustee
in writing of any decision of the board of directors of MCo with respect to the
calling of
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any such MCo Meeting or the seeking of any such MCo Consent and shall provide
all necessary information and materials to the Trustee in each case promptly and
in any event in sufficient time to enable the Trustee to perform its obligations
contemplated by this Section 4.3.
4.4 Copies of Stockholder Information
MCo will deliver to the Trustee copies of all proxy materials, (including
notices of MCo Meetings, but excluding proxies to vote shares of MCo Common
Stock), information statements, reports (including without limitation all
interim and annual financial statements) and other written communications that
are to be distributed from time to time to holders of MCo Common Stock in
sufficient quantities and in sufficient time so as to enable the Trustee to send
those materials to each Holder, to the extent possible, at the same time as such
materials are first sent to holders of MCo Common Stock. The Trustee will mail
or otherwise send to each Holder, at the expense of MCo, copies of all such
materials (and all materials specifically directed to the Holders or to the
Trustee for the benefit of the Holders by MCo) received by the Trustee from MCo,
to the extent possible, at the same time as such materials are first sent to
holders of MCo Common Stock. The Trustee will make copies of all such materials
available for inspection by any Holder at the Trustee's principal transfer
office in the cities of Calgary and Toronto.
4.5 Other Materials
Immediately after receipt by MCo or any stockholder of MCo of any material
sent or given generally to the holders of MCo Common Stock by or on behalf of a
third party, including without limitation dissident proxy and information
circulars (and related information and material) and tender and exchange offer
circulars (and related information and material), MCo shall use its reasonable
best efforts to obtain and deliver to the Trustee copies thereof in sufficient
quantities so as to enable the Trustee to forward such material (unless the same
has been provided directly to Holders by such third party) to each Holder as
soon as possible thereafter. As soon as practicable after receipt thereof, the
Trustee will mail or otherwise send to each Holder, at the expense of MCo,
copies of all such materials received by the Trustee from MCo. The Trustee will
also make copies of all such materials available for inspection by any Holder at
the Trustee's principal transfer office in the cities of Calgary and Toronto.
4.6 List of Persons Entitled to Vote
MCo Sub shall, (i) prior to each annual, general or special MCo Meeting or
the seeking of any MCo Consent and (ii) forthwith upon each request made at any
time by the Trustee in writing, prepare or cause to be prepared a list (a
"List") of the names and addresses of the Holders arranged in alphabetical order
and showing the number of Exchangeable Shares held of record by each such
Holder, in each case at the close of business on the date specified by the
Trustee in such request or, in the case of a List prepared in connection with a
MCo Meeting or a MCo Consent, at the close of business on the record date
established by MCo or pursuant to applicable law for determining the holders of
MCo Common Stock entitled to receive notice of and/or to vote at such MCo
Meeting or to give consent in connection with such MCo Consent. Each such List
shall be delivered to the Trustee promptly after receipt by MCo Sub of such
request or the record date for such meeting or seeking of consent, as the case
may be, and in any event within sufficient time as to enable the Trustee to
perform its obligations under this agreement. MCo agrees to give MCo Sub written
notice (with a copy to the Trustee) of the
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calling of any MCo Meeting or the seeking of any MCo Consent, together with the
record dates therefor, sufficiently prior to the date of the calling of such
meeting or seeking of such consent so as to enable MCo Sub to perform its
obligations under this Section 4.6.
4.7 Entitlement to Direct Votes
Any Holder named in a List prepared in connection with any MCo Meeting or
any MCo Consent will be entitled (i) to instruct the Trustee in the manner
described in Section 4.3 hereof with respect to the exercise of the Holder Votes
to which such Holder is entitled or (ii) to attend such meeting and personally
to exercise thereat (or to exercise with respect to any written consent), as the
proxy of the Trustee, the Holder Votes to which such Holder is entitled.
4.8 Voting by Trustee, and Attendance of Trustee Representative, at Meeting
(a) In connection with each MCo Meeting and MCo Consent, the Trustee shall
exercise, either in person or by proxy, in accordance with the instructions
received from a Holder pursuant to Section 4.3 hereof, the Holder Votes as to
which such Holder is entitled to direct the vote (or any lesser number thereof
as may be set forth in the instructions); provided, however, that such written
instructions are received by the Trustee from the Holder prior to the time and
date fixed by it for receipt of such instructions in the notice given by the
Trustee to the Holder pursuant to Section 4.3 hereof.
(b) The Trustee shall cause such representatives as are empowered by it to
sign and deliver, on behalf of the Trustee, proxies for Voting Rights to attend
each MCo Meeting. Upon submission by a Holder (or its designee) of
identification satisfactory to the Trustee's representatives, and at the
Holder's request, such representatives shall sign and deliver to such Holder (or
its designee) a proxy to exercise personally the Holder Votes as to which such
Holder is otherwise entitled hereunder to direct the vote, if such Holder
either:
(i) has not previously given the Trustee instructions pursuant to
Section 4.3 hereof in respect of such MCo Meeting, or
(ii) submits to the Trustee's representatives written revocation of
any such previous instructions.
At such MCo Meeting, the Holder exercising such Holder Votes shall have the
same rights as the Trustee to speak at the meeting in respect of any matter,
question or proposition, to vote by way of ballot at the meeting in respect of
any matter, question or proposition and to vote at such meeting by way of a show
of hands in respect of any matter, question or proposition.
4.9 Distribution of Written Materials
Any written materials to be distributed by the Trustee to the Holders
pursuant to this agreement shall be delivered or sent by mail (or otherwise
communicated in the same manner as MCo utilizes in communications to holders of
MCo Common Stock subject to the Trustee's ability to provide this method of
communication and upon being advised in writing of such method) to each Holder
at its address as shown on the books of MCo Sub. MCo Sub shall
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provide or cause to be provided to the Trustee for this purpose, on a timely
basis and without charge or other expense:
(a) current lists of the Holders; and
(b) on the request of the Trustee, mailing labels to enable the Trustee to
carry out its duties under this agreement.
The materials referred to above are to be provided by MCo Sub to the
Trustee, but shall be subject to review and comment by the Trustee.
4.10 Termination of Voting Rights
Except as otherwise provided herein or in the Exchangeable Share
Provisions, all of the rights of a Holder with respect to the Holder Votes
exercisable in respect of the Exchangeable Shares held by such Holder, including
the right to instruct the Trustee as to the voting of or to vote personally such
Holder Votes, shall be deemed to be surrendered by the Holder to MCo, and such
Holder Votes and the Voting Rights represented thereby shall cease immediately,
upon the delivery by such Holder to the Trustee of the certificates representing
such Exchangeable Shares in connection with the exercise by the Holder of the
Exchange Put Right or the Exchange Right or the occurrence of the automatic
exchange of Exchangeable Shares for shares of MCo Common Stock, as specified in
Article 5 hereof (unless in any case MCo or MCo Holdco shall not have delivered
the Exchangeable Share Consideration deliverable in exchange therefor to the
Trustee for delivery to the Holders), or upon the redemption of Exchangeable
Shares pursuant to Article 6 or Article 7 of the Exchangeable Share Provisions,
or upon the effective date of the liquidation, dissolution or winding-up of MCo
Sub or any other distribution of the assets of MCo Sub among its shareholders
for the purpose of winding up its affairs pursuant to Article 5 of the
Exchangeable Share Provisions, or upon the purchase of Exchangeable Shares from
the holder thereof by MCo pursuant to the exercise by MCo of the Retraction Call
Right, the Redemption Call Right or the Liquidation Call Right.
ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 Grant and Ownership of the Exchange Put Right, Exchange Right and Automatic
Exchange Right
MCo hereby grants to the Trustee as trustee for and on behalf of, and for
the use and benefit of, the Holders:
(a) the Exchange Put Right;
(b) the right (the "Exchange Right"), upon the occurrence and during the
continuance of an Insolvency Event, to require MCo to purchase or cause MCo
Holdco to purchase from each or any Holder all or any part of the Exchangeable
Shares held by the Holders; and
(c) the Automatic Exchange Rights,
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all in accordance with the provisions of this agreement and the Exchangeable
Share Provisions, as the case may be. MCo hereby acknowledges receipt from the
Trustee as trustee for and on behalf of the Holders of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange Put
Right, the Exchange Right and the Automatic Exchange Rights by MCo to the
Trustee. During the term of the Trust and subject to the terms and conditions of
this agreement, the Trustee shall possess and be vested with full legal
ownership of the Exchange Put Right, the Exchange Right and the Automatic
Exchange Rights and shall be entitled to exercise and enforce for the benefit of
the Holders all of the rights and powers of an owner with respect to the
Exchange Put Right, the Exchange Right and the Automatic Exchange Rights,
provided that the Trustee shall:
(d) hold the Exchange Put Right, the Exchange Right and the Automatic
Exchange Rights and the legal title thereto as trustee solely for the use and
benefit of the Holders in accordance with the provisions of this agreement; and
(e) except as specifically authorized by this agreement, have no power or
authority to exercise or otherwise deal in or with the Exchange Put Right, the
Exchange Right or the Automatic Exchange Rights, and the Trustee shall not
exercise any such rights for any purpose other than the purposes for which this
Trust is created pursuant to this agreement.
5.2 Legended Share Certificates
MCo Sub will cause each certificate representing Exchangeable Shares to
bear an appropriate legend notifying the Holders of:
(a) their right to instruct the Trustee with respect to the exercise of
the Exchange Put Right and the Exchange Right in respect of the Exchangeable
Shares held by a Holder; and
(b) the Automatic Exchange Rights.
5.3 General Exercise of Exchange Put Right and the Exchange Right
The Exchange Put Right and the Exchange Right shall be and remain vested in
and exercised by the Trustee. Subject to Section 7.15 hereof, the Trustee shall
exercise the Exchange Put Right and the Exchange Right only on the basis of
instructions received pursuant to this Article 5 from Holders entitled to
instruct the Trustee as to the exercise thereof. To the extent that no
instructions are received from a Holder with respect to the Exchange Put Right
and the Exchange Right, the Trustee shall not exercise or permit the exercise of
the Exchange Put Right and the Exchange Right.
5.4 Purchase Price
The purchase price payable by MCo (or Holdco, in the case of a purchase by
MCo Holdco) for each Exchangeable Share to be purchased by MCo or MCo Holdco (as
the case may be) (i) under the Exchange Put Right shall be the amount determined
under the Exchangeable Share Provisions; and (ii) under the Exchange Right
shall be an amount equal to the Exchangeable Share Price on the last Business
Day prior to the day of closing of the purchase and sale of such Exchangeable
Share under the Exchange Right. In connection with each
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exercise of the Exchange Right, MCo will provide to the Trustee an Officer's
Certificate setting forth the calculation of the applicable Exchangeable Share
Price for each Exchangeable Share. The applicable Exchangeable Share Price for
each such Exchangeable Share so purchased may be satisfied only by MCo's issuing
and delivering or causing to be issued and delivered to the Trustee, on behalf
of the relevant Holder, the applicable Exchangeable Share Consideration
representing the total applicable Exchangeable Share Price.
5.5 Exercise Instructions for Exchange Right
Subject to the terms and conditions herein set forth, a Holder shall be
entitled, upon the occurrence and during the continuance of an Insolvency Event,
to instruct the Trustee to exercise the Exchange Right with respect to all or
any part of the Exchangeable Shares registered in the name of such Holder on the
books of MCo Sub. To cause the exercise of the Exchange Right by the Trustee,
the Holder shall deliver to the Trustee, in person or by certified or registered
mail, at its principal transfer offices in Calgary, Alberta or Toronto, Ontario
or at such other places in Canada as the Trustee may from time to time designate
by written notice to the Holders, the certificates representing the Exchangeable
Shares which such Holder desires MCo to purchase, duly endorsed in blank, and
accompanied by such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under applicable law and the by-laws of MCo
Sub and such additional documents and instruments as the Trustee may reasonably
require, together with:
(a) a duly completed form of notice of exercise of the Exchange Right,
contained on the reverse of or attached to the Exchangeable Share certificates,
stating:
(i) that the Holder thereby instructs the Trustee to exercise the
Exchange Right so as to require MCo to purchase from the Holder the number
of Exchangeable Shares specified therein,
(ii) that such Holder has good title to and owns all such
Exchangeable Shares to be acquired by MCo free and clear of all liens,
claims, encumbrances, security interests and adverse claims or interests,
(iii) the names in which the certificates representing MCo Common
Stock issuable in connection with the exercise of the Exchange Right are to
be issued, and
(iv) the names and addresses of the persons to whom the Exchangeable
Share Consideration should be delivered; and
(b) payment (or evidence satisfactory to the Trustee, MCo Sub and MCo of
payment) of the taxes (if any) payable as contemplated by Section 5.8 of this
agreement.
If only a part of the Exchangeable Shares represented by any certificate or
certificates delivered to the Trustee are to be purchased by MCo under the
Exchange Right, a new certificate for the balance of such Exchangeable Shares
shall be issued to the Holder at the expense of MCo Sub.
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5.6 Delivery of Exchangeable Share Consideration; Effect of Exercise
Promptly after receipt of the certificates representing the Exchangeable
Shares which the Holder desires MCo to purchase under the Exchange Put Right or
the Exchange Right (together with such documents and instruments of transfer and
a duly completed form of notice of exercise of the Exchange Put Right or the
Exchange Right), duly endorsed for transfer to MCo (or MCo Holdco as MCo may
direct), the Trustee shall notify MCo and MCo Sub of its receipt of the same,
which notice to MCo and MCo Sub shall constitute exercise of the Exchange Put
Right or the Exchange Right by the Trustee on behalf of the Holder of such
Exchangeable Shares, and MCo shall immediately thereafter deliver or cause to be
delivered to the Trustee, for delivery to the Holder of such Exchangeable Shares
(or to such other persons, if any, properly designated by such Holder), the
Exchangeable Share Consideration deliverable in connection with the exercise of
the Exchange Put Right or the Exchange Right; provided, however, that no such
delivery shall be made unless and until the Holder requesting the same shall
have paid (or provided evidence satisfactory to the Trustee, MCo Sub and MCo of
the payment of) the taxes (if any) payable as contemplated by Section 5.8 of
this agreement. Immediately upon the giving of notice by the Trustee to MCo and
MCo Sub of the exercise of the Exchange Put Right or the Exchange Right, as
provided in this Section 5.6, (i) the closing of the transaction of purchase and
sale contemplated by the Exchange Put Right or the Exchange Right shall be
deemed to have occurred, (ii) MCo shall be required to take all action necessary
to permit it to occur, including delivery to the Trustee of the relevant
Exchangeable Share Consideration, no later than the close of business on the
third Business Day following the receipt by the Trustee of notice, certificates
and other documents as aforesaid and (iii) the Holder of such Exchangeable
Shares shall be deemed to have transferred to MCo (or MCo Holdco as MCo may
direct) all of its right, title and interest in and to such Exchangeable Shares
and the related interest in the Trust Estate, shall cease to be a holder of such
Exchangeable Shares and shall not be entitled to exercise any of the rights of a
holder in respect thereof, other than the right to receive his proportionate
part of the total purchase price therefor, unless such Exchangeable Share
Consideration is not delivered by MCo to the Trustee by the date specified
above, in which case the rights of the Holder shall remain unaffected until such
Exchangeable Share Consideration is delivered by MCo and any cheque included
therein is paid. Concurrently with such Holder ceasing to be a holder of
Exchangeable Shares, the Holder shall be considered and deemed for all purposes
to be the holder of the shares of MCo Common Stock delivered to it pursuant to
the Exchange Put Right or the Exchange Right. Notwithstanding the foregoing,
until the Exchangeable Share Consideration is delivered to the Holder, the
Holder shall be deemed to still be a holder of the sold Exchangeable Shares for
purposes of the Voting Rights with respect thereto.
5.7 Exercise of Exchange Right Subsequent to Retraction
In the event that a Holder has exercised its right under Article 6 of the
Exchangeable Share Provisions to require MCo Sub to redeem any or all of the
Exchangeable Shares held by the Holder (the "Retracted Shares") and is notified
by MCo Sub pursuant to Section 6.6 of the Exchangeable Share Provisions that MCo
Sub will not be permitted as a result of liquidity or solvency provisions of
applicable law to redeem all such Retracted Shares, subject to receipt by the
Trustee of written notice to that effect from MCo Sub and provided that MCo
shall not have exercised the Retraction Call Right with respect to the Retracted
Shares and that the Holder has not revoked the retraction request delivered by
the Holder to MCo Sub pursuant to Section 6.1 of
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the Exchangeable Share Provisions, the retraction request will constitute and
will be deemed to constitute notice from the Holder to the Trustee instructing
the Trustee to exercise the Exchange Right with respect to those Retracted
Shares which MCo Sub is unable to redeem. In any such event, MCo Sub hereby
agrees with the Trustee and in favour of the Holder immediately to notify the
Trustee of such prohibition against MCo Sub's redeeming all of the Retracted
Shares and immediately to forward or cause to be forwarded to the Trustee all
relevant materials delivered by the Holder to MCo Sub or to the transfer agent
of the Exchangeable Shares (including without limitation a copy of the
retraction request delivered pursuant to Section 6.1 of the Exchangeable Share
Provisions) in connection with such proposed redemption of the Retracted Shares,
and the Trustee will thereupon exercise the Exchange Right with respect to the
Retracted Shares which MCo Sub is not permitted to redeem and will require MCo
to purchase such shares in accordance with the provisions of this Article 5.
5.8 Stamp or Other Transfer Taxes
Upon any sale of Exchangeable Shares to MCo pursuant to the Exchange Put
Right, the Exchange Right or the Automatic Exchange Rights, the share
certificate or certificates representing MCo Common Stock to be delivered in
connection with the payment of the total purchase price therefor shall be issued
in the name of the Holder of the Exchangeable Shares so sold or in such names as
such Holder may otherwise direct in writing without charge to the holder of the
Exchangeable Shares so sold, provided, however, that such Holder:
(a) shall pay (and none of MCo, MCo Sub, MCo Holdco, PCo or the Trustee
shall be required to pay) any documentary, stamp, transfer or other similar
taxes that may be payable in respect of any transfer involved in the issuance or
delivery of such shares to a person other than such Holder; or
(b) shall have established to the satisfaction of the Trustee, MCo and PCo
that such taxes, if any, have been paid.
MCo, MCo Sub, MCo Holdco and the Trustee (as directed in writing by MCo) shall
be entitled to deduct and withhold from any consideration otherwise payable
under this Agreement to any Holder such amounts as MCo, MCo Sub, MCo Holdco or
the Trustee is required or permitted to deduct and withhold with respect to such
payment under the Income Tax Act (Canada), the United States Internal Revenue
Code of 1986 or any provision of provincial, state, local or foreign tax law, in
each case as amended or succeeded unless such Holder provides to MCo and the
Trustee certificates or such other assurances as are provided for under the
Income Tax Act (Canada) , the United States Internal Revenue Code of 1986 or
such other applicable taxation provisions. To the extent that amounts are so
withheld, such withheld amounts shall be treated for all purposes as having been
paid to the Holder in respect of which such deduction and withholding was made,
provided that such withheld amounts are actually remitted to the appropriate
taxing authority as and when required. To the extent that the amount so required
or permitted to be deducted or withheld from any payment to a Holder exceeds the
cash portion, if any, of the consideration otherwise payable to the Holder, MCo,
MCo Sub, MCo Holdco and the Trustee are hereby authorized to sell or otherwise
dispose of such portion of the consideration as is necessary to provide
sufficient funds to MCo, MCo Sub, MCo Holdco or the Trustee, as the case may be,
to enable it to comply with such deduction or withholding requirement and MCo,
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MCo Sub, MCo Holdco or the Trustee, as the case may be, shall notify the Holder
and remit to such Holder any unapplied balance of the net proceeds of such sale.
5.9 Notice of Insolvency Event
Immediately upon the occurrence of an Insolvency Event or any event which
with the giving of notice or the passage of time or both would be an Insolvency
Event, MCo Sub and MCo shall give written notice thereof to the Trustee. As soon
as practicable after receiving notice from MCo Sub or MCo of the occurrence of
an Insolvency Event, the Trustee will mail to each Holder, at the expense of
MCo, a notice of such Insolvency Event in the form provided by MCo, which notice
shall contain a brief statement of the right of the Holders with respect to the
Exchange Right.
5.10 Qualification of MCo Common Stock
MCo covenants with the Trustee for the benefit of Holders that if any
shares of MCo Common Stock to be issued and delivered pursuant to the Exchange
Put Right, the Exchange Right or the Automatic Exchange Rights require
registration or qualification with or approval of or the filing of any document
including any prospectus or similar document, the taking of any proceeding with
or the obtaining of any order, ruling or consent from any governmental or
regulatory authority under any Canadian or United States federal, provincial or
state law or regulation or pursuant to the rules and regulations of any
regulatory authority, or the fulfillment of any other legal requirement
(collectively, the "Applicable Laws") before such shares may be issued and
delivered by MCo to the initial holder thereof (other than MCo Sub) or in order
that such shares may be freely traded thereafter (other than any restrictions on
transfer by reason of a holder being a "control person" of MCo for purposes of
Canadian provincial securities law or an "affiliate" of MCo for purposes of
United States federal or state securities law), MCo will in good faith
expeditiously take all such actions and do all such things as are necessary to
cause such shares of MCo Common Stock to be and remain duly registered,
qualified or approved to the extent expressly provided in the Combination
Agreement. MCo represents and warrants that it has in good faith taken all
actions and done all things as are necessary under Applicable Laws as they exist
on the date hereof to cause the shares of MCo Common Stock to be issued and
delivered pursuant to the Exchange Put Right, the Exchange Right and the
Automatic Exchange Rights and to be freely tradeable thereafter (other than
restrictions on transfer by reason of a holder being a "control person" of MCo
for the purposes of Canadian provincial securities law or an "affiliate" of MCo
for the purposes of United States federal or state securities law). MCo will in
good faith expeditiously take all such actions and do all such things as are
necessary to cause all shares of MCo Common Stock to be delivered pursuant to
the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights to
be listed, quoted or posted for trading on all stock exchanges and quotation
systems on which such shares are listed, quoted or posted for trading at such
time.
5.11 Reservation of Shares of MCo Common Stock
MCo hereby represents, warrants and covenants with the Trustee for the
benefit of the Holders that it has irrevocably reserved for issuance and will at
all times keep available, free from pre-emptive and other rights, out of its
authorized and unissued capital stock such number of shares of MCo Common Stock:
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(a) as is equal to the sum of
(i) the number of Exchangeable Shares issued and outstanding from
time to time, and
(ii) the number of shares of MCo Common Stock issuable pursuant to
the PCo Stock Options outstanding on the date hereof; and
(b) as are now and may hereafter be required to enable and permit MCo Sub
to meet its obligations hereunder, under the Articles of Incorporation of MCo,
under the Support Agreement, under the Exchangeable Share Provisions and under
any other security or commitment pursuant to the Arrangement with respect to
which MCo may now or hereafter be required to issue shares of MCo Common Stock.
5.12 Automatic Exchange on Liquidation of MCo
(a) MCo will give the Trustee written notice of each of the following
events at the time set forth below:
(i) in the event of any determination by the board of directors of
MCo to institute voluntary liquidation, dissolution or winding-up
proceedings with respect to MCo or to effect any other distribution of
assets of MCo among its stockholders for the purpose of winding-up its
affairs, at least 60 days prior to the proposed effective date of such
liquidation, dissolution, winding-up or other distribution; and
(ii) immediately, upon the earlier of
(A) receipt by MCo of notice of, and
(B) MCo otherwise becoming aware of
any threatened or instituted claim, suit, petition or other proceedings
with respect to the involuntary liquidation, dissolution or winding-up of
MCo or to effect any other distribution of assets of MCo among its
stockholders for the purpose of winding up its affairs.
(b) Immediately following receipt by the Trustee from MCo of notice of
any event (a "Liquidation Event") contemplated by Section 5.12(a) above, the
Trustee will give notice thereof to the Holders. Such notice will be provided by
MCo to the Trustee and shall include a brief description of the automatic
exchange of Exchangeable Shares for shares of MCo Common Stock provided for in
Section 5.12(c) below.
(c) In order that the Holders will be able to participate on a pro rata
basis with the holders of MCo Common Stock in the distribution of assets of MCo
in connection with a Liquidation Event, immediately prior to the effective time
(the "Liquidation Event Effective Time") of a Liquidation Event, all of the then
outstanding Exchangeable Shares shall be automatically exchanged for shares of
MCo Common Stock. To effect such automatic exchange, MCo shall be deemed to have
purchased each Exchangeable Share outstanding immediately prior to the
Liquidation Event Effective Time and held by Holders, and each Holder shall be
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deemed to have sold the Exchangeable Shares held by it at such time, for a
purchase price per share equal to the Exchangeable Share Price applicable at
such time. In connection with such automatic exchange, MCo will provide to the
Trustee an Officer's Certificate setting forth the calculation of the
Exchangeable Share Price for each Exchangeable Share.
(d) The closing of the transaction of purchase and sale contemplated by
Section 5.12(c) above shall be deemed to have occurred immediately prior to the
Liquidation Event Effective Time, and each Holder of Exchangeable Shares shall
be deemed to have transferred to MCo all of the Holder's right, title and
interest in and to such Exchangeable Shares and the related interest in the
Trust Estate and shall cease to be a holder of such Exchangeable Shares, and MCo
shall deliver to the Holder the Exchangeable Share Consideration deliverable
upon the automatic exchange of Exchangeable Shares. Concurrently with such
Holder's ceasing to be a holder of Exchangeable Shares, the Holder shall be
considered and deemed for all purposes to be the holder of the shares of MCo
Common Stock issued to it pursuant to the automatic exchange of Exchangeable
Shares for MCo Common Stock, and the certificates held by the Holder previously
representing the Exchangeable Shares exchanged by the Holder with MCo pursuant
to such automatic exchange shall thereafter be deemed to represent the shares of
MCo Common Stock issued to the Holder by MCo pursuant to such automatic
exchange. Upon the request of a Holder and the surrender by the Holder of
Exchangeable Share certificates deemed to represent shares of MCo Common Stock,
duly endorsed in blank and accompanied by such instruments of transfer as MCo
may reasonably require, MCo shall deliver or cause to be delivered to the Holder
certificates representing the shares of MCo Common Stock of which the Holder is
the holder. Notwithstanding the foregoing, until each Holder is actually entered
on the register of holders of MCo Common Stock, such Holder shall be deemed to
still be a holder of the transferred Exchangeable Shares for purposes of all
Voting Rights with respect thereto.
ARTICLE 6
RESTRICTIONS ON ISSUANCE OF MCO SPECIAL VOTING STOCK
During the term of this agreement, MCo will not issue any shares of MCo
Special Voting Stock in addition to the Voting Share.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 Powers and Duties of the Trustee
The rights, powers and authorities of the Trustee under this agreement, in
its capacity as trustee of the Trust, shall include:
(a) receipt and deposit of the Voting Share from MCo as trustee for and on
behalf of the Holders in accordance with the provisions of this agreement;
(b) granting proxies and distributing materials to Holders as provided in
this agreement;
(c) voting the Holder Votes in accordance with the provisions of this
agreement;
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(d) receiving the grant of the Exchange Put Right and the Exchange Right
and the Automatic Exchange Rights from MCo as trustee for and on behalf of the
Holders in accordance with the provisions of this agreement;
(e) exercising the Exchange Put Right and the Exchange Right and enforcing
the benefit of the Automatic Exchange Rights, in each case in accordance with
the provisions of this agreement, and in connection therewith receiving from
Holders Exchangeable Shares and other requisite documents and distributing to
such Holders the shares of MCo Common Stock and cheques, if any, to which such
Holders are entitled upon the exercise of the Exchange Put Right and the
Exchange Right or pursuant to the Automatic Exchange Rights, as the case may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the Trust
Estate as provided in this agreement;
(h) taking action at the direction of a Holder or Holders to enforce the
obligations of MCo under this agreement; and
(i) taking such other actions and doing such other things as are
specifically provided in this agreement.
In the exercise of such rights, powers and authorities, the Trustee shall
have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this agreement as the
Trustee, acting in good faith and in the reasonable exercise of its discretion,
may deem necessary, appropriate or desirable to effect the purpose of the Trust.
Any exercise of such discretionary rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons. For greater certainty,
the Trustee shall have only those duties as are set out specifically in this
agreement. The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best interests
of the Holders and shall exercise the care, diligence and skill that a
reasonably prudent trustee would exercise in comparable circumstances. The
Trustee shall not be bound to give any notice or do or take any act, action or
proceeding by virtue of the powers conferred on it hereby unless and until it
shall be specifically required to do so under the terms hereof nor shall the
Trustee be required to take any notice of, or to do or to take any act, action
or proceeding as a result of any default or breach of any provision hereunder,
unless and until notified in writing of such default or breach, which notices
shall distinctly specify the default or breach desired to be brought to the
attention of the Trustee and in the absence of such notice the Trustee may for
all purposes of this agreement conclusively assume that no default or breach has
been made in the observance or performance of any of the representations,
warranties, covenants, agreements or conditions contained herein.
7.2 No Conflict of Interest
The Trustee represents to MCo Sub and MCo that at the date of execution and
delivery of this agreement there exists no material conflict of interest in the
role of the Trustee as a fiduciary hereunder and the role of the Trustee in any
other capacity. The Trustee shall, within 90 days after it becomes aware that
such a material conflict of interest exists, either eliminate such
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material conflict of interest or resign in the manner and with the effect
specified in Article 10 hereof. If, notwithstanding the foregoing provisions of
this Section 7.2, the Trustee has such a material conflict of interest, the
validity and enforceability of this agreement shall not be affected in any
manner whatsoever by reason only of the existence of such material conflict of
interest. If the Trustee contravenes the foregoing provisions of this Section
7.2, any interested party may apply to the superior court of the province in
which MCo Sub has its registered office for an order that the Trustee be
replaced as trustee hereunder.
7.3 Dealings with Transfer Agents, Registrars, Etc.
MCo Sub and MCo irrevocably authorize the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the respective registrars
and transfer agents, and with any such subsequent registrar or transfer agent,
of the Exchangeable Shares and MCo Common Stock; and
(b) requisition, from time to time,
(i) from any such registrar or transfer agent any information readily
available from the records maintained by it which the Trustee may
reasonably require for the discharge of its duties and responsibilities
under this agreement, and
(ii) from the transfer agent of MCo Common Stock, and any subsequent
transfer agent of such shares, to complete the exercise from time to time
of the Exchange Put Right, the Exchange Right and the Automatic Exchange
Rights in the manner specified in Article 5 hereof, the share certificates
issuable upon such exercise.
MCo Sub and MCo irrevocably authorize their respective registrars and
transfer agents to comply with all such requests. MCo covenants that it will
supply its transfer agent with duly executed share certificates for the purpose
of completing the exercise from time to time of the Exchange Put Right, the
Exchange Right and the Automatic Exchange Rights, in each case pursuant to
Article 5 hereof.
7.4 Books and Records
The Trustee shall keep available for inspection by MCo and MCo Sub, at the
Trustee's principal transfer office in Calgary, Alberta, correct and complete
books and records of account relating to the Trustee's actions under this
agreement, including without limitation all information relating to mailings and
instructions to and from Holders and all transactions pursuant to the Voting
Rights, the Exchange Put Right, the Exchange Right and the Automatic Exchange
Rights for the term of this agreement. On or before March 31, 2001, and on or
before March 31 in every year thereafter, so long as the Voting Share is on
deposit with the Trustee, the Trustee shall transmit to MCo and MCo Sub a brief
report, dated as of the preceding December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that date;
(b) the number of exercises of the Exchange Put Right and the Exchange
Right, if any, and the aggregate number of Exchangeable Shares received by the
Trustee on behalf of
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Holders in consideration of the issue and delivery by MCo of shares of MCo
Common Stock in connection with the Exchange Put Right and the Exchange Right,
during the calendar year ended on such date; and
(c) all other actions taken by the Trustee in the performance of its
duties under this agreement which it had not previously reported.
7.5 Income Tax Returns and Reports
The Trustee shall, to the extent necessary, prepare and file on behalf of
the Trust appropriate United States and Canadian income tax returns and any
other returns or reports as may be required by applicable law or pursuant to the
rules and regulations of any securities exchange or other trading system through
which the Exchangeable Shares are traded and, in connection therewith, may
obtain the advice and assistance of such experts as the Trustee may consider
necessary or advisable. If requested by the Trustee, MCo shall retain such
experts for purposes of providing such advice and assistance.
7.6 Indemnification Prior to Certain Actions by Trustee
The Trustee shall exercise any or all of the rights, duties, powers or
authorities vested in it by this agreement at the request, order or direction of
any Holder upon such Holder's furnishing to the Trustee reasonable funding,
security and indemnity against the costs, expenses and liabilities which may be
incurred by the Trustee therein or thereby; provided that no Holder shall be
obligated to furnish to the Trustee any such funding, security or indemnity in
connection with the exercise by the Trustee of any of its rights, duties, powers
and authorities with respect to the Voting Share pursuant to Article 4 hereof,
subject to Section 7.15 hereof, and with respect to the Exchange Put Right and
the Exchange Right pursuant to Article 5 hereof, subject to Section 7.15 hereof,
and with respect to the Automatic Exchange Rights pursuant to Article 5 hereof.
None of the provisions contained in this agreement shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
exercise of any of its rights, powers, duties or authorities unless funded,
given funds, security and indemnified as aforesaid.
7.7 Actions by Holders
No Holder shall have the right to institute any action, suit or proceeding
or to exercise any other remedy authorized by this agreement for the purpose of
enforcing any of its rights or for the execution of any trust or power hereunder
unless the Holder has requested the Trustee to take or institute such action,
suit or proceeding and furnished the Trustee with the funding, security and
indemnity referred to in Section 7.6 hereof and the Trustee shall have failed to
act within a reasonable time thereafter. In such case, but not otherwise, the
Holder shall be entitled to take proceedings in any court of competent
jurisdiction such as the Trustee might have taken; it being understood and
intended that no one or more Holders shall have any right in any manner
whatsoever to affect, disturb or prejudice the rights hereby created by any such
action, or to enforce any right hereunder or under the Voting Rights, the
Exchange Put Right, the Exchange Right or the Automatic Exchange Rights, except
subject to the conditions and in the manner herein provided, and that all powers
and trusts hereunder shall be exercised and all proceedings at law shall be
instituted, had and maintained by the Trustee, except only as herein provided,
and in any event for the equal benefit of all Holders.
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7.8 Reliance upon Declarations
The Trustee shall not be considered to be in contravention of any of its
rights, powers, duties and authorities hereunder if, when required, it acts and
relies in good faith upon lists, mailing labels, notices, statutory
declarations, certificates, opinions, reports or other papers or documents
furnished pursuant to the provisions hereof or required by the Trustee to be
furnished to it in the exercise of its rights, powers, duties and authorities
hereunder, and such lists, mailing labels, notices, statutory declarations,
certificates, opinions, reports or other papers or documents comply with the
provisions of Section 7.9 hereof, if applicable, and with any other applicable
provisions of this agreement.
7.9 Evidence and Authority to Trustee
MCo Sub and/or MCo shall furnish to the Trustee evidence of compliance with
the conditions provided for in this agreement relating to any action or step
required or permitted to be taken by MCo Sub and/or MCo or the Trustee under
this agreement or as a result of any obligation imposed under this agreement,
including, without limitation, in respect of the Voting Rights or the Exchange
Put Right, the Exchange Right or the Automatic Exchange Rights and the taking of
any other action to be taken by the Trustee at the request of or on the
application of MCo Sub and/or MCo forthwith if and when:
(a) such evidence is required by any other section of this agreement to be
furnished to the Trustee in accordance with the terms of this Section 7.9; or
(b) the Trustee, in the exercise of its rights, powers, duties and
authorities under this agreement, gives MCo Sub and/or MCo written notice
requiring it to furnish such evidence in relation to any particular action or
obligation specified in such notice.
Such evidence shall consist of an Officer's Certificate of MCo Sub and/or
MCo or a statutory declaration or a certificate made by persons entitled to sign
an Officer's Certificate stating that any such condition has been complied with
in accordance with the terms of this agreement.
Whenever such evidence relates to a matter other than the Voting Rights or
the Exchange Put Right, the Exchange Right or the Automatic Exchange Rights, and
except as otherwise specifically provided herein, such evidence may consist of a
report or opinion of any solicitor, auditor, accountant, appraiser, valuer,
engineer or other expert or any other person whose qualifications give authority
to a statement made by him, provided that, if such report or opinion is
furnished by a director, officer or employee of MCo Sub and/or MCo, it shall be
in the form of an Officer's Certificate or a statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to the
Trustee as evidence of compliance with a condition provided for in this
agreement shall include a statement by the person giving the evidence:
(i) declaring that such person has read and understands the
provisions of this agreement relating to the condition in question;
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(ii) describing the nature and scope of the examination or
investigation upon which such person based the statutory declaration,
certificate, statement or opinion; and
(iii) declaring that such person has made such examination or
investigation as such person believes is necessary to enable such person to
make the statements or give the opinions contained or expressed therein.
7.10 Experts, Advisers and Agents
The Trustee may:
(a) in relation to these presents act and rely on the opinion or advice
of or information obtained from or prepared by any solicitor, auditor,
accountant, appraiser, valuer, engineer or other expert, whether retained by the
Trustee or by MCo Sub and/or MCo or otherwise, and may employ such assistants as
may be necessary to the proper determination and discharge of its powers and
duties and determination of its rights hereunder and may pay proper and
reasonable compensation for all such legal and other advice or assistance as
aforesaid; and
(b) employ such agents and other assistants as it may reasonably require
for the proper determination and discharge of its powers and duties hereunder,
and may pay reasonable remuneration for all services performed for it (and shall
be entitled to receive reasonable remuneration for all services performed by it)
in the discharge of the trusts hereof and compensation for all disbursements,
costs and expenses made or incurred by it in the determination and discharge of
its duties hereunder and in the management of the Trust.
7.11 Investment of Moneys Held by Trustee
Unless otherwise provided in this agreement, any moneys held by or on
behalf of the Trustee which under the terms of this agreement may or ought to be
invested or which may be on deposit with the Trustee or which may be in the
hands of the Trustee, may be invested and reinvested in the name or under the
control of the Trustee in securities in which, under the laws of the Province of
Alberta, trustees are authorized to invest trust moneys; provided that such
securities are stated to mature within two years after their purchase by the
Trustee, and the Trustee shall so invest such moneys on the written direction of
MCo Sub. Pending the investment of any moneys as hereinbefore provided, such
moneys may be deposited in the name of the Trustee in any chartered bank in
Canada or, with the consent of MCo Sub, in the deposit department of the Trustee
or any other loan or trust company authorized to accept deposits under the laws
of Canada or any province thereof at the rate of interest then current on
similar deposits.
7.12 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security in respect
of the execution of the trusts, rights, duties, powers and authorities of this
agreement or otherwise in respect of the premises.
7.13 Trustee Not Bound to Act on Request
Except as in this agreement otherwise specifically provided, the Trustee
shall not be bound to act in accordance with any direction or request of MCo Sub
and/or MCo or of the
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directors thereof until a duly authenticated copy of the instrument or
resolution containing such direction or request shall have been delivered to the
Trustee, and the Trustee shall be empowered to act and rely upon any such copy
purporting to be authenticated and believed by the Trustee to be genuine.
7.14 Authority to Carry on Business
The Trustee represents to MCo Sub and MCo that at the date of execution
and delivery by it of this agreement it is authorized to carry on the business
of a trust company in the Province of Alberta but if, notwithstanding the
provisions of this Section 7.14, it ceases to be so authorized to carry on
business, the validity and enforceability of this agreement and the Voting
Rights, the Exchange Put Right, the Exchange Right and the Automatic Exchange
Rights shall not be affected in any manner whatsoever by reason only of such
event; provided, however, the Trustee shall, within 90 days after ceasing to be
authorized to carry on the business of a trust company in the Province of
Alberta, either become so authorized or resign in the manner and with the effect
specified in Article 10 hereof.
7.15 Conflicting Claims
If conflicting claims or demands are made or asserted with respect to any
interest of any Holder in any Exchangeable Shares, including any disagreement
between the heirs, representatives, successors or assigns succeeding to all or
any part of the interest of any Holder in any Exchangeable Shares resulting in
conflicting claims or demands being made in connection with such interest, then
the Trustee shall be entitled, at its sole discretion, to refuse to recognize or
to comply with any such claim or demand. In so refusing, the Trustee may elect
not to exercise any Voting Rights, Exchange Put Right, Exchange Right or
Automatic Exchange Rights subject to such conflicting claims or demands and, in
so doing, the Trustee shall not be or become liable to any person on account of
such election or its failure or refusal to comply with any such conflicting
claims or demands. The Trustee shall be entitled to continue to refrain from
acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the Voting
Rights, Exchange Put Right, Exchange Right or Automatic Exchange Rights subject
to such conflicting claims or demands have been adjudicated by a final judgment
of a court of competent jurisdiction; or
(b) all differences with respect to the Voting Rights, the Exchange Put
Right, Exchange Right or Automatic Exchange Rights subject to such conflicting
claims or demands have been conclusively settled by a valid written agreement
binding on all such adverse claimants, and the Trustee shall have been furnished
with an executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand
made by any such adverse claimant, it may in its discretion require such
claimant to furnish such surety bond or other security satisfactory to the
Trustee as it shall deem appropriate fully to indemnify it as between all
conflicting claims or demands.
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7.16 Acceptance of Trust
The Trustee hereby accepts the Trust created and provided for by and in
this agreement and agrees to perform the same upon the terms and conditions
herein set forth and to hold all rights, privileges and benefits conferred
hereby and by law in trust for the various persons who shall from time to time
be Holders, subject to all the terms and conditions herein set forth.
ARTICLE 8
COMPENSATION
MCo and MCo Sub jointly and severally agree to pay to the Trustee
reasonable compensation for all of the services rendered by it under this
agreement and will reimburse the Trustee for all reasonable expenses (including
but not limited to taxes, compensation paid to experts, agents and advisors, and
travel expenses) and disbursements, including the cost and expense of any suit
or litigation of any character and any proceedings before any governmental
agency, reasonably incurred by the Trustee in connection with its rights and
duties under this agreement; provided that MCo and MCo Sub shall have no
obligation to reimburse the Trustee for any expenses or disbursements paid,
incurred or suffered by the Trustee in any suit or litigation in which the
Trustee is determined to have acted in bad faith or with negligence or willful
misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 Indemnification of the Trustee
MCo and MCo Sub jointly and severally agree to indemnify and hold harmless
the Trustee and each of its directors, officers, employees and agents appointed
and acting in accordance with this agreement (collectively, the "Indemnified
Parties") against all claims, losses, damages, costs, penalties, fines and
reasonable expenses (including reasonable expenses of the Trustee's legal
counsel) which, without fraud, negligence, willful misconduct or bad faith on
the part of such Indemnified Party, may be paid, incurred or suffered by the
Indemnified Party by reason of or as a result of the Trustee's acceptance or
administration of the Trust, its compliance with its duties set forth in this
agreement, or any written or oral instructions delivered to the Trustee by MCo
or MCo Sub pursuant hereto. In no case shall MCo or MCo Sub be liable under this
indemnity for any claim against any of the Indemnified Parties unless MCo and
MCo Sub shall be notified by the Trustee of the written assertion of a claim or
of any action commenced against the Indemnified Parties, promptly after any of
the Indemnified Parties shall have received any such written assertion of a
claim or shall have been served with a summons or other first legal process
giving information as to the nature and basis of the claim. Subject to (ii)
below, MCo and MCo Sub shall be entitled to participate at their own expense in
the defense and, if MCo or MCo Sub so elect at any time after receipt of such
notice, either of them may assume the defense of any suit brought to enforce any
such claim. The Trustee shall have the right to employ separate counsel in any
such suit and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the Trustee unless: (i) the employment
of such counsel has been authorized by MCo or MCo Sub, such authorization not to
be unreasonably withheld; or (ii) the named parties to any such suit include
both the Trustee and MCo or MCo Sub and the Trustee shall have been advised by
counsel acceptable to MCo or
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MCo Sub that there may be one or more legal defenses available to the Trustee
that are different from or in addition to those available to MCo or MCo Sub and
that an actual or potential conflict of interest exists (in which case MCo and
MCo Sub shall not have the right to assume the defense of such suit on behalf of
the Trustee, but shall be liable to pay the reasonable fees and expenses of
counsel for the Trustee). This indemnity shall survive the resignation or
removal of the Trustee and the termination of the trust.
9.2 Limitation of Liability
The Trustee shall not be held liable for any loss which may occur by
reason of depreciation of the value of any part of the Trust Estate or any loss
incurred on any investment of funds pursuant to this agreement, except to the
extent that such loss is attributable to the fraud, negligence, willful
misconduct or bad faith on the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 Resignation
The Trustee, or any trustee hereafter appointed, may at any time resign by
giving written notice of such resignation to MCo and MCo Sub specifying the date
on which it desires to resign, provided that such notice shall never be given
less than 60 days before such desired resignation date unless MCo and MCo Sub
otherwise agree and provided further that such resignation shall not take effect
until the date of the appointment of a successor trustee and the acceptance of
such appointment by the successor trustee. Upon receiving such notice of
resignation, MCo and MCo Sub shall promptly appoint a successor trustee by
written instrument, in duplicate, one copy of which shall be delivered to the
resigning trustee and one copy to the successor trustee. Failing acceptance by a
successor trustee, a successor trustee may be appointed by an order of the
superior court of the province in which MCo Sub has its registered office upon
application of one or more of the parties hereto.
10.2 Removal
The Trustee, or any trustee hereafter appointed, may be removed with or
without cause, at any time on 60 days prior notice by written instrument
executed by MCo and MCo Sub, in duplicate, one copy of which shall be delivered
to the trustee so removed and one copy to the successor trustee; provided that,
in connection with such removal, provision is made for a replacement trustee
similar to that contemplated in Section 10.1.
10.3 Successor Trustee
Any successor trustee appointed as provided under this agreement shall
execute, acknowledge and deliver to MCo and MCo Sub and to its predecessor
trustee an instrument accepting such appointment. Thereupon the resignation or
removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations of its predecessor under this
agreement, with like effect as if originally named as trustee in this agreement.
However, on the written request of MCo and MCo Sub or of the successor trustee,
the trustee ceasing to act
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shall, upon payment of any amounts then due it pursuant to the provisions of
this agreement, execute and deliver an instrument transferring to such successor
trustee all the rights and powers of the trustee so ceasing to act. Upon the
request of any such successor trustee, MCo, MCo Sub and such predecessor trustee
shall execute any and all instruments in writing for more fully and certainly
vesting in and confirming to such successor trustee all such rights and powers.
10.4 Notice of Successor Trustee
Upon acceptance of appointment by a successor trustee as provided herein,
MCo and MCo Sub shall cause to be mailed notice of the succession of such
trustee hereunder to each Holder specified in a List. If MCo or MCo Sub shall
fail to cause such notice to be mailed within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of MCo and MCo Sub.
ARTICLE 11
SUCCESSORS
11.1 Certain Requirements in Respect of Combination, Etc.
Neither MCo nor MCo Sub shall enter into any transaction (whether by way
of reconstruction, reorganization, consolidation, merger, transfer, sale, lease
or otherwise) whereby all or substantially all of its undertaking, property and
assets would become the property of any other Person or, in the case of a
merger, of the continuing corporation resulting therefrom, but may do so if:
(a) such other Person or continuing corporation (the "Successor"), by
operation of law, becomes, without further action, bound by the terms and
provisions of this agreement or, if not so bound, executes, prior to or
contemporaneously with the consummation of such transaction an agreement
supplemental hereto and such other instruments (if any) as are satisfactory to
the Trustee and in the opinion of legal counsel to the Trustee are necessary or
advisable to evidence the assumption by the Successor of liability for all
moneys payable and property deliverable hereunder, the covenant of such
Successor to pay and deliver or cause to be delivered the same and its agreement
to observe and perform all the covenants and obligations of MCo or MCo Sub, as
the case may be, under this agreement; and
(b) such transaction shall, to the satisfaction of the Trustee, be upon
such terms which substantially preserve and do not impair in any material
respect any of the rights, duties, powers and authorities of the Trustee or of
the Holders hereunder.
11.2 Vesting of Powers in Successor
Whenever the conditions of Section 11. 1 hereof have been duly observed
and performed, the Trustee, if required by Section 11.1 hereof, the Successor
and MCo or MCo Sub, as the case may be, shall execute and deliver the
supplemental agreement provided for in Article 12 hereof, and thereupon the
Successor shall possess and from time to time may exercise each and every right
and power of MCo or MCo Sub, as the case may be, under this agreement in the
name of MCo or MCo Sub, as the case may be, or otherwise and any act or
proceeding by any provision of this agreement required to be done or performed
by the board of directors or any officers of
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MCo or MCo Sub may be done and performed with like force and effect by the
directors or officers of such Successor.
11.3 Wholly-owned Subsidiaries
Nothing herein shall be construed as preventing the amalgamation or merger
of any wholly-owned subsidiary of MCo with or into MCo or the winding-up,
liquidation or dissolution of any wholly-owned subsidiary of MCo provided that
all of the assets of such subsidiary are transferred to MCo or another wholly-
owned subsidiary of MCo, and any such transactions are expressly permitted by
this Article 11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL AGREEMENTS
12.1 Amendments, Modifications, Etc.
Subject to Sections 12.2 and 12.4, this agreement may not be amended,
modified or waived except by an agreement in writing executed by MCo Sub, MCo
and the Trustee and approved by the Holders in accordance with Section 10.2 of
the Exchangeable Share Provisions. No amendment to or modification or waiver of
any of the provisions of this agreement otherwise permitted hereunder shall be
effective unless made in writing and signed by all of the parties hereto.
12.2 Ministerial Amendments
Notwithstanding the provisions of Section 12.1 hereof, the parties to this
agreement may in writing, at any time and from time to time, without the
approval of the Holders, amend or modify this agreement for the purposes of:
(a) adding to the covenants of any or all of the parties hereto for the
protection of the Holders hereunder subject to the receipt by the Trustee of an
opinion of its counsel that the addition of the proposed covenant is not
prejudicial to the interests of the holders as a whole or the Trustee;
(b) making such amendments or modifications not inconsistent with this
agreement as may be necessary or desirable with respect to matters or questions
which, in the opinion of the board of directors of each of MCo and MCo Sub and
in the opinion of the Trustee and its counsel, having in mind the best interests
of the Holders as a whole, it may be expedient to make, provided that such
boards of directors and the Trustee and its counsel shall be of the opinion that
such amendments and modifications will not be prejudicial to the interests of
the Holders as a whole;
(c) making such changes or corrections which, on the advice of counsel to
MCo Sub, MCo and the Trustee, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error; provided that the Trustee and its counsel
and the board of directors of each of MCo Sub and MCo shall be of the opinion
that such changes or corrections will not be prejudicial to the interests of the
Holders as a whole; or
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(d) making such changes as may be necessary or appropriate to implement
or give effect to any assignment or assumption made pursuant to Section 14.9
hereof.
12.3 Meeting to Consider Amendments
MCo Sub, at the request of MCo, shall call a meeting or meetings of the
Holders for the purpose of considering any proposed amendment or modification
requiring approval pursuant hereto. Any such meeting or meetings shall be called
and held in accordance with the by-laws of MCo Sub, the Exchangeable Share
Provisions and all applicable laws.
12.4 Changes in Capital of MCo and MCo Sub
At all times after the occurrence of any event effected pursuant to
Section 2.7 or Section 2.8 of the Support Agreement, as a result of which either
MCo Common Stock or the Exchangeable Shares or both are in any way changed, this
agreement shall forthwith be amended and modified as necessary in order that it
shall apply with full force and effect, mutatis mutandis, to all new securities
into which MCo Common Stock or the Exchangeable Shares or both are so changed,
and the parties hereto shall execute and deliver a supplemental agreement giving
effect to and evidencing such necessary amendments and modifications.
12.5 Execution of Supplemental Agreements
From time to time, MCo Sub (when authorized by a resolution of its Board
of Directors), MCo (when authorized by a resolution of its board of directors)
and the Trustee may, subject to the provisions of these presents, and they
shall, when so directed by these presents, execute and deliver by their proper
officers, agreements or other instruments supplemental hereto, which thereafter
shall form part hereof, for any one or more of the following purposes:
(a) evidencing the succession of any Successors to MCo and the covenants
of and obligations assumed by each such Successor in accordance with the
provisions of Article 11 and the successor of any successor trustee in
accordance with the provisions of Article 10;
(b) making any additions to, deletions from or alterations of the
provisions of this agreement or the Voting Rights, the Exchange Right or the
Automatic Exchange Rights which, in the opinion of the Trustee and its counsel,
will not be prejudicial to the interests of the Holders as a whole or are in the
opinion of counsel to the Trustee necessary or advisable in order to
incorporate, reflect or comply with any legislation the provisions of which
apply to MCo, MCo Sub, the Trustee or this agreement;
(c) to implement or give effect to any assignment or assumption made
pursuant to Section 14.9 hereof; and
(d) for any other purposes not inconsistent with the provisions of this
agreement, including without limitation to make or evidence any amendment or
modification to this agreement as contemplated hereby, provided that, in the
opinion of the Trustee and its counsel, the rights of the Trustee and the
Holders as a whole will not be prejudiced thereby.
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ARTICLE 13
TERMINATION
13.1 Term
The Trust created by this agreement shall continue until the earliest to
occur of the following events:
(a) no outstanding Exchangeable Shares are held by a Holder;
(b) each of MCo Sub and MCo elects in writing to terminate the Trust and
such termination is approved by the Holders of the Exchangeable Shares in
accordance with Section 10.1 of the Exchangeable Share Provisions; and
(c) 21 years after the death of the last survivor of the descendants of
Her Majesty Queen Elizabeth II of the United Kingdom of Great Britain and
Northern Ireland living on the date of the creation of the Trust.
13.2 Survival of Agreement
This agreement shall survive any termination of the Trust and shall
continue until there are no Exchangeable Shares outstanding held by a Holder;
provided, however, that the provisions of Articles 8 and 9 hereof shall survive
any such termination of this agreement.
ARTICLE 14
GENERAL
14.1 Severability
If any provision of this agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the remainder of this
agreement shall not in any way be affected or impaired thereby, and the
agreement shall be carried out as nearly as possible in accordance with its
original terms and conditions.
14.2 Inurement
This agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns and to the
benefit of the Holders.
14.3 Notices to Parties
All notices and other communications between the parties hereunder shall
be in writing and shall be deemed to have been given if delivered personally or
by confirmed telecopy to the parties at the following addresses (or at such
other address for such party as shall be specified in like notice):
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(a) if to Maverick:
Maverick Tube Corporation
16401 Swingley Ridge Road
Suite 700
Chesterfield, Missouri 63017
Attention: Mr. Gregg Eisenberg
Fax: (636) 733-1671
with a copy to:
Robert H. Wexler, Esq.
Gallop, Johnson & Neuman, L.C.
101 South Hanley
St. Louis, Missouri 63105
Fax: (314) 862-1219
(b) if to MCo Sub to:
.
.
.
.
(c) if to the Trustee to:
.
.
.
.
Any notice or other communication given personally shall be deemed to have
been given and received upon delivery thereof, and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof unless
such day is not a Business Day in which case it shall be deemed to have been
given and received upon the immediately following Business Day.
14.4 Notice to Holders
Any and all notices to be given and any documents to be sent to any
Holders may be given or sent to the address of such Holder shown on the register
of Holders of Exchangeable Shares in any manner permitted by the Exchangeable
Share Provisions and shall be deemed to be received (if given or sent in such
manner) at the time specified in such Exchangeable Share Provisions, the
provisions of which Exchangeable Share Provisions shall apply mutatis mutandis
to notices or documents as aforesaid sent to such Holders.
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14.5 Risk of Payments by Post
Whenever payments are to be made or documents are to be sent to any Holder
by the Trustee, by MCo Sub or by MCo or by such Holder to the Trustee or to MCo
or MCo Sub, the making of such payment or sending of such document sent through
the mail shall be at the risk of MCo Sub or MCo, in the case of payments made or
documents sent by the Trustee or MCo Sub or MCo, and the Holder, in the case of
payments made or documents sent by the Holder.
14.6 Counterparts
This agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
14.7 Jurisdiction
This agreement shall be construed and enforced in accordance with the laws
of the Province of Alberta and the federal laws of Canada applicable therein.
14.8 Attornment
MCo agrees that any action or proceeding arising out of or relating to
this agreement may be instituted in the courts of Alberta, waives any objection
which it may have now or hereafter to the venue of any such action or
proceeding, irrevocably submits to the jurisdiction of such courts in any such
action or proceeding, agrees to be bound by any judgment of such courts and
agrees not to seek, and hereby waives, any review of the merits of any such
judgment by the courts of any other jurisdiction and hereby appoints MCo Sub at
its registered office in the Province of Alberta as MCo's attorney for service
of process.
14.9 Permitted Assignment
MCo may assign any or all of its rights and obligations under this
Agreement to MCo Holdco, provided that each of MCo and MCo Holdco shall
thereafter, jointly and severally, be liable for the performance by MCo Holdco
of the obligations of MCo pursuant to this Agreement. Any and all of the
obligations of MCo may be performed and satisfied by MCo Holdco, except that
nothing in this Section 14.9 will permit any change to the rights, privileges,
restrictions and conditions attaching to the Voting Share or Exchangeable Shares
or to the Exchange Right, Exchange Put Right or Automatic Exchange Rights.
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IN WITNESS WHEREOF, the parties hereby have caused this agreement to be
duly executed as of the date first above written.
MAVERICK TUBE CORPORATION
Per: __________________________________
.
Per: __________________________________
.
.
Per: __________________________________
.
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ANNEX H
June 11, 2000
The Special Committee of the Board of Directors
Prudential Steel Ltd.
140-4/th/ Avenue S.W.
Suite 1800
Calgary, Alberta
T2P 3N3
To the Special Committee:
RBC Dominion Securities Inc. ("RBC DS") understands that Maverick Tube
Corporation ("Maverick") and Prudential Steel Ltd. ("Prudential" or the
"Company") have entered into an agreement dated as of June 11, 2000 (the
"Combination Agreement") whereby Maverick will acquire all of the issued and
outstanding common shares (the "Prudential Shares") of the Company pursuant to a
plan of arrangement (the "Arrangement"). Under the Arrangement, each Prudential
Share will be exchanged for 0.52 exchangeable shares of a subsidiary of Maverick
("the "Exchangeable Shares"). Each Exchangeable Share will be exchangeable on a
one for one basis into Maverick common shares (the "Maverick Shares") and will
carry the same voting rights and dividend entitlement as Maverick Shares. The
terms of the Arrangement will be more fully described in a joint management
information circular and proxy statement (the "Circular") to be mailed to each
holder of Prudential Shares (the "Shareholders") in connection with a special
meeting of Shareholders (the "Special Meeting") to consider and approve the
Arrangement.
RBC DS also understands that a committee (the "Special Committee") of the
board of directors (the "Board") of the Company has been constituted to consider
the Arrangement and make recommendations thereon to the Board. The Special
Committee has retained RBC DS to provide advice and assistance to the Special
Committee in evaluating the Arrangement, including the preparation and delivery
to the Special Committee of RBC DS' opinion as to the fairness of the
Arrangement from a financial point of view to the Shareholders (the "Fairness
Opinion"). RBC DS has not prepared a valuation of the Company or any of its
securities or assets and the Fairness Opinion should not be construed as such.
Engagement
The Board initially contacted RBC DS regarding a potential advisory
assignment in February, 2000, and RBC DS was formally engaged by the Special
Committee through an agreement between the Company and RBC DS (the "Engagement
Agreement") dated March 30, 2000. As defined in the Engagement Agreement, RBC DS
is to be paid a fee based upon the total equity transaction value at the close
of the Arrangement. As of the date hereof, the terms of the Engagement Agreement
provide that RBC DS is to be paid a fee of approximately $5.4 million if the
Arrangement is completed and $1.5 million if the Arrangement is not completed.
In addition, RBC DS is to be reimbursed for its reasonable out-of-pocket
expenses and to be indemnified by the Company in certain circumstances. RBC DS
consents to the inclusion of the Fairness Opinion in its entirety and a summary
thereof in the Circular to be mailed to Shareholders and to the filing
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thereof, as necessary, by the Company with the securities commissions or similar
regulatory authorities in each province of Canada and the United States.
Relationship With Interested Parties
Neither RBC DS, nor any of its affiliates is an insider, associate or
affiliate (as those terms are defined in the Securities Act (Ontario) (the
"Act")) of the Company, Maverick or any of their respective associates or
affiliates. RBC DS has not been engaged to provide any financial advisory
services nor has it participated in any capital market financing involving the
Company, Maverick or any of their respective associates or affiliates, within
the past two years, except certain acquisition advisory services, for the
Company, relating to a transaction that was not completed. There are no
understandings, agreements or commitments between RBC DS and the Company,
Maverick or any of their respective associates or affiliates with respect to any
future business dealings. RBC DS may, in the future, in the ordinary course of
its business, perform financial advisory or investment banking services for the
Company, Maverick or any of their respective associates or affiliates. The Royal
Bank of Canada, controlling shareholder of RBC DS, provides banking services to
the Company in the normal course of business.
RBC DS acts as a trader and dealer, both as principal and agent, in major
financial markets and, as such, may have had and may in the future have
positions in the securities of the Company, Maverick or any of their respective
associates or affiliates and, from time to time, may have executed or may
execute transactions on behalf of such companies or clients for which it
received or may receive compensation. As an investment dealer, RBC DS conducts
research on securities and may, in the ordinary course of its business, provide
research reports and investment advice to its clients on investment matters,
including with respect to the Company, Maverick or the Arrangement.
Credentials of RBC Dominion Securities
RBC DS is one of Canada's largest investment banking firms, with operations
in all facets of corporate and government finance, corporate banking, mergers
and acquisitions, equity and fixed income sales and trading and investment
research. The Fairness Opinion expressed herein represents the opinion of RBC DS
and the form and content herein have been approved for release by a committee of
its managing directors, each of whom is experienced in merger, acquisition,
divestiture and fairness opinion matters.
Scope of Review
In connection with our Fairness Opinion, we have reviewed and relied upon
or carried out, among other things, the following:
1. the Combination Agreement;
2. audited financial statements of the Company for the five years ended
December 31, 1999;
3. audited financial statements of Maverick for the five years ended
September 30, 1999;
4. the unaudited interim report of the Company for the three months ended
March 31, 2000;
5. the unaudited interim reports of Maverick for the three months ended
December 31, 1999 and March 31, 2000;
6. annual reports of the Company for each of the two years ended December
31, 1998 and December 31, 1999;
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-3-
7. annual reports of Maverick for each of the two years ended September
30, 1998 and September 30, 1999;
8. the Notice of Annual Meetings of Shareholders and Management
Information Circulars of the Company for each of the two years ended
December 31, 1998 and December 31, 1999;
9. the Notice of Annual Meetings of Stockholders and Proxy Statement of
Maverick for the two years ended September 30, 1998 and September 30,
1999;
10. annual information forms of the Company for each of the two years
ended December 31, 1998 and December 31, 1999;
11. form 10-K of Maverick for each of the two years ended September 30,
1998 and September 30, 1999;
12. historical segmented financial statements of the Company by division
for the five years ended December 31, 1999;
13. historical segmented financial statements of Maverick by division for
the three years ended September 30, 1999;
14. internal management budget of the Company on a consolidated basis and
segmented by division for the year ending December 31, 2000;
15. unaudited projected financial statements for the Company on a
consolidated basis prepared by management of the Company for the years
ending December 31, 1999 through December 31, 2003;
16. unaudited projected financial statements for Maverick on a
consolidated basis and segmented by division prepared by management of
Maverick for the years ending September 30, 1999 through September 30,
2002;
17. discussions with senior management of Prudential and Maverick
respectively;
18. the Company's current strategic and operating plans;
19. discussions with both Prudential's and Maverick's auditors and legal
counsel;
20. public information relating to the business, operations, financial
performance and stock trading history of the Company, Maverick and
other selected public companies considered by us to be relevant;
21. public information with respect to other transactions of a comparable
nature considered by us to be relevant;
22. public information regarding the oilfield services and tubular goods
manufacturing industries;
23. discussions with Maverick's financial advisors;
24. representations contained in certificates addressed to us, dated as of
the date hereof, from senior officers of the Company as to the
completeness and accuracy of the information upon which the Fairness
Opinion is based;
25. representations contained in certificates addressed to us, dated as of
the date hereof, from senior officers of Maverick as to the
completeness and accuracy of the information upon which the Fairness
Opinion is based; and
26. such other corporate, industry and financial market information,
investigations and analyses as RBC DS considered necessary or
appropriate in the circumstances.
RBC DS has not, to the best of its knowledge, been denied access by the
Company or Maverick to any information requested by RBC DS.
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Assumptions and Limitations
With the Board's approval and as provided for in the Engagement Agreement,
RBC DS has relied upon the completeness, accuracy and fair presentation of all
of the financial and other information, data, advice, opinions or
representations obtained by it from public sources, senior management of the
Company and Maverick, and their respective consultants and advisors
(collectively, the "Information"). The Fairness Opinion is conditional upon such
completeness, accuracy and fair presentation of such Information. Subject to the
exercise of professional judgment and except as expressly described herein, we
have not attempted to verify independently the completeness, accuracy or fair
presentation of any of the Information.
Senior officers of the Company have represented to RBC DS in a certificate
delivered as of the date hereof, among other things, that (i) the Information
(as defined above) provided orally by, or in the presence of, an officer of the
Company or in writing by the Company or any of its subsidiaries or their
respective agents to RBC DS relating to the Company or any of its subsidiaries
or to the Arrangement, for the purpose of preparing the Fairness Opinion was, at
the date the Information was provided to RBC DS, and is, except as has been
disclosed in writing to RBC DS, complete, true and correct in all material
respects, and did not, and does not, contain any untrue statement of a material
fact in respect of the Company, its subsidiaries or the Arrangement, and did
not, and does not, omit to state a material fact in respect of the Company, its
subsidiaries or the Arrangement necessary to make the Information not misleading
in light of the circumstances under which the Information was made or provided;
and that (ii) since the dates on which the Information was provided to RBC DS,
except as disclosed in writing to RBC DS, or as publicly disclosed by the
Company, there has been no material change, financial or otherwise, in the
financial condition, assets, liabilities (contingent or otherwise), business,
operations or prospects of the Company or any of its subsidiaries and no
material change has occurred in the Information or any part thereof which would
have, or which would reasonably be expected to have, a material effect on the
Fairness Opinion.
Senior officers of Maverick have represented to RBC DS in a certificate
delivered as of the date hereof, among other things, that (i) the historical
Information (as defined above) provided orally by, or in the presence of, an
officer of Maverick or in writing by Maverick or any of its subsidiaries or
their respective agents to RBC DS relating to Maverick or any of its
subsidiaries or to the Arrangement, for the purpose of preparing the Fairness
Opinion was, at the date the Information was provided to RBC DS, and is, except
as has been disclosed in writing to RBC DS, complete, true and correct in all
material respects, and did not, and does not, contain any untrue statement of a
material fact in respect of Maverick, its subsidiaries or the Arrangement, and
did not, and does not, omit to state a material fact in respect of Maverick, its
subsidiaries or the Arrangement necessary to make the Information not misleading
in light of the circumstances under which the Information was made or provided;
(ii) Information in the form of a projection or forecast, or otherwise related
to a future event or result, such projection, forecast or future event is
represented and certified only as to the reasonableness of the assumptions made
therein, the probable course of action to be taken during the period covered and
the reasonableness of management's judgement as to the probable set of business
and economic conditions for the period covered; and that (iii) since the dates
on which the Information was provided to RBC DS, except as disclosed in writing
to RBC DS, or as publicly disclosed by Maverick, there has been no material
change, financial or otherwise, in the financial condition, assets, liabilities
(contingent or otherwise), business, operations or prospects of Maverick or any
of its subsidiaries and no material change has occurred in the Information or
any part thereof which would have, or which would reasonably be expected to
have, a material effect on the Fairness Opinion.
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In preparing the Fairness Opinion, RBC DS has made several assumptions,
including that all of the conditions required to implement the Arrangement will
be met.
The Fairness Opinion is rendered on the basis of securities markets,
economic, financial and general business conditions prevailing as at the date
hereof and the condition and prospects, financial and otherwise, of the Company,
Maverick and their respective subsidiaries and affiliates, as they were
reflected in the Information and as they have been represented to RBC DS in
discussions with management of the Company and Maverick. In its analyses and in
preparing the Fairness Opinion, RBC DS made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of RBC DS or any party involved in
the Arrangement.
The Fairness Opinion has been provided for the use of the Special Committee
and may not be used by any other person or relied upon by any other person other
than the Special Committee and the Board without the express prior written
consent of RBC DS. The Fairness Opinion is given as of the date hereof and RBC
DS disclaims any undertaking or obligation to advise any person of any change in
any fact or matter affecting the Fairness Opinion which may come or be brought
to RBC DS' attention after the date hereof. Without limiting the foregoing, in
the event that there is any material change in any fact or matter affecting the
Fairness Opinion after the date hereof, RBC DS reserves the right to change,
modify or withdraw the Fairness Opinion.
RBC DS believes that its analyses must be considered as a whole and that
selecting portions of the analyses or the factors considered by it, without
considering all factors and analyses together, could create a misleading view of
the process underlying the Fairness Opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Any attempt to do so could lead to undue
emphasis on any particular factor or analysis. The Fairness Opinion is not to
be construed as a recommendation to any Shareholder as to whether to vote in
favour of the Arrangement.
Fairness Conclusion
Based upon and subject to the foregoing, RBC DS is of the opinion that, as
of the date hereof, the Arrangment is fair from a financial point of view to the
Shareholders.
Yours very truly,
RBC DOMINION SECURITIES INC.
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Annex I
June 10, 2000
Board of Directors
Maverick Tube Corporation
16401 Swingley Ridge Road
Suite 700
Chesterfield, MO 63017
Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial advisor
to Maverick Tube Corporation ("Maverick Tube") in connection with the proposed
combination of Maverick Tube and Prudential Steel Ltd. ("Prudential Steel")
pursuant to a Combination Agreement, to be dated June 11, 2000, between Maverick
Tube and Prudential Steel (the "Combination Agreement") and ancillary documents
(together with the Combination Agreement, the "Transaction Documents"). The
Transaction Documents provide, among other things, for the combination of
Prudential Steel with Maverick Tube through the acquisition of the outstanding
common shares in the capital sock of Prudential Steel (the "Prudential Steel
Common Shares") by a wholly owned Canadian subsidiary of Maverick Tube which
will be established for that purpose (the "Maverick Subsidiary"), as a result of
which Prudential Steel will become an indirect wholly owned subsidiary of
Maverick Tube (the "Transaction"). As set forth more fully in the Transaction
Documents, as a result of the Transaction, subject to certain exceptions,
Prudential Steel Common Shares (other than shares as to which rights of dissent
have been perfected) will be exchanged for exchangeable shares in the capital
stock of Maverick Subsidiary (the "Maverick Subsidiary Exchangeable Shares"), at
a ratio of 0.52 Maverick Subsidiary Exchangeable Shares for each Prudential
Steel Common Share (the "Exchange Ratio"). As set forth in, and subject to the
provisions of, the Transaction Documents, each Maverick Subsidiary Exchangeable
Share will be exchangeable, at the election of the holder thereof, into 1.0
share of Common Stock, par value $0.01 per share, of Maverick Tube (the
"Maverick Tube Common Stock"). The terms and conditions of the Transaction are
more fully set forth in the Transaction Documents.
You have requested Deutsche Bank's opinion, as investment bankers, as to the
fairness, from a financial point of view, to Maverick Tube of the Exchange
Ratio.
In connection with Deutsche Bank's role as financial advisor to Maverick Tube,
and in arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning Prudential Steel and
Maverick Tube and certain internal analyses and other information furnished to
it by Prudential Steel and Maverick Tube. Deutsche Bank has also held
discussions with members of the senior managements of Prudential Steel and
Maverick Tube regarding the businesses and prospects of their respective
companies and the joint prospects of a combined company. In addition, Deutsche
Bank has (i) reviewed the reported prices and
I-1
<PAGE>
Board of Directors
Maverick Tube Corporation
June 10, 2000
Page 2
trading activity for Prudential Steel Common Shares and Maverick Tube Common
Stock, (ii) compared certain financial and stock market information for
Prudential Steel and Maverick Tube with similar information for certain other
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which it deemed comparable in
whole or in part, (iv) reviewed the terms of the Combination Agreement and
certain related documents in the form of the drafts dated June 9, 2000, and (v)
performed such other studies and analyses and considered such other factors as
it deemed appropriate.
Deutsche Bank has not assumed responsibility for independent verification of,
and has not independently verified, any information, whether publicly available
or furnished to it, concerning Prudential Steel or Maverick Tube including,
without limitation, any financial information, forecasts or projections
considered in connection with the rendering of its opinion. Accordingly, for
purposes of its opinion, Deutsche Bank has assumed and relied upon the accuracy
and completeness of all such information and Deutsche Bank has not conducted a
physical inspection of any of the properties or assets, and has not prepared or
obtained any independent evaluation or appraisal of any of the assets or
liabilities, of Prudential Steel or Maverick Tube. With respect to the financial
forecasts and projections made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of Maverick Tube as to the matters covered thereby. In rendering its
opinion, Deutsche Bank expresses no view as to the reasonableness of such
forecasts and projections or the assumptions on which they are based including,
but not limited to, factors impacting the estimates of market demand, sales and
product margins for each of Prudential Steel and Maverick Tube. Deutsche Bank's
opinion is necessarily based upon economic, market and other conditions as in
effect on, and the information made available to it as of, the date hereof.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in all
respects material to its analysis, the Combination Agreement will be entered
into in substantially the form of the drafts of the Transaction Documents dated
June 9, 2000, the representations and warranties of Maverick Tube and Prudential
Steel contained in the Transaction Documents are true and correct, Maverick Tube
and Prudential Steel will each perform all of the covenants and agreements to be
performed by it under the Transaction Documents and all conditions to the
obligations of each of Maverick Tube and Prudential Steel to consummate the
Transaction will be satisfied without any waiver thereof. Deutsche Bank has also
assumed that all material governmental, regulatory or other approvals and
consents required in connection with the consummation of the Transaction will be
obtained and that in connection with obtaining any necessary governmental,
regulatory or other approvals and consents, or any amendments, modifications or
waivers to any agreements, instruments or orders to which either Maverick Tube
or Prudential Steel is a party or is subject or by which it is bound, no
limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on
Maverick Tube or Prudential Steel or materially reduce the contemplated benefits
of the Transaction to Maverick Tube. In addition, the management of Maverick
Tube has informed Deutsche Bank, and accordingly for purposes of rendering its
opinion Deutsche Bank has assumed, that the Transaction will constitute a tax-
free
I-2
<PAGE>
Board of Directors
Maverick Tube Corporation
June 10, 2000
Page 3
reorganization or exchange under the Internal Revenue Code of 1986, as amended,
and that the Transaction will be accounted for as a pooling of interests.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Maverick Tube and is not a recommendation to the stockholders of
Maverick Tube to approve the Transaction. This opinion is limited to the
fairness, from a financial point of view, to Maverick Tube of the Exchange
Ratio, and Deutsche Bank expresses no opinion as to the merits of the underlying
decision by Maverick Tube to engage in the Transaction or as to the prices at
which the Maverick Subsidiary Exchangeable Shares or the Maverick Tube Common
Stock will be traded in the future, including following the consummation of the
Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
Maverick Tube in connection with the Transaction, a substantial portion of which
is contingent upon consummation of the Transaction. We are an affiliate of
Deutsche Bank AG (together with its affiliates, the "DB Group"). In the ordinary
course of business, members of the DB Group may actively trade in the securities
and other instruments and obligations of Maverick Tube and Prudential Steel for
their own accounts and for the accounts of their customers. Accordingly, members
of the DB Group may at any time hold a long or short position in such
securities, instruments and obligations.
Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to Maverick Tube.
Very truly yours,
DEUTSCHE BANK SECURITIES INC.
I-3
<PAGE>
ANNEX J
SECTION 184 OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
184 (1) Subject to sections 185 and 234, a holder of shares of any class of a
corporation may dissent if the corporation resolves to
(a) amend its articles under section 167 and 168 to add, change or
remove any provisions restricting or constraining the issue or
transfer of shares of that class,
(b) amend its articles under section 167 to add, change or remove any
restrictions on the business or businesses that the corporation may
carry on,
(c) amalgamate with another corporation, otherwise than under section
178 or 180.1,
(d) be continued under the laws of another jurisdiction under section
182, or
(e) sell, lease or exchange all or substantially all its property under
section 183.
(2) A holder of shares of any class of series of shares entitled to vote
under section 170, other than section 170 (1) (a), may dissent if the
corporation resolves to amend its articles in a manner described in that
section.
(3) In addition to any other right he may have, but subject to subsection
(20), a shareholder entitled to dissent under this section and who complies with
this section is entitled to be paid by the corporation the fair value of the
shares held by him in respect of which he dissents, determined as of the close
of business on the last business day before the day on which the resolution from
which he dissents was adopted.
(4) A dissenting shareholder may only claim under this section with respect
to all the shares of a class held by him or on behalf of any one beneficial
owner and registered in the name of the dissenting shareholder.
(5) A dissenting shareholder shall send to the corporation a written
objection to a resolution referred to in subsection (1) or (2)
(a) at or before any meeting of shareholders at which the resolution is
to be voted on, or
(b) if the corporation did not send notice to the shareholder of the
purpose of the meeting or of his right to dissent, within a
reasonable time after he learns that the resolution was adopted and
of his right to dissent.
(6) An application may be made to the Court by originating notice after the
adoption of a resolution referred to in subsection (1) or (2),
(a) by the corporation, or
(b) by a shareholder if he has sent an objection to the corporation
under subsection (5),
to fix the fair value in accordance with subsection (3) of the shares of a
shareholder who dissents under this section.
J-1
<PAGE>
-2-
(7) If an application is made under subsection (6), the corporation shall,
unless the Court otherwise orders, send to each dissenting shareholder a written
offer to pay him an amount considered by the directors to be the fair value of
the shares.
(8) Unless the Court otherwise orders, an offer referred to in subsection (7)
shall be sent to each dissenting shareholder
(a) at least 10 days before the date on which the application is
returnable, if the corporation is the applicant, or
(b) within 10 days after the corporation is served with a copy of the
originating notice, if a shareholder is the applicant.
(9) Every offer made under subsection (7) shall
(a) be made on the same terms, and
(b) contain or be accompanied by a statement showing how the fair value
was determined,
(10) A dissenting shareholder may make an agreement with the corporation for
the purchase of his shares by the corporation, in the amount of the
corporation's offer under subsection (7) or otherwise, at any time before the
Court pronounces an order fixing the fair value of the shares.
(11) A dissenting shareholder
(a) is not required to give security for costs in respect of an
application under subsection (6), and
(b) except in special circumstances shall not be required to pay the
costs of the application or appraisal.
(12) In connection with an application under subsection (6), the Court may
give directions for
(a) joining as parties all dissenting shareholders whose shares have not
been purchased by the corporation and for the representation of
dissenting shareholders who, in the opinion of the Court, are in need
of representation,
(b) the trial of issues and interlocutory matters, including pleadings
and examination for discovery,
(c) the payment to the shareholder of all or part of the sum offered by
the corporation for the shares,
(d) the deposit of the share certificates with the Court or with the
corporation or its transfer agent,
(e) the appointment and payment of independent appraisers, and the
procedures to be followed by them,
J-2
<PAGE>
-3-
(f) the service of documents, and
(g) the burden of proof on the parties.
(13) On an application under subsection (6), the Court shall make an order
(a) fixing the fair value of the shares in accordance with subsection (3)
of all dissenting shareholders who are parties to the application,
(b) giving judgment in that amount against the corporation and in favour
of each of those dissenting shareholders, and
(c) fixing the time within which the corporation must pay that amount to
a shareholder.
(14) On
(a) the action approved by the resolution from which the shareholder
dissents becoming effective,
(b) the making of an agreement under subsection (10) between the
corporation and the dissenting shareholder as to the payment to be
made by the corporation for his shares, whether by the acceptance of
the corporation's offer under subsection (7) or otherwise, or
(c) the pronouncement of an order under subsection (13),
whichever first occurs, the shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of his shares in the
amount agreed to between the corporation and the shareholder or in the amount of
the judgment, as the case may be,
(15) Subsection (14) (a) does not apply to a shareholder referred to in
subsection (5) (b).
(16) Until one of the events mentioned in subsection (14) occurs,
(a) the shareholder may withdraw his dissent, or
(b) the corporation may rescind the resolution,
and in either event proceedings under this section shall be discontinued.
(17) The Court may in its discretion allow a reasonable rate of interest on
the amount payable to each dissenting shareholder, from the date on which the
shareholder ceases to have any rights as a shareholder by reason of subsection
(14) until the date of payment.
(18) If subsection (20) applies, the corporation shall, within 10 days after
(a) the pronouncement of an order under subsection (13), or
(b) the making of an agreement between the shareholder and the
corporation as to the payment to be made for his shares,
J-3
<PAGE>
-4-
notify each dissenting shareholder that it is unable lawfully to pay dissenting
shareholders for their shares.
(19) Notwithstanding that a judgment has been given in favour of a dissenting
shareholder under subsection (13) (b), if subsection (20) applies, the
dissenting shareholder, by written notice delivered to the corporation within 30
days after receiving the notice under subsection (18), may withdraw his notice
of objection, in which case the corporation is deemed to consent to the
withdrawal and the shareholder is reinstated to his full rights as a
shareholder, failing which he retains a status as a claimant against the
corporation, to be paid as soon as the corporation is lawfully able to do so or,
in a liquidation, to be ranked subordinate to the rights of the creditors of the
corporation but in priority to its shareholders.
(20) A corporation shall not make a payment to a dissenting shareholder under
this section if there are reasonable grounds for believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
J-4
<PAGE>
ANNEX K
================================================================================
ADDITIONAL INFORMATION REGARDING PRUDENTIAL
[LOGO]
PRUDENTIAL STEEL LTD.
2000
NOTICE OF
MEETING AND INFORMATION CIRCULAR
ANNUAL & SPECIAL MEETING OF SHAREHOLDERS
3:30 p.m.
May 1, 2000
Calgary Petroleum Club
Calgary, Alberta
K-1
<PAGE>
[LOGO OF PRUDENTIAL]
Notice of
Annual and Special Meeting of Shareholders
The 2000 Annual and Special Meeting of Shareholders will be held at 3:30 p.m. on
Monday, May 1, 2000 at the Calgary Petroleum Club, Calgary, Alberta for the
following purposes:
1. To elect the Board of Directors for 2000;
2. To appoint auditors for 2000;
3. To renew the Shareholder Protection Rights Plan Agreement of the
Corporation; and
4. To transact any other business properly before the Meeting.
Shareholders as of March 24, 2000 will be entitled to vote at the Meeting. An
Information Circular accompanies this Notice and describes the nature of the
business to be conducted at the Meeting in detail. The text of the resolution
renewing the Shareholder Protection Rights Plan Agreement is included in the
Information Circular under the heading "Shareholder Protection Rights Plan
Agreement -- Confirmation by Shareholders".
If you cannot attend the Meeting in person, please complete the enclosed form of
proxy and return it to: Valiant Corporate Trust Company, #510, 550 - 6th Ave.
S.W., Calgary, Alberta T2P 0S2 in the envelope provided. For your proxy vote to
be recorded, the proxy must be received at the above address no later than 4:00
p.m. on Friday, April 28, 2000.
DATED at the City of Calgary, in the Province of Alberta, this 27th day of
March, 2000.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ J. Donald Wilson
J. DONALD WILSON
President and Chief Executive Officer
K-2
<PAGE>
[LOGO OF PRUDENTIAL]
Invitation To Shareholders
Dear Prudential Steel Shareholder:
We hope you will come to our Annual and Special Meeting at 3:30 p.m. on Monday,
May 1, 2000 at the Calgary Petroleum Club where we will discuss Prudential
Steel's performance in the past year, share with you our views on the industry
and our plans for the future. You will have an opportunity to meet members of
the Board of Directors as well as our senior management team and ask questions
either in the course of the Meeting or informally, before or after the Meeting.
We look forward to seeing you there.
Sincerely,
/s/ Norman W. Robertson /s/ J. Donald Wilson
Norman W. Robertson J. Donald Wilson
Chairman of the Board President and Chief Executive Officer
K-3
<PAGE>
GENERAL INFORMATION
--------------------------------------------------------------------------------
This Information Circular is furnished in connection with the solicitation of
proxies by the management of Prudential Steel Ltd. ("Prudential Steel" or the
"Corporation") to be used at the Annual and Special Meeting of Shareholders
noted herein for the purposes set out in the Notice of Meeting. The cost of
solicitation by management will be borne by the Corporation.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
--------------------------------------------------------------------------------
As of the close of business on March 24, 2000, there were 30,239,106 issued and
outstanding common shares of Prudential Steel. Each common share confers upon
the holder thereof the right to one vote.
The Corporation has prepared, as of the close of business on March 24, 2000, a
list of registered shareholders entitled to receive the Notice of Meeting and
the number of Prudential Steel common shares held by each such shareholder. A
holder of common shares named in the list is entitled to vote the shares shown
opposite his/her name at the Meeting except to the extent that such holder has
transferred the ownership of those shares after March 24, 2000 and the
transferee of those shares establishes that he/she owns the shares and requests
not later than April 21, 2000, that his/her name be included in the list of
shareholders before the Meeting, in which case the transferee is entitled to
vote such shares at the Meeting.
Any shareholder may examine the list of shareholders during usual business hours
at the head office of Prudential Steel or at the Meeting. The register of
transfers will not be closed.
The following table lists, as of March 24, 2000, the persons who are known to
the directors or senior officers of the Corporation to own beneficially, either
directly or indirectly, or exercise control or direction over more than 10% of
the outstanding common shares of the Corporation:
Name of Number of % of
Registered Common Common
Shareholder Shares Held Shares Held
------------ ------------ ------------
CDS & Co.* 25,377,151 84%
CEDE & Co.* 4,833,645 16%
* Beneficial shareholders behind CDS & Co. and CEDE & Co. are not known to
the Corporation. CDS & Co. and CEDE & Co. are clearing agencies with a
number of participants which hold shares on behalf of their clients. The
total percentage of common shares shown above does not reflect a small
number of shareholders who have directly registered their shares.
[LOGO] PRUDENTIAL STEEL LTD.
K-4
<PAGE>
BUSINESS OF THE MEETING
--------------------------------------------------------------------------------
1. Appointment of Auditors
It is proposed that the firm of Ernst & Young LLP, who have acted as Prudential
Steel's auditors for more than five years, be appointed as auditors to hold
office until the close of the next annual meeting of Shareholders.
2. Election of the Board of Directors
It is proposed that 8 directors be elected to the Board to hold office until the
next annual meeting of Shareholders or until their successors are elected or
appointed. The nominees proposed for election to the Board of Directors of
Prudential Steel are listed in this Information Circular under the section
entitled "NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS."
3. Renewal of the Shareholder Protection Rights Plan Agreement of the
Corporation
It is proposed that the Shareholder Protection Rights Plan Agreement of the
Corporation be renewed. Details are set out in the section entitled "SHAREHOLDER
PROTECTION RIGHTS PLAN AGREEMENT."
Voting on Business of the Meeting
On any ballot that may be called for at the Meeting, the shares represented by
proxies in favour of management proxyholders will be voted as follows:
IN FAVOUR of the appointment of Ernst & Young LLP as auditors of Prudential
Steel;
IN FAVOUR of the election of the nominees for the Board of Directors set out in
this Information Circular; and
IN FAVOUR of the renewal of the Shareholder Protection Rights Plan Agreement of
the Corporation;
UNLESS a shareholder has specified in the proxy that his/her shares are to be
withheld from voting or voted against any of these matters.
For further details on proxy voting, see the section entitled "PROXY VOTING
PROCEDURES" in this Information Circular.
[LOGO] PRUDENTIAL STEEL LTD.
K-5
<PAGE>
NOMINEES FOR
ELECTION TO THE BOARD OF DIRECTORS
--------------------------------------------------------------------------------
The persons listed below are nominees for election. All have served as members
of the Board since the dates indicated. It is not contemplated that any nominee
will be unable to serve on Prudential Steel's Board. However, if that should
occur for any reason prior to the Meeting, proxies will not be voted with
respect to such vacancy.
<TABLE>
<CAPTION>
Director Board Common Shares Owned,
Since Committees Controlled or Directed (1)
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Douglas D. Baldwin
Calgary, Alberta 1999 Audit, Compensation 2,500
[PHOTO]
Mr. Baldwin, 63, is currently a director and President and Chief Executive
Officer at TransCanada Pipelines Limited. He was elected to the Board of
TransCanada in April 1999 and was appointed President and C.E.O. in
September 1999. Mr. Baldwin retired from Imperial Oil Limited at the end of
1998. Prior to his retirement he was a director and Senior Vice President
of Imperial.
---------------------------------------------------------------------------------
George S. Dembroski
Toronto, Ontario 1995 Audit, Pension 39,000
[PHOTO]
Until his retirement in 1998, Mr. Dembroski, 65, was Vice Chairman and a
Director of RBC Dominion Securities Limited. He serves on the Boards of
several public companies including Cameco Corporation, Devtek Corporation,
Electrohome Limited, Electrohome Broadcasting Inc., Extendicare Inc.,
Middlefield Bancorp Limited, Murphy Oil Corporation and Morrison Middlefield
Resources.
---------------------------------------------------------------------------------
Rhys T. Eyton 1995 Compensation, Governance 15,000
Calgary, Alberta
[PHOTO]
Mr. Eyton, F.C.A., 64, retired as Chairman of Canadian Airlines Corporation
Ltd. in 1995. He currently serves as Chairman of Canadian Hotel Income
Properties and on the Boards of Trimac Corporation and Clarica Life
Insurance Company. Mr. Eyton also serves on the Boards of several advisory,
charitable and private organizations.
</TABLE>
[LOGO] PRUDENTIAL STEEL LTD.
K-6
<PAGE>
<TABLE>
<CAPTION>
Director Board Common Shares Owned,
Since Committees Controlled or Directed (1)
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Dennis G. Flanagan 1997 Governance, Audit, Compensation 1,500
Calgary, Alberta
[POTO]
Mr. Flanagan, 60, was the President and C.E.O. of ELAN Energy Inc. and its
predecessor companies from 1978 to 1994, after which he became Executive
Chairman of the company until it was acquired by Ranger Oil Limited in
1997. He serves on the Boards of NAL Energy Inc. and Caravan Oil & Gas
Limited. He has served on the Boards and committees of many other community
and professional organizations.
---------------------------------------------------------------------------------
Donald A. Pether
Dundas, Ontario 1999 Governance, Pension 2,100
[PHOTO]
Mr. Pether, 52, is currently the Executive Vice President of Dofasco Inc.,
and General Manager, Dofasco Hamilton. He was appointed to his current
position in 1997, but began his career at Dofasco in 1970. He is President
of DoSol Galva Inc. and is a member of the management committee of Gallatin
Steel.
---------------------------------------------------------------------------------
Norman W. Robertson 1973 Compensation, Governance 15,500
Calgary, Alberta
[PHOTO]
Mr. Robertson, 63, was elected as Chairman of the Board of Prudential Steel
in 1995. He retired as President and C.E.O. of ATCO Enterprises Inc. in
1994. Mr. Robertson currently serves on the Boards of Clarica Life
Insurance Company and Tesco Corporation.
</TABLE>
[LOGO] PRUDENTIAL STEEL LTD.
K-7
<PAGE>
<TABLE>
<CAPTION>
Director Board Common Shares Owned,
Since Committees Controlled or Directed (1)
---------------------------------------------------------------------------------
<S> <C> <C> <C>
D.O. (Don) Sabey, Q.C. 1994 Audit, Pension 13,000
Calgary, Alberta
[PHOTO]
Mr. Sabey, Q.C., 69, is a senior partner with the law firm of Bennett
Jones. He currently serves on the Board of Deseret Ranches of Alberta Ltd.
He is a former Bencher of the Law Society of Alberta and is Past President
of the Calgary Bar Association. He has served on the Boards and committees
of many other community, civic and professional organizations.
---------------------------------------------------------------------------------
J. Donald Wilson
Calgary, Alberta 1984 None 9,500 (2)
[PHOTO]
Mr. Wilson, 61, is President and Chief Executive Officer of Prudential
Steel. He has been with Prudential Steel since 1967 and progressed through
the commercial side of the organization, reaching the position of Vice
President, Sales in 1974, Executive Vice President and General Manager in
1984 and was appointed to his present position in 1985. He has served on
the Boards of many community organizations, and currently serves as a Vice
President and a Director of the Calgary Exhibition and Stampede.
</TABLE>
Notes:
-----
(1) The non-employee directors of the Corporation have been granted options to
purchase an aggregate of 112,500 common shares. See "Directors'
Compensation".
(2) The shares listed are owned by Mr. Wilson's wife. Mr. Wilson disclaims
beneficial ownership of such shares.
Mr. Doug McIntosh will retire from the Prudential Steel Board of Directors
effective the day of the Meeting. We sincerely thank Mr. McIntosh for his many
years of service to the Corporation.
[LOGO] PRUDENTIAL STEEL LTD.
K-8
<PAGE>
1999 BOARD COMMITTEE ASSIGNMENTS
--------------------------------------------------------------------------------
The Board has four committees, which focus on specific areas of responsibility
necessary to effectively govern the Corporation. Each committee is comprised
entirely of outside directors and each has a majority of unrelated directors.
Audit Committee
The Audit Committee monitors audit functions and preparation of financial
statements. The Committee regularly meets with Prudential Steel's auditors
independently from management. While the Corporation's internal controls and
management information systems are the responsibility of management, the Audit
Committee reviews and oversees these areas and periodically directs the external
auditors to test these controls. The Committee also reviews the Corporation's
insurance program, although business risk issues are addressed by the Board as a
whole.
Chairman: D.O. Sabey
Members: G.S. Dembroski, D.G. Flanagan
D.D. Baldwin
Compensation and Succession Committee
The Compensation and Succession Committee reviews and approves compensation
levels, policies and programs with respect to Prudential Steel's Chief Executive
Officer and other senior officers. The Committee seeks to ensure that executive
compensation is competitive and aligned to shareholders' interests and
Prudential Steel's performance. It is also responsible for setting directors'
compensation. In addition, the Committee conducts an annual assessment of the
Chief Executive Officer which includes an analysis of financial performance
measures and input from all other directors on other key elements of the CEO's
leadership of the Corporation. The Committee ensures that effective short-term
and long-term succession plans are in place for senior executives of the
Corporation, including the Chief Executive Officer.
Chairman: R.T. Eyton
Members: D.G. Flanagan, D.D. Baldwin,
N.W. Robertson
Governance and Nominating Committee
The Governance and Nominating Committee is responsible for developing the
Corporation's approach to governance issues. This includes reviewing and making
recommendations as to the size of the Board, the nomination of suitable director
candidates and the establishment of an appropriate Board Committee structure. In
addition, the Committee has put into place a comprehensive annual evaluation of
the performance of the Board of Directors which involves input from all Board
members and is used in setting Board goals and priorities.
Chairman: D.G. Flanagan
Members: R.T. Eyton, D.A. Pether,
N.W. Robertson
Pension Committee
The Pension Committee addresses pension issues including funding, pension fund
performance, regulatory and other matters.
Chairman: G.S. Dembroski
Members: D.A. Pether, D.O. Sabey
[LOGO] PRUDENTIAL STEEL LTD.
K-9
<PAGE>
CORPORATE GOVERNANCE
--------------------------------------------------------------------------------
Under the rules of The Toronto Stock Exchange, Prudential Steel is required to
disclose information relating to its corporate governance practices with
reference to guidelines adopted by the Exchange. The corporate governance
practices are disclosed in Exhibit 1 to this Information Circular.
This disclosure statement, which indicates that the Corporation is in alignment
with the TSE guidelines, has been prepared by the Governance and Nominating
Committee of the Board and has been approved by the Board of Directors.
DIRECTORS' COMPENSATION
--------------------------------------------------------------------------------
Directors' compensation is only paid to outside directors of Prudential Steel.
Annual Retainer: $12,000
Board Meeting Fee: $1,500
Committee Meeting Fee: $1,000
Committee Chairmen: Additional $500 per committee meeting
Chairman of the Board: Annual Retainer of $75,000 plus $1,800 per
meeting
Prudential Steel's Stock Option Plan permits the issuance of options to
non-employee directors to acquire up to an aggregate of 350,000 common shares in
total for all such directors. During the year ended December 31, 1999, 112,500
options were granted to non-employee directors of the Corporation. No other
options have been granted to non-employee directors.
REPORT ON EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
Executive Compensation Policy
The philosophy of the Compensation and Succession Planning Committee in
determining executive compensation is based on two overriding principles:
i) Pay for Performance. The Committee believes that a significant proportion
of executive compensation should be "at risk" and only paid if specific
performance targets are achieved; and
ii) Attraction and Retention of Qualified Executives. The executive
compensation package offered by Prudential Steel must enable the
Corporation to attract and retain qualified and experienced people capable
of carrying out Prudential Steel's objectives. To accomplish this, total
compensation is comprised of a base salary and a Short Term Incentive Plan
which is based on achievement of financial objectives. Overall compensation
objectives are set at a level between the median and upper levels of cash
compensation paid to executives with similar positions at Canadian
companies of comparable size and scope of operations.
The Committee also believes it is appropriate to provide executives with a
long-term incentive linked to increasing the value of Prudential Steel's common
shares and has implemented a Stock Option Plan for this purpose.
[LOGO] PRUDENTIAL STEEL LTD.
K-10
<PAGE>
Components of Executive Compensation
Executive compensation consists of the following components:
i) Base Salary and Benefits;
ii) Short Term Incentive Plan;
iii) Stock Option Awards; and
iv) Pension Benefits.
Base Salary and Benefits
Base salaries for executive officers are set having regard to the following
factors:
. Base salaries of executives with similar responsibilities at comparable
Canadian companies;
. Individual and corporate performance; and
. Potential for advancement.
Except in respect of pension arrangements and the Short Term Incentive Plan, the
Corporation's executives participate in Prudential Steel's various benefit
programs on the same basis as all employees.
Short Term Incentive Plan
Executive officers and other management employees participate in the Short Term
Incentive Plan, which provides for the payment of annual bonuses if the
Corporation achieves prescribed financial and operational objectives. These are
established at the beginning of each year and are based upon return on capital
employed. Due to the cyclicality of the Corporation's business with its heavy
independence on oil and gas activity, in those years where the Plan objectives
are not achieved for reasons beyond management control, a discretionary plan
becomes effective. This plan is based on the achievement of personal objectives
and provides incentives of up to 25% of the regular plan incentives.
Stock Option Plan
To align long-term incentive compensation with increases in the value of
Prudential Steel's common shares, stock option awards are granted to executives
under the Stock Option Plan. Stock option award levels relate to:
. The executive officer's position within the Corporation;
. The executive officer's performance; and
. Competitive practices within the industry.
Options are granted at no less than fair market value of the Corporation's
common shares at the date of grant for a maximum term of 10 years. Each option
is granted on such terms with respect to vesting and to the period during which
the option is exercisable following the optionee's termination of employment,
retirement or death, as the Board of Directors may determine at the date the
option is granted.
The aggregate number of Prudential Steel common shares that may be issued under
this plan may not exceed 3,000,000 common shares.
Compensation of the Chief Executive Officer
Mr. Wilson's base salary is set at a level considered to be competitive among
comparable Canadian companies. His target annual bonus is set at 50% of his base
salary if planned earnings are achieved.
The Report on Executive Compensation is submitted by the Compensation and
Succession Planning Committee, which is comprised of the four outside directors
whose names appear below.
Rhys T. Eyton (Chairman)
D.D. Baldwin
D.G. Flanagan
Norman W. Robertson
[LOGO] PRUDENTIAL STEEL LTD.
K-11
<PAGE>
SUMMARY OF EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
Summary Compensation Table
The following table sets out information concerning the total compensation
during the last three fiscal years of the Corporation's Chief Executive Officer
and each of the Corporation's four other most highly compensated executive
officers ("Named Executive Officers") measured by base salary and bonuses during
the year ended December 31, 1999.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------------ --------------------
Other Annual Securities Under All
Name and Salary Bonus Compensation Options Granted Other Compensation
Principal Position Year ($) ($) ($) (1) (#) (2) ($)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.D. Wilson 1999 350,000 43,750 -- 100,028 2,311
President and Chief 1998 315,000 0 -- 0 2,224
Executive Officer 1997 272,760 272,760 -- 81,144 1,966
--------------------------------------------------------------------------------------------------------------------------
R.D. McIntosh (3) 1999 230,625 13,837 -- 43,929 1,545
Senior Vice President 1998 225,000 0 -- 0 1,589
and Chief Operating 1997 183,925 147,140 -- 41,414 1,238
Officer
--------------------------------------------------------------------------------------------------------------------------
R.C. Lee 1999 145,570 14,557 -- 27,728 978
Vice President, 1998 142,040 0 -- 0 1,010
Operations 1997 118,122 94,498 -- 23,974 806
--------------------------------------------------------------------------------------------------------------------------
C.R. Fairman (3) 1999 143,541 0 -- 27,342 964
Vice President, Sales 1998 140,040 0 -- 0 995
1997 124,200 99,360 -- 25,525 900
--------------------------------------------------------------------------------------------------------------------------
F.N. Rea 1999 123,000 12,300 -- 23,429 823
Vice President and Chief 1998 120,000 0 -- 0 847
Financial Officer 1997 101,230 50,615 -- 15,937 684
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
------
(1) Perquisites and other personal benefits received in 1997, 1998 and 1999 do
not exceed the lesser of $50,000 and 10% of the total annual salary and
bonus for any of the Named Executive Officers.
(2) All numbers of shares shown are subsequent to the three for one share split
which occurred November 25, 1997.
(3) Messrs. McIntosh and Fairman retired from the Corporation on January 31,
2000.
1999 Stock Option Grants
The Corporation's Stock Option Plan is described in the "Report on Executive
Compensation". During the year ended December 31, 1999, 432,537 stock options
were granted, of which 252,563 options were granted to executive officers of the
Corporation.
[LOGO] PRUDENTIAL STEEL LTD.
K-12
<PAGE>
Options Exercised During 1999
During the year ended December 31, 1999, 3,534 options to acquire common shares
were exercised, none of which were exercised by executive officers. With respect
to the options exercised during the year ended December 31, 1999, the aggregate
net value (market value less exercise price at the date of exercise) of the
securities under option was $34,646. The following table sets out information
for options held by Named Executive Officers:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Securities Aggregate Unexercised Value of Unexercised
Acquired on Value Options at In-The-Money Options at
Name Exercise (#) Realized December 31, 1999 December 31, 1999
---------------------------------------------------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J.D. Wilson NIL NIL 287,040 127,076 $2,332,124 $848,790
R.D. McIntosh NIL NIL 185,994 57,794 $1,561,890 $376,140
R.C. Lee NIL NIL 45,168 35,719 $315,790 $238,182
C.R. Fairman NIL NIL 103,868 35,850 $860,985 $237,776
F.N. Rea NIL NIL 26,843 28,741 $169,922 $191,470
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pension Plans
During 1999, all of the Named Executive Officers participated in a registered
pension plan which covers all permanent employees of the Corporation. The
following table sets out the annual retirement benefits payable under the
registered pension plan based on various levels of remuneration and years of
service, but is subject to limits imposed by the requirements of the Income Tax
Act (Canada). In addition, Messrs. Wilson and McIntosh are participants in
supplemental arrangements which have the effect of providing to them the
following benefits under the registered pension plan based on their levels of
remuneration and years of service.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Remuneration Years of Service
($) 15 20 25 30 35 40
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
125,000 30,523 40,698 50,873 61,047 71,222 81,396
150,000 37,648 50,198 62,747 75,297 87,846 100,396
175,000 44,773 59,698 74,622 89,547 104,471 119,396
200,000 51,898 69,198 86,497 103,797 121,096 138,396
225,000 59,023 78,698 98,372 118,047 137,722 157,396
250,000 66,149 88,198 110,247 132,297 154,347 176,396
300,000 80,399 107,198 133,998 160,797 187,597 214,396
350,000 94,649 126,198 157,748 189,297 220,847 252,396
400,000 108,899 145,198 181,498 217,797 254,097 290,396
450,000 123,149 164,198 205,248 246,297 287,347 328,396
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
-----
(1) The remuneration covered for purposes of the pension plan calculation is
the base salary plus 50% of any bonus paid. The pension calculation is
based on the average of the best five years out of the last ten years.
(2) The credited years of services for the Named Executive Officers at December
31, 1999 are as follows:
R.D. McIntosh - 33.0 years of service
J.D. Wilson - 32.7 years of service
C.R. Fairman - 27.4 years of service
F.N. Rea - 19.8 years of service
R.C. Lee - 14.9 years of service
(3) It has been the past practice of the Corporation to pay retirement benefits
which are in excess of the amount which can be paid pursuant to the
Corporation's pension plans (based on maximum amounts permitted by Revenue
Canada) under consulting and non-competition agreements which have been
entered into at retirement.
(4) The above retirement benefits which are calculated on a life guaranteed
five year basis (and based on a benefit accrual of 0.95% a year of
remuneration to and including $35,800 and 1.9% a year of remuneration in
excess of $35,800) are reduced after age 65 by an amount approximating
government pension benefits.
[LOGO] PRUDENTIAL STEEL LTD.
K-13
<PAGE>
PERFORMANCE GRAPHS
--------------------------------------------------------------------------------
The following graphs compare the cumulative shareholder return commencing on
April 7, 1994 and ending on December 31, 1999 on the common shares of the
Corporation (assuming a $100 investment was made on April 7, 1994 at the initial
public offering price for common shares of $10) with the cumulative total return
of the TSE 300 Composite Index and the TSE Oil & Gas Services Index, assuming
reinvestment of dividends. The graphs (prepared on an annual and a quarterly
basis) take into account a three for one stock split which occurred November 25,
1997. Prudential Steel's common shares were listed on The Toronto Stock Exchange
on April 7, 1994, and commenced public trading on April 8, 1994.
PERFORMANCE GRAPH (ANNUALLY)
CUMULATIVE VALUE OF A $100 INVESTMENT
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Apr. 7, Dec. 30, Dec. 29, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1994 1995 1996 1997 1998 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Prudential Steel Ltd. $100 $132 $ 93 $235 $465 $234 $450
TSE 300 Composite Index $100 $ 99 $113 $145 $167 $164 $217
TSE Oil & Gas Services Index $ 83 $ 93 $245 $347 $156 $259
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
-----
(1) Assumes $100 invested on April 7, 1994 at the initial public offering price
for the common shares of $10 and with dividends reinvested quarterly at the
closing price on The Toronto Stock Exchange on the dividend payment date.
(2) The Toronto Stock Exchange began tracking the TSE Oil & Gas Services Index
in July, 1994. For purposes of illustration, the TSE Oil & Gas Services
Index comparison is based on $100 invested at the Index level as of
September 30, 1994.
[LOGO] PRUDENTIAL STEEL LTD.
K-14
<PAGE>
PERFORMANCE GRAPH (QUARTERLY)
CUMULATIVE VALUE OF A $100 INVESTMENT
<TABLE>
<CAPTION>
PERFORMANCE GRAPHS
--------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Apr. June. Sep. Dec. Mar. Jun. Sep. Dec. Mar/ June. Sep. Dec.
07/94 30/94 30/94 30/94 31/94 30/95 29/95 29/95 29/96 28/96 30/96 31/96
--------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Prudential Steel Ltd. $100 $108 $146 $132 $123 $120 $110 $ 93 $139 $140 $166 $235
TSE 300 Composite Index $100 $ 93 $102 $ 99 $102 $107 $108 $113 $120 $122 $129 $145
TSE Oil & Gas Services Index $100 $ 83 $ 80 $ 74 $ 83 $ 93 $105 $162 $189 $245
--------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------------------
Mar. Jun. Sep. Dec. Mar. Jun. Sep. Dec. Mar. Jun. Sep. Dec.
31/97 30/97 30/97 31/97 31/98 30/98 30/98 31/98 31/99 30/99 30/99 31/99
--------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Prudential Steel Ltd. $288 $418 $750 $465 $540 $378 $243 $234 $243 $296 $466 $450
TSE 300 Composite Index $144 $159 $175 $167 $189 $185 $142 $164 $168 $179 $178 $217
TSE Oil & Gas Services Index $262 $308 $426 $347 $341 $271 $162 $156 $158 $214 $256 $259
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
-----
(1) Assumes $100 invested on April 7, 1994 at the initial public offering price
for the common shares of $10 and with dividends reinvested quarterly at the
closing price on The Toronto Stock Exchange on the dividend payment date.
(2) The Toronto Stock Exchange began tracking the TSE Oil & Gas Services Index
in July, 1994. For purposes of illustration, the TSE Oil & Gas Services
Index comparison is based on $100 invested at the Index level as of
September 30, 1994.
[LOGO] PRUDENTIAL STEEL LTD.
K-15
<PAGE>
SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT
--------------------------------------------------------------------------------
Background
Prudential Steel and The R-M Trust Company, now CIBC Mellon Trust Company ("CIBC
Mellon"), entered into an agreement dated February 7, 1995 respecting a
shareholder protection rights plan (the "1995 Rights Plan"). The 1995 Rights
Plan was confirmed by the shareholders of the Corporation at its annual meeting
held on April 13, 1995. The 1995 Rights Plan was adopted by the Corporation to
encourage the fair treatment of shareholders in the event of an unsolicited
takeover bid for the common shares of the Corporation. When the 1995 Rights Plan
was adopted, it conformed to accepted practice of Canadian companies at that
time. Under the 1995 Rights Plan, shareholders of the Corporation received, for
each common share issued and outstanding, one right to purchase an additional
common share under the circumstances and on the terms described in the 1995
Rights Plan. Section 5.2 of the 1995 Rights Plan provides that no person will
have any rights thereunder or in respect of any Right issued thereunder after
the close of business on the date of termination of the first annual meeting of
shareholders of the Corporation following the fifth year anniversary of its
date.
The Board of Directors of the Corporation, at a meeting held on March 2, 2000,
determined that it is advisable to renew the 1995 Rights Plan and to amend its
terms to conform to current corporate practices of Canadian companies.
Accordingly, at the meeting, the Board of Directors of the Corporation approved
a new Shareholder Protection Rights Plan Agreement (the "Rights Plan") to be
considered by the shareholders of the Corporation at the Meeting.
The full text of the Rights Plan is set forth in Exhibit B attached to this
Information Circular.
Confirmation by Shareholders
At the Meeting, shareholders of the Corporation will be asked to vote on a
resolution to adopt the Rights Plan. The resolution must be passed by a majority
of the votes cast by Independent Shareholders at the Meeting. Independent
Shareholders are defined in the Rights Plan as all holders of common shares,
excluding any Acquiring Person (as defined in the Rights Plan), any person that
is making or has announced a current intention to make a take-over bid for the
common shares, affiliates, associates and persons acting jointly or in concert
with such excluded persons, and any person who is a trustee of any employee
benefit, share purchase, deferred profit sharing or other plan or trust for the
benefit of employees of the Corporation. As of the date hereof, the Corporation
is not aware of any holder of common shares that would be excluded from the vote
on the basis that such holder is not an Independent Shareholder.
The text of the resolution to adopt the Rights Plan is set forth below:
BE IT RESOLVED THAT:
1. The Shareholder Protection Rights Plan Agreement dated as of May 1, 2000
between Prudential Steel Ltd. (the "Corporation") and CIBC Mellon Trust
Company, as rights agent (a copy of which is attached as Exhibit B to the
Information Circular of the Corporation dated March 27, 2000), as may be
amended pursuant to its terms, is hereby approved and adopted.
2. Any director or officer of the Corporation is hereby authorized, for and
on behalf of the Corporation, to execute (whether under the corporate seal
of the Corporation or otherwise) and deliver such documents and
instruments
[LOGO] PRUDENTIAL STEEL LTD.
K-16
<PAGE>
and take such actions as such director or officer may determine to be
necessary or advisable to implement this resolution and the matters
authorized hereby, such determination to be conclusively evidenced by the
execution and delivery of any documents or instruments and the taking of
any such actions.
On any ballot that may be called for at the Meeting, the persons named in the
enclosed form of proxy, if named as proxyholder, intend to vote in favour of the
resolution adopting the Rights Plan unless a shareholder has specified in his
proxy that his shares are to be voted against such resolution.
The Board of Directors reserves the right to alter any terms of or not to
proceed with the Rights Plan at any time prior to the Meeting in the event that
the Board of Directors determines that it would not be in the best interests of
the Corporation and its shareholders to do so in light of the circumstances at
the time.
Recommendation of the Board of Directors
The Board of Directors considered the appropriateness of renewing the 1995
Rights Plan, received the advice of its legal advisors and concluded, for the
reasons discussed below, that it is in the best interests of the Corporation and
its shareholders to adopt the Rights Plan. Accordingly, the Board of Directors
unanimously recommends that shareholders adopt the Rights Plan by voting in
favour of the resolution to be submitted to the Meeting.
Purpose of the Rights Plan
The Rights Plan of the Corporation is intended to encourage the fair treatment
of shareholders in the event of an unsolicited take-over bid for the common
shares of the Corporation. The Rights Plan will also provide all shareholders of
the Corporation with an equal opportunity to share in any premium paid upon an
acquisition of control, allow both the shareholders and the Board of Directors
adequate time to assess a take-over bid made for the common shares of the
Corporation in relation to the circumstances and prospects of the Corporation
and allow a reasonable period of time for the Board of Directors to explore and
develop alternative courses of action in an attempt to maximize shareholder
value, if the Board of Directors is of the opinion that it is appropriate to do
so. At the date of this Information Circular, the Board of Directors is not
aware of any specific take-over bid for the common shares that has been made or
is contemplated.
It is not the intention of the Board of Directors in proposing the Rights Plan
for adoption by the shareholders to secure the continuance in office of the
existing members of the Board of Directors or to avoid an acquisition of control
of the Corporation in a transaction that is fair and in the best interests of
the shareholders. The rights of shareholders under existing law to seek a change
in the management of the Corporation or to influence or promote action of
management in a particular manner will not be affected by the Rights Plan. The
adoption of the Rights Plan will not affect the duty of the Board of Directors
to act honestly and in good faith with a view to the best interests of the
Corporation and its shareholders.
The Board of Directors believes that under the existing statutory rules relating
to take-over bids there is not sufficient time for the directors to fully assess
offers and to explore and develop alternatives for shareholders in the event of
a bid. The time required to consider and complete a change of control
transaction must be considered from both the perspective of the Corporation and
of potential purchasers. Under the statutory take-over bid rules, a take-over
bid must remain open in Canada for a minimum of 21 days. The result is that
shareholders may fail, in the absence of the Rights Plan, to fully assess the
circumstances of the Corporation or to realize the maximum value for their
[LOGO] PRUDENTIAL STEEL LTD.
K-17
<PAGE>
common shares. Accordingly, the directors believe that the Rights Plan is an
appropriate mechanism to ensure that they will be able to discharge their
responsibilities to assist shareholders in responding to a take-over bid.
The provisions of the Rights Plan relating to Permitted Bids, which are
described below under "The Rights Plan - Permitted Bid", will permit
shareholders to tender to a take-over bid which is a "Permitted Bid" regardless
of the views of the Board of Directors as to the acceptability of the bid. The
Board of Directors believes that the Rights Plan will not adversely limit the
opportunity for shareholders to dispose of their common shares through a
take-over bid for the Corporation which is a Permitted Bid and which provides
fair value to all shareholders. If an acquiror determines not to meet the
requirements of a Permitted Bid, the Board of Directors may, through the
opportunity to negotiate with the acquiror, be able to influence the fairness of
the terms of the take-over bid. Shareholders are advised that the adoption of
the Rights Plan may preclude their consideration or acceptance of offers which
are inadequate and do not meet the requirements of a Permitted Bid. The
directors of the Corporation will continue to be bound to consider fully and
fairly any take-over bid for the common shares of the Corporation and to
discharge their responsibilities with a view to the best interests of the
shareholders.
Shareholder rights plans have been adopted by a large number of publicly held
corporations in Canada and the United States. The terms of the Rights Plan are
substantially similar to those recently adopted by a number of major Canadian
corporations.
THE RIGHTS PLAN
The following is a summary description of the general operation of the Rights
Plan. This summary is qualified in its entirety by reference to the text of the
Shareholder Protection Rights Plan Agreement, a copy of which is set forth in
Exhibit B to this Information Circular.
Capitalized terms used below but not defined below have the meanings ascribed to
them in the Shareholder Protection Rights Plan Agreement.
The Rights
One Right was issued by the Corporation in respect of each common share
outstanding at the close of business on February 7, 1995, the date of
implementation of the 1995 Rights Plan. Pursuant to the 1995 Rights Plan, these
Rights expire at the close of business on May 1, 2000, the date of the Meeting.
It is intended that upon the expiration of the 1995 Rights Plan and the Rights
issued thereunder, new Rights be issued under and pursuant to the Rights Plan.
On March 2, 2000, the Board of Directors authorized, subject to the adoption of
the Rights Plan by the shareholders at the Meeting and the approval of the
Rights Plan by The Toronto Stock Exchange, the issuance at the close of business
on May 1, 2000 (the "Record Time"), being the date of the Meeting, of one Right
in respect of each outstanding common share held by holders of record at the
Record Time. In addition, the Board of Directors authorized the issuance of one
Right in respect of each common share issued after the Record Time and prior to
the earlier of the Separation Time and the Expiration Time. The Corporation will
enter into a Shareholder Protection Rights Plan Agreement dated as of May 1,
2000 with CIBC Mellon Trust Company, as Rights Agent, regarding the exercise of
the Rights, the issue of certificates evidencing the Rights and other related
matters.
Each Right entitles the registered holder thereof to purchase from the
Corporation on the occurrence of certain events, one common share at the price
of $100 per share, subject to adjustments (the "Exercise Price"). The exercise
price payable and the number of
[LOGO] PRUDENTIAL STEEL LTD.
K-18
<PAGE>
securities issuable upon the exercise of the Rights are subject to adjustment
from time to time to prevent dilution upon the occurrence of certain corporate
events affecting the common shares. If a Flip-in Event occurs, each Right would
then entitle the registered holder to receive, upon exercise thereof, that
number of common shares that have a market value at the date of that occurrence
equal to twice the Exercise Price. The Rights are not exercisable until the
Separation Time. The Rights Plan expires upon the termination of the annual
meeting of shareholders of the Corporation held in the year 2003 or, if the
Shareholder Protection Rights Plan Agreement is reconfirmed at such annual
meeting by a resolution passed by a majority of votes cast by Independent
Shareholders who vote in respect thereof, the Rights Plan will expire at the
annual meeting of shareholders of the Corporation held in the year 2006. The
Rights may be redeemed earlier by the Board of Directors with the consent of
shareholders.
Overview of the Rights Plan
The Rights Plan utilizes the mechanism of the Permitted Bid to ensure that a
person seeking control of the Corporation allows shareholders and the Board of
Directors adequate time to assess the bid. The purpose of the Permitted Bid is
to allow a potential bidder to avoid the dilutive features of the Rights Plan by
making a bid in conformity with the conditions specified in the Permitted Bid
provisions. If a person makes a Take-over Bid that is a Permitted Bid, the
Rights Plan will not affect the transaction in any respect.
The Rights Plan should not deter a person seeking to acquire control of the
Corporation if that person is prepared to make a Take-over Bid pursuant to the
Permitted Bid requirements or is prepared to negotiate with the Board of
Directors. Otherwise, a person will likely find it impractical to acquire 20% or
more of the outstanding common shares because the Rights Plan will substantially
dilute the holdings of a person or group that seeks to acquire such an interest
other than by means of a Permitted Bid or on terms approved by the Board of
Directors. When a person or group become an Acquiring Person, the Rights
Beneficially Owned by those persons or their transferees become void thereby
diluting their holdings. The possibility of such dilution is intended to
encourage such a person to make a Permitted Bid or to seek to negotiate with the
Board of Directors the terms of an offer which is fair to all shareholders.
Trading of Rights
The Rights are not exercisable initially and certificates representing the
Rights will not be sent to shareholders. Until the Separation Time, the Rights
will be evidenced only by outstanding common share certificates. The Rights Plan
provides that, until the Separation Time, the Rights will be transferred only
with the associated common shares. Until the Separation Time, or earlier
termination or expiration of the Rights, each new share certificate issued upon
transfer of existing common shares or the issuance of additional common shares,
will contain a notation incorporating the terms of the Shareholder Protection
Rights Plan Agreement by reference. As soon as is practicable following the
Separation Time, separate certificates evidencing the Rights (the "Rights
Certificates") will be mailed to the holders of record of common shares as of
the close of business at the Separation Time, and thereafter the Rights
Certificates alone will evidence the Rights. These provisions are substantially
the same as in the 1995 Rights Plan.
Separation Time
The Rights will be exercisable and begin to trade separately from the common
shares after the Separation Time. Separation Time means the close of business on
the tenth business day after the earlier of:
[LOGO] PRUDENTIAL STEEL LTD.
K-19
<PAGE>
(a) the first date (the "Stock Acquisition Date") of public announcement by
the Corporation or a person or a group of affiliated or associated persons
(an "Acquiring Person") that it has acquired beneficial ownership of 20%
or more of the outstanding common shares other than as a result of, among
other things:
(i) a reduction of the number of common shares outstanding;
(ii) a "Permitted Bid" (see below);
(iii) acquisitions of shares in respect of which the Board of Directors
has waived the provisions of the Rights Plan; or
(iv) acquisitions of shares pursuant to any dividend reinvestment plan or
share purchase plan of the Corporation, a stock dividend or a stock
split or other event pursuant to which a person becomes the
beneficial owner of common shares on the same pro rata basis as
other holders of common shares, and acquisitions pursuant to a
prospectus offering, private placement or plan of arrangement,
amalgamation or other statutory procedure requiring shareholder
approval;
(b) the date of commencement of, or the first public announcement of the
intent of any person, other than the Corporation or any corporation
controlled by the Corporation, to commence a Take-over Bid to acquire 20%
or more of the outstanding common shares; and
(c) the date upon which a Permitted Bid ceases to be a Permitted Bid;
or, in any circumstances, such later date as may be determined by the Board of
Directors, acting in good faith. The Separation Time in the Rights Plan is
defined in substantially the same manner as the 1995 Rights Plan with some minor
amendments, including the addition of clause (c) above.
Acquiring Person
An Acquiring Person is, generally, a person who Beneficially Owns 20% or more of
the outstanding common shares of the Corporation.
The Rights Plan provides certain exceptions to the definition of Acquiring
Person, including the Corporation or any subsidiary, a person who acquires 20%
or more of the outstanding common shares through a Permitted Bid acquisition or
certain prescribed exempt acquisitions. The Rights Plan also excludes from the
definition of Beneficial Ownership, amongst others, a person in its capacity as
investment manager, trust corporation or plan trustee (and clients and accounts
of such persons) provided that the person is not making or proposing to make a
Take-over Bid. Furthermore, a person is deemed not to be the Beneficial Owner of
common shares where the holder of such common shares has agreed to deposit or
tender its common shares pursuant to a Permitted Lock-up Agreement to a
take-over bid made by such person.
In order for an agreement to constitute a Permitted Lock-up Agreement, certain
conditions must be met including, among other things, that the terms of the
Permitted Lock-up Agreement are publicly disclosed and the Permitted Lock-up
Agreement permits the Locked-up Person to withdraw its common shares in order to
deposit or tender the common shares to another Take-over Bid or support another
transaction provided that such other Take-over Bid or transaction: (i) offers a
price or value that exceeds the price or value offered under the Take-over Bid
referred to in the Permitted Lock-up Agreement (the "Lock-up Bid"); or (ii) is
for a number of common shares which is greater than the number of common shares
that the
[LOGO] PRUDENTIAL STEEL LTD.
K-20
<PAGE>
offeror has offered to purchase under the Lock-up Bid by such number as may have
been agreed to in the Permitted Lock-up Agreement provided that such agreed upon
number is not greater than 7% of the number of common shares offered to be
purchased under such Lock-up Bid at a price or value that is not less than the
price or value offered under such Lock-up Bid; or (iii) offers a price or value
which is greater than the price or value offered under the Lock-up Bid by as
much as or more than a specified amount provided that such specified amount is
not greater than 7% of the offering price or value offered under such Lock-up
Bid. In addition, under a Permitted Lock-up Agreement, no "break up" fees that
exceed in the aggregate the greater of: (i) the cash equivalent of 2 1/2% of the
price or value of the consideration payable under the Lock-up Bid; and (ii) 50%
of the amount by which the price or value of the consideration received by a
Locked-up Person under another Take-over Bid or transaction exceeds what such
Locked-up Person would have received under the Lock-up Bid; can be payable by
such Locked-up Person if the Locked-up Person fails to deposit or tender common
shares to the Lock-up Bid or withdraws common shares previously tendered thereto
in order to deposit such common shares to another Take-over Bid or support
another transaction. The definition of Acquiring Person in the Rights Plan is
substantially similar to the 1995 Rights Plan, except that the 1995 Rights Plan
did not contain the concept of a Permitted Lock-up Agreement.
Flip-in Event
Ten business days following a transaction that results in a person becoming an
Acquiring Person (a "Flip-in Event") the Rights will entitle holders to receive,
upon exercise and payment of the exercise price, common shares with a market
value equal to twice the Exercise Price of the Rights. In such event, however,
any Rights beneficially owned by an Acquiring Person (including such person's
associates and affiliates and any other person acting jointly or in concert with
the Acquiring Person and any direct or indirect transferee of such persons) will
be void. Holders of Rights who do not exercise their Rights upon the occurrence
of a Flip-in Event may suffer substantial dilution. The Flip-in Event provisions
in the Rights Plan operate in substantially the same manner as the provisions in
the 1995 Rights Plan.
Permitted Bid
A Take-over Bid will not trigger the dilutive provisions of the Rights Plan if
it meets the Permitted Bid conditions prescribed in the Shareholder Protection
Rights Plan Agreement. A Permitted Bid is a Take-over Bid, made by means of a
take-over bid circular, which:
(a) is made to all registered holders of common shares;
(b) contains, and the take-up and payment for common shares tendered or
deposited is subject to, an irrevocable and unqualified condition that no
common shares will be taken up or paid for pursuant to the Take-over Bid
prior to the close of business on a date which is not less than 60 days
following the date of the Take-over Bid;
(c) contains irrevocable and unqualified provisions that:
(i) unless the Take-over Bid is withdrawn, common shares may be
deposited pursuant to the Take-over Bid at any time prior to the
close of business on the date of first take-up or payment for common
shares under the bid and that all common shares deposited pursuant
to the Take-over Bid may be withdrawn at any time prior to the close
of business on such date;
(ii) more than 50% of the outstanding common shares held by Independent
Shareholders, determined as at the
[LOGO] PRUDENTIAL STEEL LTD.
K-21
<PAGE>
date of first take-up or payment for common shares under the Take-
over Bid, must be deposited to the Take-over Bid and not withdrawn
at the close of business on the date of first take-up or payment for
common shares; and
(iii) in the event that more than 50% of the then outstanding common
shares held by Independent Shareholders shall have been deposited to
the Take-over Bid, the Offeror will make public announcement of that
fact and the Take-over Bid will be extended on the same terms for a
period of not less than 10 business days from the date of such
public announcement.
The Rights Plan also provides for a "Competing Permitted Bid", which is a
Take-over Bid made during the currency of another Permitted Bid that satisfies
all of the requirements of a Permitted Bid except that, provided it is
outstanding for a minimum period of 21 days, it may expire on the same date as
the initial Permitted Bid. These provisions are substantially the same as in the
1995 Rights Plan subject to the following amendments. A Permitted Bid must be
open for 60 days rather than the 75 days required under the 1995 Rights Plan. In
addition, the 1995 Rights Plan gave the Board the discretion to require the
bidder making a Permitted Bid to agree not to take- up shares in circumstances
where a competing Permitted Bid had been launched until the expiry of the
competing Permitted Bid. Under the Rights Plan, the Board has no discretion to
require extensions of Permitted Bids where there is a Competing Permitted Bid.
Take-over Bid
A Take-over Bid is defined in the Rights Plan as an offer to acquire common
shares or securities convertible into common shares, where the common shares
subject to the offer to acquire, together with the common shares into which the
securities subject to the offer to acquire are convertible, and the Offeror's
Securities, constitute in the aggregate 20% or more of the outstanding common
shares at the date of the offer.
Waiver and Redemption
The Board of Directors of the Corporation may, prior to the occurrence of a
Flip-in Event, determine to waive the dilutive effects of the Rights Plan in
respect of a Flip-in Event that would occur as a result of a Take-over Bid that
is made by way of a take-over bid circular to all holders of common shares. In
such case, such waiver would be deemed also to be a waiver, on the same terms
and conditions, in respect of any other Flip-in Event which occurs by reason of
a Take-over Bid made by way of a take-over bid circular to all holders of common
shares made prior to the expiry of the Take-over Bid for which the initial
waiver was given. The Board of Directors may, prior to a Flip-in Event and with
the prior consent of shareholders, waive the dilutive effects of the Rights Plan
in respect of a Flip-in Event that would occur other than as a result of a
Take-over Bid made by way of a take-over bid circular to all holders of common
shares. The Board of Directors of the Corporation may also waive the Rights Plan
in respect of a particular Flip-in Event that has occurred through inadvertence,
provided that the Acquiring Person that inadvertently triggered such Flip-in
Event reduces its beneficial holdings to less than 20% of the outstanding common
shares.
Subject to the prior consent of the holders of common shares or of Rights, at
any time prior to the occurrence of a Flip-in Event, the Board of Directors may
elect to redeem all, but not less than all, of the then outstanding Rights at a
redemption price of $0.00001 per Right. In addition, if an offeror successfully
completes a Permitted Bid, the Board of Directors shall be deemed to have
elected to redeem the Rights. The Redemption and Waiver provisions in the Rights
Plan are more
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K-22
<PAGE>
restrictive than those contained in the 1995 Rights Plan. Under the 1995 Rights
Plan, the Board was granted unfettered discretion to redeem Rights or to waive
the application of the 1995 Rights Plan prior to the occurrence of a Flip-in
Event.
Amendments
The Board of Directors may make amendments to the Rights Plan to correct any
clerical or typographical error or which are required to maintain the validity
of the Rights Plan as a result of any change in any applicable legislation,
rules or regulations thereunder. The Board of Directors may also, prior to
shareholder ratification at the Meeting, supplement or amend the Rights Plan
without the approval of shareholders or holders of Rights to make any changes
which the directors may deem necessary or desirable, provided that no such
supplement or amendment shall be made to the provisions relating to the Rights
Agent except with the concurrence of the Rights Agent. Any supplement or
amendment made after the date of shareholder ratification of the Rights Plan but
prior to the Separation Time may only be made with the prior consent of
shareholders.
Certain Canadian Federal Income Tax Consequences
This description is of a general nature only and is not intended nor should it
be construed to constitute legal or tax advice to any particular shareholder.
Shareholders are advised to consult their own tax advisors taking into account
their own particular circumstances.
The issuance of identical Rights to each holder should not result in any benefit
being conferred on a particular holder and no amount should be required to be
included in income thereon for purposes of the Income Tax Act (Canada)(the "Tax
Act"). However, if at the time the Rights are issued, it is known that certain
holders will not exercise their Rights or will not be entitled to exercise their
Rights, Revenue Canada is of the view that the Rights may not be conferred on
all holders and the value of the benefit, if any, will have to be included in
each holder's income for the taxation year. In the event that the issuance of
Rights results in a shareholder benefit for purposes of the Tax Act, the
Corporation believes that the value of such rights is nominal and no income
inclusion would be required.
Should the Rights result in an income inclusion to a non-resident holder, the
Tax Act deems that such amount will be treated as a dividend. Dividends paid or
credited or deemed to be paid or credited to a non-resident holder of common
shares will be subject to Canadian non-resident withholding tax at the rate of
25% of the gross amount of such dividends under the Tax Act. This rate may be
reduced under an applicable income tax treaty or convention between Canada and
such non-resident holder's country of residence. In the case of a non-resident
holder which is the beneficial owner of such dividends and a resident of the
United States for the purposes of the Canada-United States Income Tax
Convention, 1980, the rate of non-resident withholding tax in respect of
dividends on the common shares will generally be reduced to a rate of 15% of the
gross amount of such dividends (except that where such beneficial owner is a
corporation and owns at least 10% of the voting stock of the Corporation, the
rate of withholding tax is reduced to 5% for dividends paid or credited or
deemed to be paid or credited).
In addition, the Rights will, on the date hereof, be qualified investments under
trusts governed by registered retirement savings plans ("RRSPs"), registered
retirement income funds ("RRIFs"), registered education savings plans ("RESPs")
or deferred profit sharing plans ("DPSPs") under the Tax Act and the regulations
thereunder. The Rights will not, on the date hereof, be foreign property for
purposes of the Tax Act for RRSPs, RRIFs, RESPs or DPSPs and other persons
subject to tax under Part XI of the Tax Act.
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K-23
<PAGE>
PROXY VOTING PROCEDURES
--------------------------------------------------------------------------------
Appointment of Proxyholders
The management nominees for proxyholders named in the enclosed form of proxy are
J. Donald Wilson, President and CEO and Frederick N. Rea, Vice President and
CFO. As a shareholder, you have the right to appoint another person (who need
not be a shareholder) as your proxyholder to attend and act for you at the
Meeting instead of the management nominees. To exercise this right, insert the
name of the proxyholder in the blank spaces provided for that purpose in the
form of proxy and delete or strike out the names of the management nominees.
Note that this deletion must also be initialled by the person or officer signing
the form of proxy.
Revocation of Proxies
Proxies given by shareholders for use at the Meeting may be revoked at any time
prior to their use. In addition to revocation in any other manner permitted by
law, you may revoke the proxy by an instrument in writing signed by you or your
attorney authorized in writing or if the shareholder is a corporation, under its
corporate seal or by an officer or attorney thereof duly authorized. The signed
instrument revoking the proxy must be deposited either with:
Mr. J. Donald Wilson, President and CEO
Prudential Steel Ltd.
c/o Valiant Corporate Trust Company
#510, 550 - 6th Ave. S.W.
Calgary, Alberta T2P 0S2
at any time up to and including Friday, April 28, 2000 or with:
Mr. Norman Robertson
Chairman of the Board
Prudential Steel Ltd.
on the day of the Meeting, Monday, May 1, 2000.
Upon either of such deposits, the proxy is revoked.
Voting by Proxyholders
The enclosed form of proxy affords shareholders an opportunity to specify that
the shares registered in their name shall be voted for or against or withheld
from voting for the election of directors, appointment of auditors and the
renewal of the Shareholder Protection Rights Plan Agreement of the Corporation.
The management proxyholders named in the enclosed form of proxy will vote or
withhold from voting your shares in accordance with your direction on any ballot
that may be called for at the Meeting. In the absence of such direction, your
shares will be voted for the appointment of Ernst & Young LLP as auditors, for
the election of those nominees for the Board of Directors identified in this
Information Circular and for the adoption of the Shareholder Protection Rights
Plan Agreement of the Corporation.
The enclosed form of proxy confers discretionary authority upon the persons
named therein with respect to any amendments or variations to matters identified
in the Notice of Meeting and to any other business which may properly come
before the Meeting. At the time of printing this Information Circular,
management of the Corporation knows of no such amendments, variations or other
business to come before the Meeting other than the matters referred to in the
Notice of Meeting
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K-24
<PAGE>
Advice to Beneficial Holders of Securities
The information set forth in this section is important to shareholders who do
not hold their common shares in their own name, (referred to in this Information
Circular as "Beneficial Shareholders"), who should note that only proxies
deposited by shareholders whose names appear on the records of the Corporation
as the registered shareholders can be recognized and acted upon at the Meeting.
If Prudential Steel shares are listed in an account statement provided to a
shareholder by a broker, then in almost all cases those shares will not be
registered in the shareholder's name on the records of the Corporation. Such
shares will more likely be registered under the name of the shareholder's broker
or a nominee of that broker. In Canada, the vast majority of such shares are
registered under the name of CDS & Co. (the registration name for the Canadian
Depository for Securities), which acts as nominee for many Canadian brokerage
firms. In the United States, shares are often registered under the name of CEDE
& Co. (the registration name for The Depository Trust Companies), which acts as
nominee for many U.S. brokerage firms. Shares held by brokers or their nominees
can only be voted (for or against resolutions) upon the instructions of the
Beneficial Shareholder.
Applicable regulatory policy requires brokers to seek voting instructions from
Beneficial Shareholders in advance of shareholders' meetings. Every
intermediary/broker has its own mailing procedures and provides its own return
instructions, which should be carefully followed by Beneficial Shareholders in
order to ensure that their common shares are voted at the Meeting. Often the
form of proxy supplied to a Beneficial Shareholder by his/her broker is
identical to the form of proxy provided by the Corporation to the registered
shareholders. However, its purpose is limited to instructing the registered
shareholder how to vote on behalf of the Beneficial Shareholder. The majority of
brokers now delegate responsibility for obtaining instructions from clients to
Independent Investor Communications Corporation ("IICC") in Canada and ADP Proxy
Services in the United States. IICC and ADP Proxy Services typically prepare a
machine-readable proxy form, mail those forms to the Beneficial Shareholders and
ask Beneficial Shareholders to return the proxy forms to IICC or ADP Proxy
Services. IICC or ADP Proxy Services then tabulate the results of all
instructions received and provides appropriate instructions respecting the
voting of shares at the Meeting.
A Beneficial Shareholder receiving a proxy form from IICC or ADP Proxy Services
cannot use that proxy to vote common shares directly at the Meeting - the proxy
must be returned to IICC or ADP Proxy Services well in advance of the Meeting in
order to have the common shares represented by such proxy voted.
------------------------------------
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K-25
<PAGE>
ADDITIONAL SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
In addition to this Information Circular and the Corporation's 1999 Annual
Report, a shareholder may obtain without charge upon written request to the Vice
President and Chief Financial Officer of the Corporation at #1800, 140 - 4th
Avenue, S.W., Calgary, Alberta T2P 3N3, a copy of the Corporation's latest
Annual Information Form and any document incorporated therein by reference as
filed each year with Canadian securities commissions and administrators.
CERTIFICATE
--------------------------------------------------------------------------------
The foregoing contains no untrue statement of a material fact and does not omit
to state a material fact that is required to be stated or that is necessary to
make a statement not misleading in the light of the circumstances in which it
was made.
DATED at the City of Calgary, in the Province of Alberta, this 27th day of
March, 2000.
/s/ J. Donald Wilson /s/ Frederick N. Rea
J. Donald Wilson Frederick N. Rea
President and Vice President and Chief Financial Officer
Chief Executive Officer
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K-26
<PAGE>
EXHIBIT 1
--------------------------------------------------------------------------------
This is Exhibit 1 referred to in Exhibit 1 to the Information Circular of
Prudential Steel Ltd. dated March 27, 2000.
PRUDENTIAL STEEL'S ALIGNMENT WITH TSE CORPORATE
GOVERNANCE GUIDELINES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Does
TSE Corporate Governance Prudential
Guidelines Steel Align? Comments
-------------------------------------------- ------------- ---------------------------------------------
<S> <C> <C>
1. Board should explicitly assume Prudential Steel's Board of Directors is responsible to
responsibility for stewardship of oversee the direction, affairs and management of the
the Corporation and specifically for: Corporation. The Board meets a minimum of once in each fiscal
quarter and more frequently, as required. The Board has put into
place explicit policies and processes dealing with the following
matters:
a. adoption of a strategic Yes Annually, the Board and senior management of Prudential Steel
planning process conduct a Strategic Planning Session which is used to review,
assess and adjust, as appropriate, the strategic direction of the
Corporation, set goals and objectives and determine the best use
of corporate capital and resources.
b. identification of principal risks, Yes In the course of the Strategic Planning Session, the principal
and implementing risk management risks to Prudential Steel of various strategic decisions and
systems otherwise are identified and addressed. These are monitored by the
Board through updates at regular Board meetings.
c. succession planning and Yes Each year at the Strategic Planning Session, the CEO identifies
monitoring senior management internal candidates for senior management succession planning
purposes, describes the career development paths which have been
put in place to prepare these candidates for succession and updates
the Board on their progress. This process includes succession
planning for the CEO position on both a short-term and long-term
basis. Board members have an opportunity to meet, receive
presentations from and ask questions of all senior officers of the
company at least 2-3 times a year in addition to working with them
at the annual Strategic Planning Session.
d. communications policy Yes The Board reviews and approves communication to the shareholders
and receives information on communications to Prudential Steel from
its
</TABLE>
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K-27
<PAGE>
<TABLE>
<CAPTION>
Does
TSE Corporate Governance Prudential
Guidelines Steel Align? Comments
-------------------------------------------- ------------- ---------------------------------------------
<S> <C> <C>
shareholders from the Manager of Corporate Communications.
Prudential Steel's website at http://www.prudentialsteel.com
------------------------------
provides shareholders with timely information about the
Corporation's initiatives and financial performance on an ongoing
basis.
e. integrity of internal control Yes The Audit Committee, which is comprised entirely of outside
and management information directors, is responsible for ensuring the integrity of
systems internal control and management information systems.
2. Majority of directors should be Yes In 2000 Prudential Steel will have a Board with a total of eight
"unrelated" (independent from directors. It is the Corporation's policy to keep Board size
management and free from relatively small in order to maintain its efficiency and
conflicting interest) effectiveness. The Board is comprised of a majority of unrelated
directors.
3. Disclose for each director whether Yes Of the eight directors nominated to Prudential Steel's Board
he or she is related, and how for 2000, five will be unrelated directors. Three are considered
that conclusion was reached to be related. The first is the Chief Executive Officer (Mr.
Wilson) of the Corporation. The second (Mr. Sabey) is a partner in
a law firm which provides legal services to Prudential Steel. The
third is a senior employee of Dofasco Inc. (Mr. Pether) which is a
supplier to Prudential Steel.
4. a. Appoint a Committee Yes The Governance and Nominating Committee is responsible for
responsible for reviewing and making recommendations as to the size of the
appointment/assessment of Board, the nomination of suitable director candidates and
directors the establishment of an appropriate Board Committee structure. In
addition, the Committee has put into place a comprehensive annual
evaluation of the performance of the Board of Directors which
involves input from all Board members and is used in setting Board
goals and priorities. The Board undertakes an annual assessment of
Board performance which involves all directors completing a
questionnaire which covers key indices of Board, Committee and
director effectiveness including the Board's effectiveness relative
to its executive compensation policies, the assessment of
management's performance and succession planning. Completed surveys
are reviewed by the Chairman of the Board, who discusses the
assessment results at a scheduled Board meeting. Results of the
survey are used in setting goals for the Board on an annual basis.
</TABLE>
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K-28
<PAGE>
<TABLE>
<CAPTION>
Does
TSE Corporate Governance Prudential
Guidelines Steel Align? Comments
-------------------------------------------- ------------- ---------------------------------------------
<S> <C> <C>
b. Composed exclusively of Yes All members of the Governance and Nominating Committee are
non-management directors, non-management and a majority are unrelated.
the majority of whom are
unrelated
5. Implement a process for assessing Yes The mandate of the Governance and Nominating Committee includes a
the effectiveness of the Board, comprehensive annual evaluation of the performance of the Board
its Committees and individual of Directors.
directors
6. Provide orientation and education Yes The Chairman of the Board and senior management provide
programs for new directors orientation and education for new Board members through interviews
and tours. A comprehensive directors' information manual is also
provided to Board members.
7. Consider reducing size of Board, Yes The Governance and Nominating Committee has responsibility for
with a view to improving making recommendations as to the size of the Board and believes
effectiveness that a Board comprised of eight individuals is appropriate for the
purpose of managing the Corporation's present business.
8. Review compensation of directors Yes The Compensation and Succession Committee reviews and approves
in light of risks and compensation levels, policies and programs with respect to
responsibilities Prudential Steel's directors, Chief Executive Officer and other
senior officers. The Committee seeks to ensure that such
compensation is competitive and aligned to shareholders' interests
and Prudential Steel's performance.
9. a. Committees should generally be Yes Board committees are composed solely of non-management directors.
composed of non-management
directors;
b. Majority of Committee members Yes A majority of the members of each of the Board committees are
should be unrelated unrelated directors.
10. a. Appoint a Committee Yes The Governance and Nominating Committee has been appointed for
responsible for approach to this purpose.
corporate governance issues
11. a. Define limits to management's
responsibilities by
developing mandates for:
(i) the Board Yes Prudential Steel's Board is responsible to oversee the direction,
affairs and management of the Corporation. Any responsibility
which is not delegated to senior management or a Board committee
remains with the full Board.
</TABLE>
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K-29
<PAGE>
<TABLE>
<CAPTION>
Does
TSE Corporate Governance Prudential
Guidelines Steel Align? Comments
-------------------------------------------- ------------- ---------------------------------------------
<S> <C> <C>
(ii) the CEO Yes The Board has established a specific mandate for the CEO.
b. The Board should approve CEO's Yes A comprehensive assessment of the CEO's performance is conducted
corporate objectives annually. Prudential Steel's financial performance relative to its
business plan and key performance measures provide the cornerstone
of this assessment. In addition, all Board members complete an
annual CEO performance assessment questionnaire covering other
aspects of performance, including the development of appropriate
strategic direction and action plans for the company, meeting key
objectives, identification of significant issues facing Prudential
Steel and the development of appropriate solutions for these, as
well as involvement in industry and community affairs.
12. Establish procedures to enable the Yes The nominees to the Board consist of a majority of unrelated
Board to function independently directors.
of management
Prudential Steel has also separated the roles of Chairman of the
Board and Chief Executive Officer. The Chairman of the Board, Mr.
Norman Robertson, is an outside, unrelated director.
All Board Committees are comprised entirely of outside directors
and all have a majority of unrelated directors.
The Board holds "in camera" Board sessions, as needed, where
members of management are excluded.
The Audit Committee holds an annual "in camera" session with
Prudential Steel's auditors to review the financial status of the
Corporation. Members of management are also excluded from this
session.
13. a. Establish an Audit Committee Yes The Audit Committee monitors audit functions and preparation of
with a specifically defined financial statements. The Committee regularly meets with
mandate Prudential Steel's auditors and management and has access to the
auditors independently from management. While the Corporation's
internal controls and management information systems are the
responsibility of management, the Audit Committee reviews and
oversees these areas and periodically directs the external
auditors to test these controls.
b. All members should be Yes All members of the Audit Committee are non-management directors.
non-management directors
</TABLE>
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K-30
<PAGE>
<TABLE>
<CAPTION>
Does
TSE Corporate Governance Prudential
Guidelines Steel Align? Comments
-------------------------------------------- ------------- ---------------------------------------------
<S> <C> <C>
14. Implement a system to enable Yes Individual directors can engage outside advisers with the
individual directors to engage authorization of the Chairman of the Board or the Chairman of a
outside advisers, at the committee.
Corporation's expense
</TABLE>
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K-31
<PAGE>
EXHIBIT 2
--------------------------------------------------------------------------------
This is Exhibit 2 referred to in the foregoing Information Circular of
Prudential Steel Ltd. dated March 27, 2000.
Shareholder Protection Rights Plan Agreement
--------------------------------------------------------------------------------
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K-32
<PAGE>
SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT
Dated as of May 1, 2000
BETWEEN
PRUDENTIAL STEEL LTD.
and
CIBC MELLON TRUST COMPANY
as Rights Agent
K-33
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Certain Definitions........................................................................ 2
1.2 Currency................................................................................... 14
1.3 Acting Jointly or in Concert............................................................... 14
1.4 Control.................................................................................... 14
ARTICLE 2
THE RIGHTS
2.1 Legend on Common Share Certificates........................................................ 14
2.2 Initial Exercise Price; Exercise of Rights; Detachment of Rights........................... 15
2.3 Adjustments to Exercise Price; Number of Rights............................................ 17
2.4 Date on Which Exercise is Effective........................................................ 20
2.5 Execution, Authentication, Delivery and Dating of Rights Certificates...................... 20
2.6 Registration, Registration of Transfer and Exchange........................................ 21
2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates.................................. 21
2.8 Persons Deemed Owners...................................................................... 22
2.9 Delivery and Cancellation of Certificates.................................................. 22
2.10 Agreement of Rights Holders................................................................ 22
ARTICLE 3
ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS
3.1 Flip-in Event.............................................................................. 23
ARTICLE 4
THE RIGHTS AGENT
4.1 General.................................................................................... 24
4.2 Merger, Amalgamation or Consolidation or Change of Name of Rights Agent.................... 25
4.3 Duties of Rights Agent..................................................................... 26
4.4 Change of Rights Agent..................................................................... 27
ARTICLE 5
MISCELLANEOUS
</TABLE>
K-34
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
5.1 Redemption and Termination................................................................. 28
5.2 Expiration................................................................................. 30
5.3 Issuance of New Rights Certificates........................................................ 30
5.4 Supplements and Amendments................................................................. 30
5.5 Fractional Rights and Fractional Shares.................................................... 31
5.6 Rights of Action........................................................................... 32
5.7 Holder of Rights Not Deemed a Shareholder.................................................. 32
5.8 Notice of Proposed Actions................................................................. 32
5.9 Notices.................................................................................... 33
5.10 Costs of Enforcement....................................................................... 34
5.11 Successors................................................................................. 34
5.12 Benefits of this Rights Agreement.......................................................... 34
5.13 Descriptive Headings....................................................................... 34
5.14 Governing Law.............................................................................. 34
5.15 Language................................................................................... 34
5.16 Counterparts............................................................................... 35
5.17 Severability............................................................................... 35
5.18 Effective Date and Shareholder Review...................................................... 35
5.19 Regulatory Approvals....................................................................... 35
5.20 Transition................................................................................. 35
5.21 Determinations and Actions by the Board of Directors....................................... 36
</TABLE>
K-35
<PAGE>
SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT
THIS AGREEMENT made effective as of and from the 1st day of May, 2000,
BETWEEN:
PRUDENTIAL STEEL LTD., a corporation organized under the laws of the
Province of Alberta (hereinafter referred to as the "Corporation")
OF THE FIRST PART,
- and -
CIBC MELLON TRUST COMPANY, a trust company incorporated under the laws
of Canada (hereinafter referred to as the "Rights Agent")
OF THE SECOND PART.
WHEREAS the Corporation and the Rights Agent (formerly The R-M Trust
Company) entered into an agreement dated February 7, 1995 respecting a
shareholder rights plan (the "Original Plan") which expires on the earlier of
the occurrence of certain events and the close of business on the date of
termination of the first annual meeting of shareholders of the Corporation
following the fifth anniversary of the date of the Original Plan;
AND WHEREAS the Original Plan will expire at the close of business on the
date of termination of the annual meeting of the shareholders of the Corporation
which is scheduled to take place on May 1, 2000 (the "2000 Annual Meeting");
AND WHEREAS the board of directors of the Corporation (the "Board of
Directors") has determined that it is advisable to recommend to the shareholders
of the Corporation that they adopt at the 2000 Annual Meeting another
shareholder rights plan (the "Rights Plan") to renew the principles established
in the Original Plan and to ensure, to the extent possible, that all
shareholders of the Corporation are treated fairly in connection with any take-
over offer for the Corporation and to ensure that the Board of Directors is
provided with a sufficient period of time to evaluate unsolicited take-over bids
and to explore and develop alternatives to maximize shareholder value;
AND WHEREAS, in order to implement the Rights Plan, the Board of Directors
has, subject to adoption of this Rights Agreement by the shareholders of the
Corporation pursuant to Section 5.18:
(a) authorized a distribution of one right (a "Right") in respect of each
Common Share (as hereinafter defined) outstanding at the close of
business on May 1, 2000 (the "Record Time") which is the date of the
2000 Annual Meeting, such distribution to be made to shareholders of
record at the Record Time; and
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(b) authorized the issuance of one Right in respect of each Common Share
issued after the Record Time and prior to the earlier of the
Separation Time (as hereinafter defined) and the Expiration Time (as
hereinafter defined);
AND WHEREAS each Right entitles the holder thereof, after the Separation
Time, to purchase securities of the Corporation pursuant to the terms and
subject to the conditions set forth herein;
AND WHEREAS the Corporation desires to appoint the Rights Agent to act on
behalf of the Corporation, and the Rights Agent is willing to so act, in
connection with the issuance, transfer, exchange and replacement of Rights
Certificates (as hereinafter defined), the exercise of Rights and other matters
referred to herein;
AND WHEREAS the foregoing recitals and statements of fact are made by the
Corporation and not the Rights Agent;
NOW THEREFORE in consideration of the premises and the respective
agreements set forth herein, the parties hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
-------------------
1.1 Certain Definitions
For purposes of this Rights Agreement, the following terms have the
meanings indicated:
(a) "Acquiring Person" shall mean any Person who is the Beneficial Owner
of 20% or more of the outstanding Common Shares of the Corporation;
provided, however, that the term "Acquiring Person" shall not include:
(i) the Corporation or any Subsidiary of the Corporation;
(ii) any Person who becomes the Beneficial Owner of 20% or more of
the outstanding Common Shares of the Corporation as a result of
any one or a combination of:
(A) an acquisition or redemption by the Corporation of Common
Shares of the Corporation which, by reducing the number of
Common Shares outstanding, increases the proportionate
number of Common Shares Beneficially Owned by such Person
to 20% or more of the Common Shares of the Corporation
then outstanding ("Share Acquisitions or Redemptions");
(B) share acquisitions made pursuant to a Permitted Bid
("Permitted Bid Acquisitions");
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(C) share acquisitions (1) in respect of which the Board of
Directors has waived the application of Section 3.1
pursuant to Sections 5.1(b), (c) or (d); or (2) which were
made on or prior to the date of this Rights Agreement; or
(3) which were made pursuant to a dividend reinvestment
plan of the Corporation; or (4) pursuant to the receipt or
exercise of rights issued by the Corporation to all the
holders of the Common Shares to subscribe for or purchase
Common Shares or Convertible Securities, provided that
such rights are acquired directly from the Corporation and
not from any other Person; or (5) pursuant to a
distribution to the public by the Corporation of Common
Shares or Convertible Securities made pursuant to a
prospectus provided that the Person does not thereby
acquire a greater percentage of such Common Shares or
Convertible Securities so offered than such Person's
percentage of Common Shares or Convertible Securities
Beneficially Owned immediately prior to such acquisition
or pursuant to a plan of arrangement, amalgamation or
other statutory procedure requiring shareholder approval;
or (6) pursuant to a distribution by the Corporation of
Common Shares or Convertible Securities by way of a
private placement by the Corporation or upon the exercise
by an individual employee of stock options granted under a
stock option plan of the Corporation or rights to purchase
securities granted under a share purchase plan of the
Corporation, provided that (i) all necessary stock
exchange approvals for such private placement, stock
option plan or share purchase plan have been obtained and
such private placement, stock option plan or share
purchase plan complies with the terms and conditions of
such approvals and (ii) such Person does not become the
Beneficial Owner of more than 25% of the Common Shares
outstanding immediately prior to the distribution, and in
making this determination the Common Shares to be issued
to such Person in the distribution shall be deemed to be
held by such Person but shall not be included in the
aggregate number of outstanding Common Shares immediately
prior to the distribution ("Exempt Acquisitions");
(D) the acquisition of Common Shares upon the exercise of
Convertible Securities received by such Person pursuant to
a Permitted Bid Acquisition, an Exempt Acquisition or a
Pro Rata Acquisition (as defined below) ("Convertible
Security Acquisitions"); or
(E) acquisitions as a result of a stock dividend, a stock
split or other event pursuant to which such Person
receives or acquires Common Shares or Convertible
Securities on the same pro rata basis as all other holders
of Common Shares of the same class ("Pro Rata
Acquisitions");
provided, however, that if such Person shall become the
Beneficial Owner of 20% or more of the Common Shares of the
Corporation then outstanding by reason of any one or a
combination of (i) Share
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Acquisitions or Redemptions, (ii) Permitted Bid Acquisitions,
(iii) Exempt Acquisitions, (iv) Convertible Security
Acquisitions, or (v) Pro Rata Acquisitions and, after such
Share Acquisitions or Redemptions or Permitted Bid Acquisitions
or Exempt Acquisitions or Convertible Security Acquisitions or
Pro Rata Acquisitions, such Person becomes the Beneficial Owner
of more than an additional 1.00% of the number of Common Shares
of the Corporation outstanding other than pursuant to any one
or combination of Share Acquisitions or Redemptions, Permitted
Bid Acquisitions, Exempt Acquisitions or Convertible Security
Acquisitions or Pro Rata Acquisitions, then as of the date of
any such acquisition such Person shall become an "Acquiring
Person";
(iii) a Grandfathered Person provided, however, that if such Person
shall after the Record Time become the Beneficial Owner of more
than an additional 1.00% of the number of Common Shares of the
Corporation outstanding other than pursuant to Share
Acquisitions or Redemptions, Permitted Bid Acquisitions, Exempt
Acquisitions, Convertible Security Acquisitions or Pro Rata
Acquisitions, then as of the date of any such acquisition such
Person shall become an "Acquiring Person";
(iv) for a period of 10 days after the Disqualification Date, any
Person who becomes the Beneficial Owner of 20% or more of the
outstanding Common Shares as a result of such Person becoming
disqualified from relying on clause 1.1(d)(B) solely because
such Person makes or announces an intention to make a Take-over
Bid, either alone or by acting jointly or in concert with any
other Person. For the purposes of this definition,
"Disqualification Date" means the first date of public
announcement that any Person is making or intends to make a
Take-over Bid; or
(v) an underwriter or member of a banking or selling group acting
in such capacity that becomes the Beneficial Owner of 20% or
more of the Common Shares in connection with a distribution of
securities.
(b) "Affiliate", used to indicate a relationship with a specified Person,
shall mean a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, such specified Person.
(c) "Associate" of a specified individual shall mean any individual to
whom such specified individual is married or with whom such specified
individual is living in a conjugal relationship outside marriage, or
any relative of such individual or said spouse who has the same home
as such specified individual.
(d) A Person shall be deemed the "Beneficial Owner", and to have
"Beneficial Ownership", of, and to "Beneficially Own":
(i) any securities which such Person or any of such Person's
Affiliates or Associates owns at law or in equity;
(ii) any securities which such Person or any of such Person's
Affiliates or Associates has the right to acquire (A) upon the
exercise of any
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Convertible Securities, or (B) pursuant to any agreement,
arrangement or understanding provided such right is exercisable
immediately or within a period of 60 days thereafter and
whether or not on condition or the happening of any contingency
or the making of any payment (other than customary agreements
with and between underwriters and banking group or selling
group members with respect to a distribution of securities or
pursuant to a pledge of securities in the ordinary course of
business); and
(iii) any securities which are Beneficially Owned within the meaning
of clauses 1.1(d)(i) or (ii) above by any other Person with
whom such Person is acting jointly or in concert;
provided, however, that a Person shall not be deemed the "Beneficial
Owner", or to have "Beneficial Ownership", of, or to "Beneficially
Own", any security:
(A) where (1) the holder of such security has agreed to
deposit or tender such security pursuant to a Permitted
Lock-up Agreement to a Take-over Bid made by such Person
or any of such Person's Affiliates or Associates or any
other Person referred to in clause 1.1(d)(iii) or (2) such
security has been deposited or tendered pursuant to a
Take-over Bid made by such Person or any of such Person's
Affiliates or Associates or any other Person referred to
in clause 1.1(d)(iii) until the earliest time at which any
such tendered security is accepted unconditionally for
payment or exchange or is taken up and paid for; or
(B) where such Person, any of such Person's Affiliates or
Associates or any other Person referred to in clause
1.1(d)(iii), holds such security provided that (1) the
ordinary business of such Person (the "Investment
Manager") includes the management of investment funds for
others and such security is held by the Investment Manager
in the ordinary course of such business in the performance
of such Investment Manager's duties for the account of any
other Person, or (2) such Person (the "Trust Company") is
licensed to carry on the business of a trust company under
applicable laws and, as such, acts as trustee or
administrator or in a similar capacity in relation to the
estates of deceased or incompetent Persons or in relation
to other accounts and holds such security in the ordinary
course of such duties for the estates of deceased or
incompetent Persons or for such other accounts, or (3)
such Person (the "Plan Trustee") is the administrator or
trustee of one or more pension funds or plans (each a
"Plan") registered under applicable laws and holds such
security for the purposes of its activity as such, or (4)
such Person is a Plan or is a Person established by
statute (the "Statutory Body") for purposes that include,
and the ordinary business or activity of such Person
includes the management of investment funds for employee
benefit plans, pension plans, insurance plans (other than
plans administered by insurance companies) or various
public bodies, or (5) such Person is a Crown agent or
agency; provided in any of the above cases, that the
Investment
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Manager, the Trust Company, the Plan Trustee, the Plan,
the Statutory Body or the Crown agent or agency, as the
case may be, is not then making a Take-over Bid or has not
announced a current intention to make a Take-over Bid,
other than an Offer to Acquire Common Shares or other
securities pursuant to a distribution by the Corporation
or by means of ordinary market transactions (including
pre-arranged trades entered into in the ordinary course of
business of such Person) executed through the facilities
of a stock exchange or organized over-the-counter market,
alone or by acting jointly or in concert with any other
Person; or
(C) because such Person is a client of or has an account with
the same Investment Manager as another Person on whose
account the Investment Manager holds such security, or
where such Person is a client of or has an account with
the same Trust Company as another Person on whose account
the Trust Company holds such security, or where such
Person is a Plan and has a Plan Trustee who is also a Plan
Trustee for another Plan on whose account the Plan Trustee
holds such security; or
(D) where such Person (i) is a client of an Investment Manager
and such security is owned at law or in equity by the
Investment Manager, or (ii) has an account with a Trust
Company and such security is owned at law or in equity by
the Trust Company, or (iii) is a Plan and such security is
owned at law or in equity by the Plan Trustee; or
(E) where such Person is the registered holder of securities
as a result of carrying on the business of, or acting as a
nominee of, a securities depositary.
For purposes of this Rights Agreement, the percentage of Common Shares
Beneficially Owned by any Person shall be and be deemed to be the
product determined by the formula:
100 x A/B
Where:
A = the number of votes for the election of all directors generally
attaching to the Common Shares Beneficially Owned by such Person;
and
B = the number of votes for the election of all directors generally
attaching to all outstanding Common Shares.
For the purposes of the foregoing formula, where any Person is deemed
to Beneficially Own unissued Common Shares which may be acquired
pursuant to Convertible Securities, such Common Shares shall be deemed
to be outstanding for the purpose of calculating the percentage of
Common Shares Beneficially Owned by such Person in both the numerator
and the denominator, but no other
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unissued Common Shares which may be acquired pursuant to any other
outstanding Convertible Securities held by other Persons shall, for
the purposes of that calculation, be deemed to be outstanding.
(e) "Business Day" shall mean any day other than a Saturday, Sunday or a
day that is treated as a holiday at the Corporation's principal
executive offices in Calgary, Alberta.
(f) "Canada Business Corporations Act" shall mean the Canada Business
Corporations Act, R.S.C. 1985, c. C-44, as amended, and the
regulations thereunder, and any comparable or successor laws or
regulations thereto.
(g) "Canadian-U.S. Exchange Rate" shall mean on any date the inverse of
the U.S.-Canadian Exchange Rate.
(h) "Canadian Dollar Equivalent" of any amount which is expressed in
United States dollars shall mean on any day the Canadian dollar
equivalent of such amount determined by reference to the Canadian-U.S.
Exchange Rate on such date.
(i) "close of business" on any given date shall mean the time on such date
(or, if such date is not a Business Day, the time on the next
succeeding Business Day) at which the office of the transfer agent for
the Common Shares in Calgary, Alberta (or, after the Separation Time,
the offices of the Rights Agent in Calgary, Alberta) becomes closed to
the public.
(j) "Common Shares of the Corporation" and "Common Shares" shall mean the
common shares in the capital of the Corporation as constituted on the
date hereof and any other shares of the Corporation into which such
common shares may be subdivided, consolidated, reclassified or
changed.
(k) "Competing Permitted Bid" shall mean a Take-over Bid that:
(i) is made after a Permitted Bid has been made and prior to the
expiry of the Permitted Bid;
(ii) satisfies all components of the definition of a Permitted Bid
other than the requirements set out in the clause (ii) of that
definition; and
(iii) contains, and the take-up and payment for securities tendered
or deposited is subject to, an irrevocable and unqualified
condition that no Common Shares will be taken up or paid for
pursuant to the Take-over Bid prior to the close of business on
the date that is no earlier than the later of (1) the earliest
date on which Common Shares may be taken up or paid for under
any Permitted Bid or Competing Permitted Bid that is then in
existence, and (2) 21 days after the date of the Take-over Bid
constituting the Competing Permitted Bid.
(l) "Convertible Securities" shall mean at any time:
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(i) any right (contractual or otherwise and regardless of whether
such right constitutes a security) to acquire Common Shares
from the Corporation; and
(ii) any securities issued by the Corporation from time to time
(other than the Rights) carrying any exercise, conversion or
exchange right;
which is then exercisable or exercisable within a period of 60 days
from that time pursuant to which the holder thereof may acquire Common
Shares or other securities which are convertible into or exercisable
or exchangeable for Common Shares (in each case, whether such right is
then exercisable or exercisable within a period of 60 days from that
time and whether or not on condition or the happening of any
contingency).
(m) "Exercise Price" shall mean, as of any date, the price at which a
holder may purchase the securities issuable upon exercise of one whole
Right and until adjustment thereof in accordance with the terms
hereof, the Exercise Price shall equal $100.00.
(n) "Expiration Time" shall mean the earlier of:
(i) the Termination Time, and
(ii) the termination of the annual meeting of the shareholders of the
Corporation in the year 2003;
or, if the continued existence of this Rights Agreement is ratified at
such annual meeting by resolution passed by a majority of votes cast
by Independent Shareholders who vote in respect thereof in accordance
with Section 5.18, "Expiration Time" shall mean the earlier of the
Termination Time and the termination of the annual meeting of
shareholders of the Corporation in the year 2006;
(o) A "Flip-in Event" shall mean a transaction in or pursuant to which any
Person shall become an Acquiring Person provided, however, that a
Flip-in Event shall be deemed to occur at the close of business on the
tenth day (or such later day as the Board of Directors may determine)
after the Stock Acquisition Date.
(p) "Grandfathered Person" shall mean any Person who is the Beneficial
Owner of 20% or more of the outstanding Common Shares of the
Corporation at the Record Time.
(q) "Independent Shareholders" shall mean holders of Common Shares of the
Corporation excluding (i) any Acquiring Person; or (ii) any Person
that is making or has announced a current intention to make a Take-
over Bid for Common Shares of the Corporation (including a Permitted
Bid and a Competing Permitted Bid) other than a Person referred to in
Section 1.1(d)(B), but excluding any such Person if the Take-over Bid
so announced or made by such Person has been withdrawn, terminated or
expired; or (iii) any Affiliate or Associate of such Acquiring Person
or Persons referred to in clause (ii); or (iv) any Person acting
jointly or in concert with such Acquiring Person or a Person referred
to in clause
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(ii); or (v) a Person who is a trustee of any employee benefit plan,
share purchase plan, deferred profit sharing plan or any similar plan
or trust for the benefit of employees of the Corporation or a
Subsidiary of the Corporation, unless the beneficiaries of the plan or
trust direct the manner in which the Common Shares are to be voted or
direct whether the Common Shares are to be tendered to a Take-over
Bid.
(r) "Market Price" per security of any securities on any date of
determination shall mean the average of the daily Closing Prices Per
Security of such securities (determined as described below) on each of
the 20 consecutive Trading Days through and including the Trading Day
immediately preceding such date; provided, however, that if an event
of a type analogous to any of the events described in Section 2.3
hereof shall have caused the price used to determine the Closing Price
Per Security on any Trading Day not to be fully comparable with the
price used to determine the Closing Price Per Security on such date of
determination or, if the date of determination is not a Trading Day,
on the immediately preceding Trading Day, each such price so used
shall be appropriately adjusted in a manner analogous to the
applicable adjustment provided for in Section 2.3 hereof in order to
make it fully comparable with the price per security used to determine
the Closing Price Per Security on such date of determination or, if
the date of determination is not a Trading Day, on the immediately
preceding Trading Day. The "Closing Price Per Security" of any
securities on any date shall be:
(i) the closing board lot sale price or, if such price is not
available, the average of the closing bid and asked prices, for
such securities as reported by the principal Canadian stock
exchange on which such securities are listed or admitted to
trading, or if for any reason neither such prices is available
on such day or the securities are not listed or admitted to
trading on a Canadian stock exchange, the closing board lot
sale price or, if such price is not available, the average of
the closing bid and asked prices, for such securities as
reported by such other securities exchange on which such
securities are listed or admitted for trading;
(ii) if, for any reason, none of such prices is available on such
date or the securities are not listed or admitted to trading on
a Canadian stock exchange or other securities exchange, the
last sale price, or in case no sale takes place on such date,
the average of the high bid and low asked prices for such
securities in the over-the-counter market, as quoted by any
reporting system then in use; or
(iii) if the securities are not listed or admitted to trading as
contemplated in clause 1.1(r)(i) or (ii), the average of the
closing bid and asked prices as furnished by a professional
market maker making a market in the securities selected by the
Board of Directors;
provided, however, that if on any such date the Closing Price Per
Security cannot be determined in accordance with the foregoing, the
Closing Price Per Security of such securities on such date shall mean
the fair value per share of such securities on such date as determined
in good faith by a nationally recognized investment dealer or
investment banker with respect to the fair value per share of
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such securities. The Market Price shall be expressed in Canadian
dollars and, if initially determined in respect of any day forming
part of the 20 consecutive Trading Day period in question in United
States dollars, such amount shall be translated into Canadian dollars
at the Canadian Dollar Equivalent thereof.
(s) "Offer to Acquire" shall include:
(i) an offer to purchase, or a solicitation of an offer to sell,
Common Shares; and
(ii) an acceptance of an offer to sell Common Shares, whether or not
such offer to sell has been solicited;
or any combination thereof, and the Person accepting an offer to sell
shall be deemed to be making an offer to acquire to the Person that
made the offer to sell.
(t) "Offeror's Securities" shall mean Common Shares Beneficially Owned on
the date of an Offer to Acquire by any Person who is making a Take-
over Bid and "Offeror" means a Person who has announced a current
intention to make or is making a Take-over Bid.
(u) "Permitted Bid" shall mean a Take-over Bid made by a Person by means
of a take-over bid circular and which also complies with the following
additional provisions:
(i) the Take-over Bid is made to all holders of Common Shares,
other than the Offeror;
(ii) the Take-over Bid contains, and the take-up and payment for
Common Shares tendered or deposited thereunder is subject to,
an irrevocable and unqualified condition that no Common Shares
shall be taken up or paid for pursuant to the Take-over Bid
prior to the close of business on a date which is not less than
60 days following the date of the Take-over Bid;
(iii) the Take-over Bid contains an irrevocable and unqualified
provisions that, unless the Take-over Bid is withdrawn, Common
Shares may be deposited pursuant to the Take-over Bid at any
time prior to the close of business on the date of first take-
up or payment for Common Shares and that all Common Shares
deposited pursuant to the Take-over Bid may be withdrawn at any
time prior to the close of business on such date;
(iv) the Take-over Bid contains an irrevocable and unqualified
condition that more than 50% of the outstanding Common Shares
held by Independent Shareholders, determined as at the date of
first take-up or payment for Common Shares under the Take-over
Bid, must be deposited to the Take-over Bid and not withdrawn
at the close of business on the date of first take-up or
payment for Common Shares; and
(v) the Take-over Bid contains an irrevocable and unqualified
provision that in the event that more than 50% of the then
outstanding Common Shares
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held by Independent Shareholders shall have been deposited to
the Take-over Bid and not withdrawn as at the date of first
take-up or payment for Common Shares under the Take-over Bid,
the Offeror will make a public announcement of that fact and
the Take-over Bid will remain open for deposits and tenders of
Common Shares for not less than 10 Business Days from the date
of such public announcement;
provided that if a Take-over Bid constitutes a Competing Permitted
Bid, the term "Permitted Bid" shall also mean the Competing Permitted
Bid.
(v) "Permitted Lock-up Agreement" shall mean an agreement (the "Lock-up
Agreement") between a Person and one or more holders of Common Shares
(each such holder herein referred to as a "Locked-up Person") (the
terms of which are publicly disclosed and a copy of which is made
available to the public, including the Corporation, not later than the
date the Lock-up Bid (as defined below) is publicly announced or, if
the Lock-up Bid has been publicly announced prior to the date of the
Lock-up Agreement, not later than the date of the Lock-up Agreement)
pursuant to which each such Locked-up Person agrees to deposit or
tender Common Shares to a Take-over Bid (the "Lock-up Bid") made or to
be made by the Person, any of such Person's Affiliates or Associates
or any other Person referred to in clause 1.1(d)(iii), provided that:
(i) the Lock-up Agreement permits the Locked-up Person to withdraw
its Common Shares from the Lock-up Agreement in order to
deposit or tender the Common Shares to another Take-over Bid or
to support another transaction prior to the Common Shares being
taken up and paid for under the Lock-up Bid, so long as the
other Take-over Bid or transaction:
(A) offers a price or value per Common Share that exceeds the
price or value per Common Share offered under the Lock-up
Bid; or
(B) is for a number of Common Shares which is greater than the
number of Common Shares that the Offeror has offered to
purchase under the Lock-up Bid by such number as may have
been agreed to in the Lock-up Agreement, provided that
such agreed upon number is not greater than 7% of the
number of Common Shares offered to be purchased under such
Lock-up Bid at a price or value per Common Share that is
not less than the price or value per Common Share offered
under such Lock-up Bid; or
(C) offers a price or value for each Common Share which is
greater than the price or value for each Common Share
offered under the Lock-up Bid by as much as or more than a
specified amount provided that such specified amount is
not greater than 7% of the price or value offered under
such Lock-up Bid; and,
for greater clarity, the Lock-up Agreement may (1) contain a
right of first refusal, (2) require a period of delay to give
the Person who made the Lock-up Bid an opportunity to match or
better the consideration or value
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offered in the other Take-over Bid or transaction or to offer
to purchase or otherwise acquire the same number of Common
Shares subject to the other Take-over Bid or transaction or (3)
contain other similar limitations on a Locked-up Person's right
to withdraw Common Shares from the Lock-up Agreement, so long
as any such limitation does not preclude the exercise by the
Locked-up Person of the right to withdraw Common Shares during
the period of the other Take-over Bid or transaction; and
(ii) no "break-up" fees, "top-up" fees, penalties, expenses or other
amounts that exceed in the aggregate the greater of:
(A) the cash equivalent of 2 1/2% of the price or value of the
consideration payable under the Lock-up Bid to the Locked-
up Person; and
(B) 50% of the amount by which the price or value of the
consideration payable under another Take-over Bid or
transaction to a Locked-up Person exceeds the price or
value of the consideration that such Locked-up Person
would have received under the Lock-up Bid;
shall be payable by such Locked-up Person pursuant to the Lock-
up Agreement in the event such Locked-up Person fails to
deposit or tender Common Shares to the Lock-up Bid or withdraws
Common Shares previously tendered thereto in order to deposit
or tender such Common Shares to another Take-over Bid or
support another transaction.
(w) "Person" shall mean any individual, firm, partnership, association,
trust, trustee, personal representative, body corporate, corporation,
unincorporated organization, syndicate or other entity.
(x) "Record Time" shall mean the close of business on May 1, 2000.
(y) "Rights Agreement", "hereto", "hereof", "herein", "hereby" and
"hereunder" and similar expressions mean and refer to this Rights
Agreement as the same may be amended, modified or supplemented at any
time or from time to time;
(z) "Securities Act" shall mean the Securities Act, R.S.A. 1981, c. S-6.1,
as amended, and the rules and regulations thereunder, and any
comparable or successor laws, rules or regulations thereto.
(aa) "Separation Time" shall mean, subject to Section 5.1(d), the close of
business on the tenth Business Day after the earlier of:
(i) the Stock Acquisition Date;
(ii) the date of the commencement of, or first public announcement
of the intent of any Person (other than the Corporation or any
Subsidiary of the Corporation) to commence a Take-over Bid
(other than a Take-over Bid which is a Permitted Bid or a
Competing Permitted Bid or a Take-over Bid in respect of which
the Board of Directors has waived the application of
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Section 3.1), provided that, if any Take-over Bid referred to in
this clause (ii) expires, is cancelled, terminated or otherwise
withdrawn prior to the Separation Time, such Take-over Bid shall
be deemed, for purposes of this Section 1.1(aa), never to have
been made; and
(iii) the date upon which a Permitted Bid ceases to be a Permitted
Bid;
or such later date as may be determined by the Board of Directors
acting in good faith provided that, if the foregoing results in the
Separation Time being prior to the Record Time, the Separation Time
shall be the Record Time.
(bb) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 141 of the
Securities Act) by the Corporation or an Acquiring Person of facts
indicating that a Person has become an Acquiring Person.
(cc) "Subsidiary" of any specified Person shall mean any corporation or
other entity controlled by such specified Person.
(dd) "Take-over Bid" shall mean an Offer to Acquire Common Shares or
securities convertible into Common Shares, where the Common Shares
subject to the Offer to Acquire, together with the Common Shares into
which the securities subject to the Offer to Acquire are convertible,
and the Offeror's Securities, constitute in the aggregate 20% or more
of the outstanding Common Shares at the date of the Offer to Acquire.
(ee) "Termination Time" shall mean the time at which the right to exercise
Rights shall terminate pursuant to Section 5.1 or 5.18 hereof.
(ff) "Trading Day", when used with respect to any securities, shall mean a
day on which the principal securities exchange on which such
securities are listed or admitted to trading is open for the
transaction of business or, if the securities are not listed or
admitted to trading on any securities exchange, a Business Day.
(gg) "U.S.-Canadian Exchange Rate" shall mean on any date:
(i) if on such date the Bank of Canada sets an average noon spot
rate of exchange with a conversion of one United States dollar
into Canadian dollars, such rate;
(ii) in any other case, the rate for such date for the conversion of
one United States dollar into Canadian dollars which is
calculated in the manner which shall be determined by the Board
of Directors from time to time acting in good faith.
(hh) "U.S. Dollar Equivalent" of any amount which is expressed in Canadian
dollars shall mean on any day the United States dollar equivalent of
such amount determined by reference to the U.S.-Canadian Exchange Rate
on such date.
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1.2 Currency
All sums of money which are referred to in this Rights Agreement are
expressed in lawful money of Canada.
1.3 Acting Jointly or in Concert
For purposes of this Rights Agreement, a Person is acting jointly or in
concert with another Person if such Person has any agreement, arrangement or
understanding (whether formal or informal and whether or not in writing) with
such other Person to acquire or Offer to Acquire any Common Shares of the
Corporation (other than (i) customary agreements with and between underwriters
and banking group or selling group members with respect to a distribution of
securities, and (ii) pursuant to a pledge of securities in the ordinary course
of business.
1.4 Control
A Person is "controlled" by another Person or two or more other Persons
acting jointly or in concert if:
(a) in the case of a body corporate, securities entitled to vote in the
election of directors of such body corporate carrying more than 50% of
the votes for the election of directors are held, directly or
indirectly, by or for the benefit of the other Person or Persons
acting jointly or in concert and the votes carried by such securities
are entitled, if exercised, to elect a majority of the board of
directors of such body corporate; or
(b) in the case of a Person which is not a body corporate, more than 50%
of the voting or equity interests of such entity are held, directly or
indirectly, by or for the benefit of the other Person or Persons
acting jointly or in concert;
and "controls", "controlling" and "under common control with" shall be
interpreted accordingly.
ARTICLE 2
THE RIGHTS
----------
2.1 Legend on Common Share Certificates
Certificates for the Common Shares issued after the Record Time but prior
to the earlier of the Separation Time and the Expiration Time shall evidence one
Right for each Common Share represented thereby and, commencing as soon as
reasonably practicable after the Record Time, shall have impressed on, printed
on, written on or otherwise affixed to them the following legend:
Until the Separation Time (as defined in the Rights
Agreement referred to below), this certificate also
evidences and entitles the holder hereof to certain
Rights as set forth in a Shareholder Protection Rights
Plan Agreement, dated as of May 1, 2000, as such from
time to time be amended, restated, varied or replaced,
(the "Rights Agreement") between Prudential Steel Ltd.
(the
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"Corporation") and CIBC Mellon Trust Company, as Rights
Agent, the terms of which are hereby incorporated
herein by reference and a copy of which is on file at
the registered office of the Corporation. In certain
circumstances, as set forth in the Rights Agreement,
such Rights may be amended or redeemed, may expire, may
become void (if, in certain cases, they are
"Beneficially Owned" by an "Acquiring Person", as such
terms are defined in the Rights Agreement, or a
transferee thereof) or may be evidenced by separate
certificates and may no longer be evidenced by this
certificate. The Corporation will mail or arrange for
the mailing of a copy of the Rights Agreement to the
holder of this certificate, without charge, as soon as
practicable after the receipt of a written request
therefor.
Certificates representing Common Shares that are issued and outstanding at
the Record Time shall evidence one Right for each Common Share evidenced thereby
notwithstanding the absence of the foregoing legend until the earlier of the
Separation Time and the Expiration Time.
2.2 Initial Exercise Price; Exercise of Rights; Detachment of Rights
(a) Subject to adjustment as herein set forth, each Right will entitle the
holder thereof, after the Separation Time and prior to the Expiration Time, to
purchase, for the Exercise Price, or its U.S. Dollar Equivalent as at the
Business Day immediately preceding the day of exercise of the Right, one Common
Share.
(b) Until the Separation Time,
(i) no Right may be exercised; and
(ii) each Right will be evidenced by the certificate for the associated
Common Share and will be transferable only together with, and will be
transferred by a transfer of, such associated share.
(c) After the Separation Time and prior to the Expiration Time, the Rights (i)
may be exercised; and (ii) will be transferable independent of Common Shares.
Promptly following the Separation Time the Rights Agent will mail to each holder
of record of Common Shares as of the Separation Time (other than an Acquiring
Person and, in respect of any Rights Beneficially Owned by such Acquiring Person
which are not held of record by such Acquiring Person, the holder of record of
such Rights) at such holder's address as shown by the records of the Corporation
(the Corporation hereby agreeing to furnish copies of such records to the Rights
Agent for this purpose), (x) a certificate (a "Rights Certificate") in
substantially the form of Exhibit A hereto with registration particulars
appropriately completed, representing the number of Rights held by such holder
at the Separation Time and having such marks of identification or designation
and such legends, summaries or endorsements printed thereon as the Corporation
may deem appropriate and as are not inconsistent with the provisions of this
Rights Agreement, or as may be required to comply with any law or with any rule
or regulation made pursuant thereto or with any rule or regulation of any stock
exchange or quotation system on which the Rights may from time to time be listed
or traded, or to conform to usage, and (y) a disclosure statement describing the
Rights.
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(d) Rights may be exercised in whole or in part on any Business Day (or on any
other day which, in the city at which an Election to Exercise (as hereinafter
defined) is duly submitted to the Rights Agent in accordance with this Rights
Agreement, is not a Saturday, Sunday or a day that is treated as a holiday in
such city) after the Separation Time and prior to the Expiration Time by
submitting to the Rights Agent (at its office in Calgary, Alberta or at any
other office of the Rights Agent in the cities designated from time to time for
that purpose by the Corporation with the approval of the Rights Agent), the
Rights Certificate evidencing such Rights together with an election to exercise
such Rights (an "Election to Exercise") substantially in the form attached to
the Rights Certificate duly completed and executed by the holder or his
executors or administrators or other personal representatives or his or their
legal attorney duly appointed by an instrument in writing in form and executed
in a manner satisfactory to the Rights Agent, accompanied by payment by
certified cheque, banker's draft or money order payable to the order of the
Corporation, of a sum equal to the Exercise Price multiplied by the number of
Rights being exercised and a sum sufficient to cover any transfer tax or charge
which may be payable in respect of any transfer involved in the transfer or
delivery of Rights Certificates or the issuance or delivery of certificates for
Common Shares in a name other than that of the holder of the Rights being
exercised.
(e) Upon receipt of a Rights Certificate, with an Election to Exercise
accompanied by payment as set forth in Section 2.2(d) above, the Rights Agent
will thereupon promptly:
(i) requisition from the transfer agent of the Common Shares
certificates for the number of Common Shares to be purchased (the
Corporation hereby irrevocably authorizing its transfer agent to
comply with all such requisitions);
(ii) when appropriate, requisition from the Corporation the amount of
cash to be paid in lieu of issuing fractional Common Shares;
(iii) after receipt of the Common Share certificates, deliver the same to
or to the order of the registered holder of such Rights Certificate,
registered in such name or names as may be designated by such
holder;
(iv) when appropriate, after receipt, deliver such cash to or to the
order of the registered holder of the Rights Certificate; and
(v) tender to the Corporation all payments received on the exercise of
the Rights.
(f) In case the holder of any Rights shall exercise less than all the Rights
evidenced by such holder's Rights Certificate, a new Rights Certificate
evidencing the Rights remaining unexercised will be issued by the Rights Agent
to such holder or to such holder's duly authorized assigns.
(g) The Corporation covenants and agrees that it will:
(i) take all such action as may be necessary and within its power to
ensure that all Common Shares delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares (subject
to payment of the Exercise Price), be duly and validly authorized,
executed, issued and delivered as fully paid and non-assessable;
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(ii) take all such action as may be necessary and within its power to
comply with any applicable requirements of the Canada Business
Corporations Act, the Securities Act, the securities acts or
comparable legislation of each of the other provinces of Canada, and
the rules and regulations thereunder and any other applicable law,
rule or regulation, in connection with the issuance and delivery of
the Rights Certificates and the issuance of any shares upon exercise
of Rights;
(iii) use reasonable efforts to cause all shares issued upon exercise of
Rights to be listed on the principal exchanges or traded in the
over-the-counter markets on which the shares were traded immediately
prior to the Stock Acquisition Date;
(iv) cause to be reserved and kept available out of its authorized and
unissued Common Shares a number of Common Shares that, as provided
in this Rights Agreement, will from time to time be sufficient to
permit the exercise in full of all outstanding Rights; and
(v) pay when due and payable any and all Canadian and United States
federal, provincial, and state transfer taxes (for greater certainty
not including any income taxes of the holder or exercising holder or
any liability of the Corporation to withhold tax) and charges which
may be payable in respect of the original issuance or delivery of
the Rights Certificates or certificates for shares, provided that
the Corporation shall not be required to pay any transfer tax or
charge which may be payable in respect of any transfer involved in
the transfer or delivery of Rights Certificates or the issuance or
delivery of certificates for shares in a name other than that of the
holder of the Rights being transferred or exercised.
2.3 Adjustments to Exercise Price; Number of Rights
The Exercise Price, the number and kind of shares subject to purchase upon
exercise of each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 2.3.
(a) In the event the Corporation shall at any time after the Record Time and
prior to the Expiration Time:
(i) declare or pay a dividend on the Common Shares payable in Common
Shares (or other shares or securities exchangeable for or
convertible into or giving a right to acquire Common Shares or other
shares) other than pursuant to any optional stock dividend program,
(ii) subdivide or change the then outstanding Common Shares into a
greater number of Common Shares,
(iii) combine or change the then outstanding Common Shares into a smaller
number of Common Shares, or
(iv) issue any Common Shares (or other shares or securities exchangeable
for or convertible into or giving a right to acquire Common Shares
or other shares) in respect of, in lieu of or in exchange for
existing Common Shares in a reclassification, amalgamation, merger,
statutory arrangement or consolidation,
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the Exercise Price and the number of Rights outstanding, or, if the payment or
effective date therefor shall occur after the Separation Time, the securities
purchasable upon exercise of Rights shall be adjusted in the manner set forth
below. If the Exercise Price and number of Rights outstanding are to be adjusted
(x) the Exercise Price in effect after such adjustment shall be equal to the
Exercise Price in effect immediately prior to such adjustment divided by the
number of Common Shares (or other shares) (the "Expansion Factor") that a holder
of one Common Share immediately prior to such dividend, subdivision, change,
combination or issuance would hold thereafter as a result thereof and (y) each
Right held prior to such adjustment shall become that number of Rights equal to
the Expansion Factor, and the adjusted number of Rights will be deemed to be
allocated among the Common Shares with respect to which the original Rights were
associated (if they remain outstanding) and the shares issued in respect of such
dividend, subdivision, change, combination or issuance, so that each such Common
Share (or other share) will have exactly one Right associated with it. If the
securities purchasable upon exercise of Rights are to be adjusted, the
securities purchasable upon exercise of each Right after such adjustment will be
the number of securities that a holder of the securities purchasable upon
exercise of one Right immediately prior to such dividend, subdivision, change,
combination or issuance would hold thereafter as a result thereof. If after the
Record Time and prior to the Expiration Time the Corporation shall issue any
shares other than Common Shares in a transaction of a type described in Section
2.3(a)(i) or (iv), such shares shall be treated herein as nearly equivalent to
Common Shares as may be practicable and appropriate under the circumstances and
the Corporation and the Rights Agent agree to amend this Rights Agreement in
order to effect, and will not consolidate with, amalgamate with or into or enter
into a statutory arrangement with, any other Person unless such Person agrees to
be bound by the terms of an amendment effecting such treatment. If an event
occurs which would require an adjustment under both this Section 2.3 and Section
3.1 hereof, the adjustment provided for in this Section 2.3 shall be in addition
to, and shall be made prior to, any adjustment required pursuant to Section 3.1
hereof.
In the event the Corporation shall at any time after the Record Time and
prior to the Separation Time issue any Common Shares otherwise than in a
transaction referred to in the preceding paragraph, each such Common Share so
issued shall automatically have one new Right associated with it, which Right
shall be evidenced by the certificate representing such share.
(b) In the event the Corporation shall at any time after the Record Time and
prior to the Expiration Time fix a record date for the making of a distribution
to all holders of Common Shares of rights or warrants entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Common Shares (or securities convertible into or exchangeable for or
carrying a right to purchase or subscribe for Common Shares) at a price per
Common Share (or, if a security convertible into or exchangeable for or carrying
a right to purchase or subscribe for Common Shares, having a conversion,
exchange or exercise price (including the price required to be paid to purchase
such convertible or exchangeable security or right per share)) less than the
Market Price per Common Share on such record date, the Exercise Price shall be
adjusted in the manner set forth below. The Exercise Price in effect after such
record date shall equal the Exercise Price in effect immediately prior to such
record date multiplied by a fraction, of which the numerator shall be the number
of Common Shares outstanding on such record date plus the number of Common
Shares which the aggregate offering price of the total number of Common Shares
so to be offered (and/or the aggregate initial conversion, exchange or exercise
price of the convertible or exchangeable securities or rights so to be offered
(including the price required to be paid to purchase such convertible or
exchangeable securities or rights)) would purchase at such Market Price and of
which the
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denominator shall be the number of Common Shares outstanding on such record date
plus the number of additional Common Shares to be offered for subscription or
purchase (or into which the convertible or exchangeable securities or rights so
to be offered are initially convertible, exchangeable or exercisable). In case
such subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of Rights. Such adjustment shall be made
successively whenever such a record date is fixed. For purposes of this
paragraph (b), the granting of the right to purchase Common Shares (whether from
treasury shares or otherwise) pursuant to any dividend or interest reinvestment
plan and/or any Common Share purchase plan providing for the reinvestment of
dividends or interest payable on securities of the Corporation and/or the
investment of periodic optional payments and/or employee benefit or similar
plans (so long as such right to purchase is in no case evidenced by the delivery
of rights or warrants) shall not be deemed to constitute an issue of rights or
warrants by the Corporation; provided, however, that in the case of any dividend
or interest reinvestment plan, the right to purchase Common Shares is at a price
per share of not less than 90% of the current market price per share (determined
as provided in such plans) of the Common Shares.
(c) In the event the Corporation shall at any time after the Record Time and
prior to the Expiration Time fix a record date for the making of a distribution
to all holders of Common Shares of evidences of indebtedness or assets (other
than a regular periodic cash dividend or a dividend paid in Common Shares) or
rights or warrants (excluding those referred to in Section 2.3(b)), the Exercise
Price shall be adjusted in the manner set forth below. The Exercise Price in
effect after such record date shall equal the Exercise Price in effect
immediately prior to such record date less the fair market value (as determined
in good faith by the Board of Directors) of the portion of the assets, evidences
of indebtedness, rights or warrants so to be distributed applicable to each of
the securities purchasable upon exercise of one Right (such determination to be
described in a statement filed with the Rights Agent and the holders of the
Rights). Such adjustment shall be made successively whenever such a record date
is fixed.
(d) Each adjustment made pursuant to this Section 2.3 shall be made as of:
(i) the payment or effective date for the applicable dividend,
subdivision, change, combination or issuance, in the case of an
adjustment made pursuant to paragraph (a) above; and
(ii) the record date for the applicable dividend or distribution, in the
case of an adjustment made pursuant to paragraph (b) or (c) above
subject to readjustment to reverse the same if such distribution shall
not be made.
(e) In the event the Corporation shall at any time after the Record Time and
prior to the Expiration Time issue any shares (other than Common Shares), or
rights or warrants to subscribe for or purchase any such shares, or securities
convertible into or exchangeable for any such shares, in a transaction referred
to in clause (a)(i) or (a)(iv) above, or if the Corporation shall take any other
action (other than the issue of Common Shares) which might have a negative
effect on the holders of Rights, if the Board of Directors acting in good faith
determines that the adjustments contemplated by paragraphs (a), (b) and (c)
above are not applicable or will not appropriately protect the interests of the
holders of Rights, the Corporation may determine what other adjustments to the
Exercise Price, number of Rights and/or securities purchasable upon exercise of
Rights would be appropriate and, if the adjustments contemplated
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by paragraphs (a), (b) and (c) above are applicable, notwithstanding such
paragraphs, the adjustments so determined by the Corporation, rather than the
adjustments contemplated by paragraphs (a), (b) and (c) above, shall be made.
The Corporation and the Rights Agent shall amend this Rights Agreement in
accordance with Section 5.4(b) and (c), as the case may be, to provide for such
adjustments.
(f) Each adjustment to the Exercise Price made pursuant to this Section 2.3
shall be calculated to the nearest cent. Whenever an adjustment to the Exercise
Price is made pursuant to this Section 2.3, the Corporation shall:
(i) promptly prepare a certificate setting forth such adjustment and a
brief statement of the facts accounting for such adjustment;
(ii) promptly file with the Rights Agent and with each transfer agent for
the Common Shares a copy of such certificate; and
(iii) cause notice of the particulars of such adjustment or change to be
given to the holders of the Rights by way of press release or by
such other means as the Corporation may determine.
(g) Irrespective of any adjustment or change in the securities purchasable upon
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the securities so purchasable which were
expressed in the initial Rights Certificates issued hereunder.
2.4 Date on Which Exercise is Effective
Each Person in whose name any certificate for Common Shares is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Common Shares represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered (together with a duly completed
Election to Exercise) and payment of the Exercise Price for such Rights (and any
applicable transfer taxes and other governmental charges payable by the
exercising holder hereunder) was made; provided, however, that if the date of
such surrender and payment is a date upon which the Common Share transfer books
of the Corporation are closed, such Person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Common Share transfer books of the
Corporation are open.
2.5 Execution, Authentication, Delivery and Dating of Rights Certificates
(a) The Rights Certificates shall be executed on behalf of the Corporation by
any two officers or directors of the Corporation. The signature of any of these
officers or directors on the Rights Certificates may be manual or facsimile.
Rights Certificates bearing the manual or facsimile signatures of individuals
who were at any time the proper officers or directors of the Corporation shall
bind the Corporation, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the countersignature and delivery of such
Rights Certificates. Promptly after the Corporation learns of the Separation
Time, the Corporation will notify the Rights Agent of such Separation Time and
will deliver Rights Certificates executed by the Corporation to the Rights Agent
for countersignature, and the Rights Agent shall countersign (manually or by
facsimile signature in a manner satisfactory to the Corporation) and mail such
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Rights Certificates to the holders of the Rights pursuant to Section 2.2(c)
hereof. No Rights Certificate shall be valid for any purpose until countersigned
by the Rights Agent as aforesaid.
(b) Each Rights Certificate shall be dated the date of countersignature thereof.
2.6 Registration, Registration of Transfer and Exchange
(a) The Corporation will cause to be kept a register (the "Rights Register") in
which, subject to such reasonable regulations as it may prescribe, the
Corporation will provide for the registration and transfer of Rights. The Rights
Agent is hereby appointed "Rights Registrar" for the purpose of maintaining the
Rights Register for the Corporation and registering Rights and transfers of
Rights as herein provided. In the event that the Rights Agent shall cease to be
the Rights Registrar, the Rights Agent will have the right to examine the Rights
Register at all reasonable times.
(b) After the Separation Time and prior to the Expiration Time, upon surrender
for registration of transfer or exchange of any Rights Certificate, and subject
to the provisions of Section 2.6(d) below, the Corporation will execute, and the
Rights Agent will countersign and deliver, in the name of the holder or the
designated transferee or transferees, as required pursuant to the holder's
instructions, one or more new Rights Certificates evidencing the same aggregate
number of Rights as did the Rights Certificates so surrendered.
(c) All Rights issued upon any registration of transfer or exchange of Rights
Certificates shall be the valid obligations of the Corporation, and such Rights
shall be entitled to the same benefits under this Rights Agreement as the Rights
surrendered upon such registration of transfer or exchange.
(d) Every Rights Certificate surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Corporation or the Rights Agent, as the
case may be, duly executed by the holder thereof or such holder's attorney duly
authorized in writing. As a condition to the issuance of any new Rights
Certificate under this Section 2.6, the Corporation may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto.
2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates
(a) If any mutilated Rights Certificate is surrendered to the Rights Agent prior
to the Expiration Time, the Corporation shall execute and the Rights Agent shall
countersign and deliver in exchange therefor a new Rights Certificate evidencing
the same number of Rights as did the Rights Certificate so surrendered.
(b) If there shall be delivered to the Corporation and the Rights Agent prior to
the Expiration Time (i) evidence to their satisfaction of the destruction, loss
or theft of any Rights Certificate and (ii) such security or indemnity as may be
required by them in their sole discretion to save each of them and any of their
agents harmless, then, in the absence of notice to the Corporation or the Rights
Agent that such Rights Certificate has been acquired by a bona fide purchaser,
the Corporation shall execute and upon its request the Rights Agent shall
countersign and deliver, in lieu of any such destroyed, lost or stolen Rights
Certificate, a new Rights Certificate evidencing the same number of Rights as
did the Rights Certificate so destroyed, lost or stolen.
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(c) As a condition to the issuance of any new Rights Certificate under this
Section 2.7, the Corporation may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Rights
Agent) connected therewith.
(d) Every new Rights Certificate issued pursuant to this Section 2.7 in lieu of
any destroyed, lost or stolen Rights Certificate shall evidence an original
additional contractual obligation of the Corporation, whether or not the
destroyed, lost or stolen Rights Certificate shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Rights Agreement
equally and proportionately with any and all other Rights duly issued hereunder.
2.8 Persons Deemed Owners
The Corporation, the Rights Agent and any agent of the Corporation or the
Rights Agent may deem and treat the Person in whose name a Rights Certificate
(or, prior to the Separation Time, the associated Common Share certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby for
all purposes whatsoever. As used in this Rights Agreement, unless the context
otherwise requires, the term "holder" of any Rights shall mean the registered
holder of such Rights (or, prior to the Separation Time, the associated Common
Shares).
2.9 Delivery and Cancellation of Certificates
All Rights Certificates surrendered upon exercise or for redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Rights Agent, be delivered to the Rights Agent and, in any case, shall
be promptly cancelled by the Rights Agent. The Corporation may at any time
deliver to the Rights Agent for cancellation any Rights Certificates previously
countersigned and delivered hereunder which the Corporation may have acquired in
any manner whatsoever, and all Rights Certificates so delivered shall be
promptly cancelled by the Rights Agent. No Rights Certificate shall be
countersigned in lieu of or in exchange for any Rights Certificates cancelled as
provided in this Section 2.9, except as expressly permitted by this Rights
Agreement. The Rights Agent shall, subject to applicable law, destroy all
cancelled Rights Certificates and deliver a certificate of destruction to the
Corporation.
2.10 Agreement of Rights Holders
Every holder of Rights by accepting the same consents and agrees with the
Corporation and the Rights Agent and with every other holder of Rights that:
(a) he will be bound by and subject to the provisions of this Rights
Agreement, as amended from time to time in accordance with the terms
hereof, in respect of all Rights held;
(b) prior to the Separation Time, each Right will be transferable only
together with, and will be transferred by a transfer of, the
associated Common Share;
(c) after the Separation Time, the Rights Certificates will be
transferable only on the Rights Register as provided herein;
(d) prior to due presentment of a Rights Certificate (or, prior to the
Separation Time, the associated Common Share certificate) for
registration of transfer, the
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Corporation, the Rights Agent and any agent of the Corporation or the
Rights Agent may deem and treat the Person in whose name the Rights
Certificate (or, prior to the Separation Time, the associated Common
Share certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on such Rights Certificate or the associated
Common Share certificate made by anyone other than the Corporation or
the Rights Agent) for all purposes whatsoever, and neither the
Corporation nor the Rights Agent shall be affected by any notice to
the contrary;
(e) such holder of Rights has waived his right to receive any fractional
Rights or any fractional shares upon exercise of a Right (except as
provided herein);
(f) subject to the provisions of Section 5.4, without the approval of any
holder of Rights and upon the sole authority of the Board of Directors
acting in good faith this Rights Agreement may be supplemented or
amended from time to time as provided herein; and
(g) notwithstanding anything in this Rights Agreement to the contrary,
neither the Corporation nor the Rights Agent shall have any liability
to any holder of a Right or any other Person as a result of its
inability to perform any of its obligations under this Rights
Agreement by reason of any preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or
otherwise restraining performance of such obligation.
ARTICLE 3
ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS
--------------------------------------------------------------
3.1 Flip-in Event
(a) Subject to Sections 3.1(b), 5.1(b), 5.1(c) and 5.1(d) hereof, in the event
that prior to the Expiration Time a Flip-in Event shall occur, the Corporation
shall take such action as shall be necessary to ensure and provide, within 10
Business Days thereafter or such longer period as may be required to satisfy the
requirements of the applicable securities acts or comparable legislation so
that, except as provided below, each Right shall thereafter constitute the right
to purchase from the Corporation, upon exercise thereof in accordance with the
terms hereof, that number of Common Shares of the Corporation having an
aggregate Market Price on the date of consummation or occurrence of such Flip-in
Event equal to twice the Exercise Price for an amount in cash equal to the
Exercise Price (such right to be appropriately adjusted in a manner analogous to
the applicable adjustment provided for in Section 2.3 in the event that after
such date of consummation or occurrence an event of a type analogous to any of
the events described in Section 2.3 shall have occurred with respect to such
Common Shares).
(b) Notwithstanding the foregoing or any other provisions of this Rights
Agreement, upon the occurrence of any Flip-in Event, any Rights that are or were
Beneficially Owned on or after the earlier of the Separation Time or the Stock
Acquisition Date by:
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(i) an Acquiring Person (or any Affiliate or Associate of an Acquiring
Person or any Person acting jointly or in concert with an Acquiring
Person or any Affiliate or Associate of an Acquiring Person); or
(ii) a transferee, direct or indirect, of an Acquiring Person (or any
Affiliate or Associate of an Acquiring Person or any Person acting
jointly or in concert with an Acquiring Person or any Affiliate or
Associate of an Acquiring Person) in a transfer made after the date
hereof, whether or not for consideration, that the Board of Directors
acting in good faith has determined is part of a plan, arrangement or
scheme of an Acquiring Person (or any Affiliate or Associate of an
Acquiring Person) that has the purpose or effect of avoiding clause
(i) of this Section 3.1(b),
shall become void and any holder of such Rights (including transferees) shall
thereafter have no right to exercise such Rights under any provision of this
Rights Agreement and shall not have any other rights whatsoever in respect of
such Rights, whether under any provision of this Agreement or otherwise.
(c) Any Rights Certificate that represents Rights Beneficially Owned by a Person
described in either clauses (i) or (ii) of Section 3.1(b) or transferred to any
nominee of any such Person, and any Rights Certificate issued upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain the following legend:
The Rights represented by this Rights Certificate were
Beneficially Owned by a Person who was an Acquiring
Person or who was an Affiliate or an Associate of an
Acquiring Person (as such terms are defined in the
Rights Agreement) or was acting jointly or in concert
with any of them. This Rights Certificate and the
Rights represented hereby shall become void in the
circumstances specified in Section 3.1(b) of the Rights
Agreement
provided that the Rights Agent shall not be under any responsibility to
ascertain the existence of facts that would require the imposition of such
legend but shall be required to impose such legend only if instructed to do so
by the Corporation or if a holder fails to certify upon transfer or exchange in
the space provided on the Rights Certificate that such holder is not an
Acquiring Person or an Affiliate or Associate thereof.
ARTICLE 4
THE RIGHTS AGENT
----------------
4.1 General
(a) The Corporation hereby appoints the Rights Agent to act as agent for the
Corporation and the holders of Rights in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Corporation may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable, subject to the approval of the Rights Agent. In the
event the Corporation appoints one or more Co-Rights Agents, the respective
duties of the Rights Agent and Co-Rights Agents shall be as the Corporation may
determine with the approval of the Rights Agent and the Co-Rights Agent. The
Corporation agrees to pay to the Rights Agent reasonable compensation for all
services rendered by it hereunder and,
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from time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other disbursements incurred in the execution and
administration of this Rights Agreement and the exercise and performance of its
duties hereunder (including the reasonable fees and other disbursements of any
expert retained by the Rights Agent with the approval of the Corporation, such
approval not to be unreasonably withheld). The Corporation also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without negligence, bad faith or wilful
misconduct on the part of the Rights Agent, for anything done, suffered or
omitted by the Rights Agent in connection with the acceptance, execution and
administration of this Rights Agreement and the exercise and performance of its
duties hereunder, including legal costs and expenses, which right to
indemnification will survive the termination of this Rights Agreement and the
resignation or removal of the Rights Agent.
(b) The Rights Agent shall be protected and shall incur no liability for or in
respect of any action taken, suffered or omitted by it in connection with its
administration of this Rights Agreement in reliance upon any certificate for
Common Shares, Rights Certificate, certificate for other securities of the
Corporation, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
(c) The Corporation shall inform the Rights Agent in a reasonably timely manner
of events which may materially affect the administration of this Rights
Agreement by the Rights Agent.
4.2 Merger, Amalgamation or Consolidation or Change of Name of Rights Agent
(a) Any corporation into which the Rights Agent or any successor Rights Agent
may be merged or amalgamated or with which it may be consolidated, or any
corporation resulting from any merger, amalgamation or consolidation to which
the Rights Agent or any successor Rights Agent is a party, or any corporation
succeeding to the shareholder or stockholder services business of the Rights
Agent or any successor Rights Agent, will be the successor to the Rights Agent
under this Rights Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 4.4 hereof. In case, at the time such successor Rights
Agent succeeds to the agency created by this Rights Agreement, any of the Rights
Certificates have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates have not been countersigned, any successor Rights
Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates will have the full force provided in the
Rights Certificates and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent is changed and at such time
any of the Rights Certificates shall have been countersigned but not delivered,
the Rights Agent may adopt the countersignature under its prior name and deliver
Rights Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, the Rights Agent may countersign
such Rights Certificates either in its prior name or in its changed name; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Rights Agreement.
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4.3 Duties of Rights Agent
The Rights Agent undertakes the duties and obligations imposed by this
Rights Agreement upon the following terms and conditions, by all of which the
Corporation and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may retain and consult with legal counsel (who may be
legal counsel for the Corporation), and the opinion of such counsel will be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion; the
Rights Agent may also, with the approval of the Corporation (such approval not
to be unreasonably withheld) and at the expense of the Corporation, consult with
such other experts as the Rights Agent shall consider necessary or appropriate
to properly carry out the duties and obligations imposed under this Rights
Agreement and the Rights Agent shall be entitled to act and rely in good faith
on the advice of any such expert.
(b) Whenever in the performance of its duties under this Rights Agreement the
Rights Agent deems it necessary or desirable that any fact or matter be proved
or established by the Corporation prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by persons believed by the Rights Agent to
be any two officers or directors of the Corporation and delivered to the Rights
Agent; and such certificate will be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions of this
Rights Agreement in reliance upon such certificate.
(c) The Rights Agent will be liable hereunder only for its own negligence, bad
faith or wilful misconduct.
(d) The Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Rights Agreement or in the
certificates for Common Shares or the Rights Certificates (except its
countersignature thereof) or be required to verify the same, but all such
statements and recitals are and will be deemed to have been made by the
Corporation only.
(e) The Rights Agent will not be under any responsibility in respect of the
validity of this Rights Agreement or the execution and delivery hereof (except
the due authorization, execution and delivery hereof by the Rights Agent) or in
respect of the validity or execution of any Common Share certificate or Rights
Certificate (except its countersignature thereof); nor will it be responsible
for any breach by the Corporation of any covenant or condition contained in this
Rights Agreement or in any Rights Certificate; nor will it be responsible for
any change in the exercisability of the Rights (including the Rights becoming
void pursuant to Section 3.1(b) hereof) or any adjustment required under the
provisions of Section 2.3 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights after
receipt of the certificate contemplated by Section 2.3 describing any such
adjustment); nor will it by any act hereunder be deemed to make any
representation or warranty as to the authorization of any Common Shares to be
issued pursuant to this Rights Agreement or any Rights or as to whether any
Common Shares will, when issued, be duly and validly authorized, executed,
issued and delivered and fully paid and non-assessable.
(f) The Corporation agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts,
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instruments and assurances as may reasonably be required by the Rights Agent for
the carrying out or performing by the Rights Agent of the provisions of this
Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from any persons
believed by the Rights Agent to be any two officers or directors of the
Corporation, and to apply to such persons for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered by it in good faith in reliance upon instructions of any such persons;
it is understood that instructions to the Rights Agent shall, except where
circumstances make it impracticable or the Rights Agent otherwise agrees, be
given in writing and, where not in writing, such instructions shall be confirmed
in writing as soon as reasonably possible after the giving of such instructions.
(h) The Rights Agent and any shareholder or stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in Common Shares, Rights or
other securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or lend
money to the Corporation or otherwise act as fully and freely as though it were
not Rights Agent under this Rights Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Corporation or for any
other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent will not be answerable or
accountable for any act, omission, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Corporation resulting from any such
act, omission, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
4.4 Change of Rights Agent
The Rights Agent may resign and be discharged from its duties under this
Rights Agreement upon 30 days' notice (or such lesser notice as is acceptable to
the Corporation) in writing mailed to the Corporation and to each transfer agent
of Common Shares by registered or certified mail, and to the holders of the
Rights in accordance with Section 5.9. The Corporation may remove the Rights
Agent upon 30 days' notice in writing given to the Rights Agent and to each
transfer agent of the Common Shares (by personal delivery, or registered or
certified mail). If the Rights Agent should resign or be removed or otherwise
become incapable of acting, the Corporation will appoint a successor to the
Rights Agent. If the Corporation fails to make such appointment within a period
of 30 days after such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent, then
the resigning Rights Agent (at the Corporation's expense) or any holder of any
Rights may apply to any court of competent jurisdiction for the appointment of a
new Rights Agent. Any successor Rights Agent, whether appointed by the
Corporation or by such a court, shall be a corporation incorporated under the
laws of Canada or a province thereof authorized to carry on the business of a
trust company in the Province of Alberta. After appointment, the successor
Rights Agent will be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Corporation will file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the
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Common Shares, and mail a notice thereof in writing to the holders of the
Rights. Failure to give any notice provided for in this Section 4.4, however, or
any defect therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
ARTICLE 5
MISCELLANEOUS
-------------
5.1 Redemption and Termination
(a) The Board of Directors may, with the prior consent of holders of Common
Shares or of the holders of Rights given in accordance with Section 5.1(f) or
(g), as the case may be, at any time prior to the occurrence of a Flip-in Event
as to which the application of Section 3.1 has not been waived pursuant to the
provisions of this Section 5.1, elect to redeem all but not less than all of the
then outstanding Rights at a redemption price of $.00001 per Right appropriately
adjusted in a manner analogous to the applicable adjustment provided for in
Section 2.3 in the event that an event of the type analogous to any of the
events described in Section 2.3 shall have occurred (such redemption price being
herein referred to as the "Redemption Price").
(b) The Board of Directors may, with the prior consent of the holders of Common
Shares given in accordance with Section 5.1(f), determine, at any time prior to
the occurrence of a Flip-in Event as to which the application of Section 3.1 has
not been waived pursuant to this Section 5.1, if such Flip-in Event would occur
by reason of an acquisition of Common Shares otherwise than pursuant to a Take-
over Bid made by means of a take-over bid circular sent to all holders of record
of Common Shares and otherwise than in the circumstances set forth in Section
5.1(d), to waive the application of Section 3.1 to such Flip-in Event. In the
event that the Board of Directors proposes such a waiver, the Board of Directors
shall extend the Separation Time to a date subsequent to and not more than ten
Business Days following the meeting of shareholders called to approve such
waiver.
(c) The Board of Directors may, prior to the occurrence of a Flip-in Event as
to which the application of Section 3.1 has not been waived under this clause,
determine, upon prior written notice to the Rights Agent, to waive the
application of Section 3.1 to that Flip-in Event provided that the Flip-in Event
would occur by reason of a Take-over Bid made by means of a take-over bid
circular sent to all holders of record of Common Shares; further provided that
if the Board of Directors waives the application of Section 3.1 to a Flip-in
Event occurring by reason of a Take-over Bid made by means of a take-over bid
circular sent to all holders of record of Common Shares, the Board of Directors
shall be deemed to have waived the application of Section 3.1 to any other Flip-
in Event occurring by reason of any Take-over Bid made by means of a take-over
bid circular to all holders of record of Common Shares which is made prior to
the expiry of any Take-over Bid in respect of which a waiver is, or is deemed to
have been, granted under this Section 5.1(c).
(d) The Board of Directors may, in respect of any Flip-in Event, waive the
application of Section 3.1 to that Flip-in Event, provided that both of the
following conditions are satisfied:
(i) the Board of Directors has determined that the Acquiring Person became
an Acquiring Person by inadvertence and without any intent or
knowledge that it would become an Acquiring Person; and
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(ii) such Acquiring Person has reduced its Beneficial Ownership of Common
Shares such that at the time of waiver pursuant to this Section 5.1(d)
it is no longer an Acquiring Person
and in the event of any such waiver, for the purposes of this Rights Agreement,
such Flip-in Event shall be deemed not to have occurred and the Separation Time
shall be deemed not to have occurred as a result of such Person having
inadvertently become an Acquiring Person.
(e) The Board of Directors shall, without further formality, be deemed to have
elected to redeem the Rights at the Redemption Price on the date that a Person
who has made a Permitted Bid or a Take-over Bid in respect of which the Board of
Directors has waived, or is deemed to have waived, pursuant to Section 5.1(c),
the application of Section 3.1, takes up and pays for the Common Shares pursuant
to the terms and conditions of the Permitted Bid or Take-over Bid, as the case
may be.
(f) If a redemption of Rights pursuant to Section 5.1(a) or a waiver of a Flip-
in Event pursuant to Section 5.1(b) is proposed at any time prior to the
Separation Time, such redemption or waiver shall be submitted for approval to
the holders of Common Shares. Such approval shall be deemed to have been given
if the redemption or waiver is approved by the affirmative vote of a majority of
the votes cast by Independent Shareholders represented in person or by proxy at
a meeting of such holders duly held in accordance with applicable laws and the
Corporation's by-laws.
(g) If a redemption of Rights pursuant to Section 5.1(a) is proposed at any
time after the Separation Time, such redemption shall be submitted for approval
to the holders of Rights. Such approval shall be deemed to have been given if
the redemption is approved by holders of Rights by a majority of the votes cast
by the holders of Rights represented in person or by proxy at and entitled to
vote at a meeting of such holders. For the purposes hereof, each outstanding
Right (other than Rights which are Beneficially Owned by any Person referred to
in clauses (i) to (v) inclusive of the definition of Independent Shareholders)
shall be entitled to one vote, and the procedures for the calling, holding and
conduct of the meeting shall be those, as nearly as may be, which are provided
in the Corporation's by-laws and the Canada Business Corporations Act with
respect to meetings of shareholders of the Corporation.
(h) Where a Take-over Bid that is not a Permitted Bid is withdrawn or otherwise
terminated after the Separation Time has occurred and prior to the occurrence of
a Flip-in Event, the Board of Directors may elect to redeem all the outstanding
Rights at the Redemption Price. Notwithstanding such redemption, all of the
provisions of this Rights Agreement shall continue to apply as if the Separation
Time had not occurred and it shall be deemed not to have occurred and Rights
shall remain attached to the outstanding Common Shares, subject to and in
accordance with the provisions of this Rights Agreement.
(i) If the Board of Directors elects or is deemed to have elected to redeem the
Rights, and, in circumstances where Section 5.1(a) is applicable, such
redemption is approved by the holders of Common Shares or the holders of Rights
in accordance with Section 5.1(f) or (g), as the case may be, the right to
exercise the Rights will thereupon, without further action and without notice,
terminate and the only right thereafter of the holders of Rights will be to
receive the Redemption Price.
(j) Within 10 Business Days after the Board of Directors electing or having
been deemed to have elected to redeem the Rights or, if Section 5.1(a) is
applicable within 10 Business Days
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after the holders of Common Shares or the holders of Rights have approved a
redemption of Rights in accordance with Section 5.1(f) or (g), as the case may
be, the Corporation shall give notice of redemption to the holders of the then
outstanding Rights by mailing such notice to each such holder at its last
address as it appears upon the register of the Rights Agent or, prior to the
Separation Time, on the register of the Transfer Agent for the Common Shares.
Any notice which is mailed in the manner herein provided will be deemed given,
whether or not the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption Price will be made.
The Corporation may not redeem, acquire or purchase for value any Rights at any
time in any manner other than that specifically set forth in this Section 5.1 or
in connection with the purchase of Common Shares prior to the Separation Time.
5.2 Expiration
No Person shall have any rights pursuant to this Rights Agreement or in
respect of any Right after the Expiration Time, except the Rights Agent as
specified in Section 4.1(a) of this Rights Agreement.
5.3 Issuance of New Rights Certificates
Notwithstanding any of the provisions of this Rights Agreement or of the
Rights to the contrary, the Corporation may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change in the number of or kind or class
of shares purchasable upon exercise of Rights made in accordance with the
provisions of this Rights Agreement.
5.4 Supplements and Amendments
(a) The Corporation may make amendments to this Rights Agreement to correct any
clerical or typographical error or which are required to maintain the validity
of this Rights Agreement as a result of any change in any applicable
legislation, rules or regulations thereunder. The Corporation may, prior to the
date of the shareholders' meeting referred to in Section 5.18 or any adjournment
thereof, supplement, amend, vary, rescind or delete any of the provisions of
this Rights Agreement without the approval of any holders of Rights or Common
Shares (whether or not such action would materially adversely affect the
interests of the holders of Rights generally) where the Board of Directors
acting in good faith deems such action necessary or desirable. Notwithstanding
anything in this Section 5.4 to the contrary, no such supplement or amendment
shall be made to the provisions of Article 4 except with the written concurrence
of the Rights Agent to such supplement or amendment.
(b) Subject to Section 5.4(a), the Corporation may, with the prior consent of
the holders of Common Shares obtained as set forth below, at any time prior the
Separation Time, supplement, amend, vary, rescind or delete any of the
provisions of this Rights Agreement and the Rights (whether or not such action
would materially adversely affect the interests of the holders of Rights
generally). Such consent shall be deemed to have been given if the action
requiring such approval is authorized by the affirmative vote of a majority of
the votes cast by Independent Shareholders present or represented at and
entitled to be voted at a meeting of the holders of Common Shares duly called
and held in compliance with applicable laws and the articles and by-laws of the
Corporation.
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(c) The Corporation may, with the prior consent of the holders of Rights, at
any time on or after the Separation Time, supplement, amend, vary, rescind or
delete any of the provisions of this Rights Agreement and the Rights (whether or
not such action would materially adversely affect the interests of the holders
of Rights generally), provided that no such amendment, variation or deletion
shall be made to the provisions of Article 4 except with the written concurrence
of the Rights Agent thereto. Such consent shall be deemed to have been given if
such amendment, variation or deletion is authorized by the affirmative votes of
the holders of Rights present or represented at and entitled to be voted at a
meeting of the holders and representing 50% plus one of the votes cast in
respect thereof.
(d) Any approval of the holders of Rights shall be deemed to have been given if
the action requiring such approval is authorized by the affirmative votes of the
holders of Rights present or represented at and entitled to be voted at a
meeting of the holders of Rights and representing a majority of the votes cast
in respect thereof. For the purposes hereof, each outstanding Right (other than
Rights which are void pursuant to the provisions hereof) shall be entitled to
one vote, and the procedures for the calling, holding and conduct of the meeting
shall be those, as nearly as may be, which are provided in the Corporation's by-
laws and the Canada Business Corporations Act with respect to meetings of
shareholders of the Corporation.
(e) Any amendments made by the Corporation to this Rights Agreement pursuant to
Section 5.4(a) which are required to maintain the validity of this Rights
Agreement as a result of any change in any applicable legislation, rules or
regulation thereunder shall:
(i) if made before the Separation Time, be submitted to the shareholders
of the Corporation at the next meeting of shareholders and the
shareholders may, by the majority referred to in Section 5.4(b),
confirm or reject such amendment;
(ii) if made after the Separation Time, be submitted to the holders of
Rights at a meeting to be called for on a date not later than
immediately following the next meeting of shareholders of the
Corporation and the holders of Rights may, by resolution passed by the
majority referred to in Subsection 5.4(d), confirm or reject such
amendment.
Any such amendment shall be effective from the date of the resolution of the
Board of Directors adopting such amendment, until it is confirmed or rejected or
until it ceases to be effective (as described in the next sentence) and, where
such amendment is confirmed, it continues in effect in the form so confirmed.
If such amendment is rejected by the shareholders or the holders of Rights or is
not submitted to the shareholders or holders of Rights as required, then such
amendment shall cease to be effective from and after the termination of the
meeting at which it was rejected or to which it should have been but was not
submitted or from and after the date of the meeting of holders of Rights that
should have been but was not held, and no subsequent resolution of the Board of
Directors to amend this Rights Agreement to substantially the same effect shall
be effective until confirmed by the shareholders or holders of Rights as the
case may be.
5.5 Fractional Rights and Fractional Shares
(a) The Corporation shall not be required to issue fractions of Rights or to
distribute Rights Certificates which evidence fractional Rights. After the
Separation Time there shall be paid to the registered holders of the Rights
Certificates with regard to which fractional Rights would otherwise be issuable,
an amount in cash equal to the same fraction of the Market Price of a
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whole Right in lieu of such fractional Rights as of the date such fractional
Rights would otherwise be issuable.
(b) The Corporation shall not be required to issue fractional Common Shares
upon exercise of the Rights or to distribute certificates which evidence
fractional Common Shares. In lieu of issuing fractional Common Shares, the
Corporation shall pay to the registered holder of Rights Certificates at the
time such Rights are exercised as herein provided, an amount in cash equal to
the same fraction of the Market Price of one Common Share at the date of such
exercise.
5.6 Rights of Action
Subject to the terms of this Rights Agreement, rights of action in respect
of this Rights Agreement, other than rights of action vested solely in the
Rights Agent, are vested in the respective holders of the Rights; and any holder
of any Rights, without the consent of the Rights Agent or of the holder of any
other Rights, may, on such holder's own behalf and for such holder's own benefit
and the benefit of other holders of Rights, enforce, and may institute and
maintain any suit, action or proceeding against the Corporation to enforce, or
otherwise act in respect of, such holder's right to exercise such holder's
Rights, or Rights to which he is entitled, in the manner provided in this Rights
Agreement and in such holder's Rights Certificate. Without limiting the
foregoing or any remedies available to the holders of Rights it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Rights Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this Rights
Agreement.
5.7 Holder of Rights Not Deemed a Shareholder
No holder, as such, of any Rights shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of Common Shares or any other
securities which may at any time be issuable on the exercise of Rights, nor
shall anything contained herein or in any Rights Certificate be construed to
confer upon the holder of any Rights, as such, any of the rights of a
shareholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting Shareholders (except as provided in Section
5.8 hereof), or to receive dividends or subscription rights or otherwise, until
such Rights, or Rights to which such holder is entitled, shall have been
exercised in accordance with the provisions hereof.
5.8 Notice of Proposed Actions
In case the Corporation shall propose after the Separation Time and prior
to the Expiration Time:
(a) to effect or permit (in cases where the Corporation's permission is
required) any Flip-in Event; or
(b) to effect the liquidation, dissolution or winding up of the
Corporation or the sale of all or substantially all of the
Corporation's assets,
then, in each such case, the Corporation shall give to each holder of a Right,
in accordance with Section 5.9 hereof, a notice of such proposed action, which
shall specify the date on which such
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Flip-in Event, liquidation, dissolution, or winding up is to take place, and
such notice shall be so given at least 10 Business Days prior to the date of
taking of such proposed action by the Corporation.
5.9 Notices
Notices or demands to be given or made in connection with this Rights
Agreement by the Rights Agent or by the holder of any Rights to or on the
Corporation shall be sufficiently given or made if delivered or sent by mail,
postage prepaid or by fax (with, in the case of fax, an original copy of the
notice or demand sent by first class mail, postage prepaid, to the Corporation
following the giving of the notice or demand by fax), addressed (until another
address is filed in writing with the Rights Agent) as follows:
Prudential Steel Ltd.
Suite 1800 SunLife Plaza
140 - 4th Avenue S.W.
Calgary, Alberta T2P 3N3
Attention: President
Fax: (403) 265-3426
Phone: (403) 267-0328
Notices or demands to be given or made in connection with this Rights
Agreement by the Corporation or by the holder of any Rights to or on the Rights
Agent shall be sufficiently given or made if delivered or sent by mail, postage
prepaid, or by fax (with, in the case of fax, an original copy of the notice or
demand sent by first class mail, postage prepaid, to the Rights Agent following
the giving of the notice or demand by fax), addressed (until another address is
filed in writing with the Corporation) as follows:
CIBC Mellon Trust Company
Suite 600, 333 - 7th Avenue S.W.
Calgary, Alberta T2P 2Z1
Attention: Manager, Client Services
Fax: (403) 264-2100
Phone: (403) 232-2400
Notices or demands to be given or made in connection with this Rights
Agreement by the Corporation or the Rights Agent to or on the holder of any
Rights shall be sufficiently given or made if delivered or sent by first class
mail, postage prepaid, addressed to such holder at the address of such holder as
it appears upon the register of the Rights Agent or, prior to the Separation
Time, on the register of the Corporation for the Common Shares.
Any notice given or made in accordance with this Section 5.9 shall be
deemed to have been given and to have been received on the day of delivery, if
so delivered, on the third Business Day (excluding each day during which there
exists any general interruption of postal service due to strike, lockout or
other cause) following the mailing thereof, if so mailed, and on the day of
faxing (provided such sending is during the normal business hours of the
addressee on a Business Day and if not, on the first Business Day thereafter).
Each of the Corporation and the Rights Agent may from time to time change its
address for notice by notice to the other given in the manner aforesaid.
K-68
<PAGE>
-34-
If mail service is or is threatened to be interrupted at a time when the
Corporation or the Rights Agent wishes to give a notice or demand hereunder to
or on the holders of the Rights, the Corporation or the Rights Agent may,
notwithstanding the foregoing provisions of this Section 5.9, give such notice
by means of publication once in each of two successive weeks in the business
section of the Financial Post and, if the Corporation has a transfer agent in
the United States, in a daily publication in the United States designated by the
Corporation, or in such other publication or publications as may be designated
by the Corporation and notice so published shall be deemed to have been given on
the date on which the first publication of such notice in any such publication
has taken place.
5.10 Costs of Enforcement
The Corporation agrees that if the Corporation fails to fulfil any of its
obligations pursuant to this Rights Agreement, then the Corporation will
reimburse the holder of any Rights for the costs and expenses (including legal
fees) incurred by such holder in actions to enforce his rights pursuant to any
Rights or this Rights Agreement.
5.11 Successors
All the covenants and provisions of this Rights Agreement by or for the
benefit of the Corporation or the Rights Agent shall bind and enure to the
benefit of their respective successors and assigns hereunder.
5.12 Benefits of this Rights Agreement
Nothing in this Rights Agreement shall be construed to give to any Person
other than the Corporation, the Rights Agent and the holders of the Rights any
legal or equitable right, remedy or claim under this Rights Agreement; but this
Rights Agreement shall be for the sole and exclusive benefit of the Corporation,
the Rights Agent and the holders of the Rights.
5.13 Descriptive Headings
Descriptive headings appear herein for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
5.14 Governing Law
This Rights Agreement and each Right issued hereunder shall be deemed to be
a contract made under the laws of the Province of Alberta and for all purposes
shall be governed by and construed in accordance with the laws of such Province
applicable to contracts to be made and performed entirely within such Province.
5.15 Language
Les parties aux presentes ont exige que la presente convention ainsi que
tous les documents et avis qui s'y rattachent et/ou qui en decouleront soient
rediges en langue anglaise. The parties hereto have required that this Rights
Agreement and all documents and notices related thereto and/or resulting
therefrom be drawn up in the English language.
K-69
<PAGE>
-35-
5.16 Counterparts
This Rights Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same
instrument.
5.17 Severability
If any term or provision hereof or the application thereof to any
circumstance is, in any jurisdiction and to any extent, invalid or
unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term or provision to circumstances other than
those as to which it is held invalid or unenforceable.
5.18 Effective Date and Shareholder Review
This Rights Agreement is effective as at and after the Record Time. If
this Rights Agreement is not confirmed by resolution passed by a majority of the
votes cast by Independent Shareholders who vote in respect of adoption of this
Rights Agreement at the 2000 Annual Meeting, then this Rights Agreement shall
terminate and be void and of no further force and effect as at and after the
Record Time. At or prior to the annual meeting of shareholders of the
Corporation in the year 2003, provided that a Flip-in Event has not occurred
prior to such time, the Board of Directors may submit a resolution ratifying the
continued existence of this Rights Agreement to the Independent Shareholders for
their consideration and, if thought advisable, approval. Unless a majority of
the votes cast by Independent Shareholders who vote in respect of such
resolution are voted in favour of the continued existence of this Rights
Agreement, this Rights Agreement and all outstanding Rights shall terminate and
be of no further force and effect as at and after the termination of such annual
meeting.
5.19 Regulatory Approvals
Any obligation of the Corporation or action or event contemplated by this
Rights Agreement shall be subject to the receipt of any requisite approval or
consent from any governmental or regulatory authority. Without limiting the
generality of the foregoing, any issuance or delivery of debt or equity
securities (other than non-convertible debt securities) of the Corporation upon
the exercise of Rights and any amendment or supplement to this Rights Agreement
shall be subject to the prior consent of The Toronto Stock Exchange and any
other stock exchange on which the Common Shares may then be listed.
5.20 Transition
In order to provide for an appropriate transition between the Original Plan
and the Rights Plan, the provisions of this Rights Agreement shall be deemed to
apply to any event or circumstance arising before the expiry of the Original
Plan to which any of the provisions of the Original Plan applied (including,
without limitation, the definitions of an "Acquiring Person", "Flip-in Event",
"Permitted Bid", "Separation Time" and "Stock Acquisition Date") notwithstanding
the fact that such event or circumstance occurred prior to this Rights Agreement
coming into effect.
K-70
<PAGE>
-36-
5.21 Determinations and Actions by the Board of Directors
All actions and determinations (including all omissions with respect to the
foregoing) which are done or made by the Board of Directors, in good faith
pursuant to or in connection with the administration of this Rights Agreement,
shall not subject any member of the Board of Directors to any liability
whatsoever to the holders of the Rights.
IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to
be duly executed as of the date first above written.
PRUDENTIAL STEEL LTD.
Per: _____________________________
Name:
Title:
Per: _____________________________
Name:
Title:
CIBC MELLON TRUST COMPANY
Per: _____________________________
Name:
Title:
Per: _____________________________
Name:
Title:
K-71
<PAGE>
EXHIBIT A
FORM OF RIGHTS CERTIFICATE
Certificate No. ________________ ________________ Rights
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE CORPORATION, ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. IN CERTAIN CIRCUMSTANCES (SPECIFIED IN
SECTION 3.1(b) OF THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR TRANSFEREES OF AN ACQUIRING PERSON OR ITS AFFILIATES OR
ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR ANY PERSON
ACTING JOINTLY OR IN CONCERT WITH ANY OF THEM, MAY BECOME VOID.
Rights Certificate
This certifies that ______________________________, or registered assigns,
is the registered holder of the number of Rights set forth above, each of which
entitles the registered holder thereof, subject to the terms, provisions and
conditions of the Shareholder Protection Rights Plan Agreement dated as of May
1, 2000, as such may from time to time be amended, restated, (the "Rights
Agreement") between Prudential Steel Ltd., a corporation incorporated under the
laws of the Province of Alberta (the "Corporation") and CIBC Mellon Trust
Company, a trust company incorporated under the laws of Canada, as Rights Agent
(the "Rights Agent"), which term shall include any successor Rights Agent under
the Rights Agreement, to purchase from the Corporation at any time after the
Separation Time (as such term is defined in the Rights Agreement) and prior to
the earlier of (i) the Termination Time (as such term is defined in the Rights
Agreement) and (ii) the termination of the annual meeting of the Corporation in
the year 2003, one fully paid common share of the Corporation (a "Common Share")
at the Exercise Price referred to below, upon presentation and surrender of this
Rights Certificate together with the Form of Election to Exercise duly executed
to the Rights Agent at its principal office in Calgary, Alberta or in such other
cities as may be designated by the Corporation from time to time. The Exercise
Price shall initially be CDN $100.00 per Right and shall be subject to
adjustment in certain events as provided in the Rights Agreement.
In certain circumstances described in the Rights Agreement, the number of
Common Shares which each Right entitles the registered holder thereof to
purchase shall be adjusted as provided in the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Rights Agent, the Corporation and the holders of the Rights Certificates.
Copies of the Rights Agreement are on file at the registered office of the
Corporation and are available upon written request.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at any of the offices of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing an aggregate number of Rights equal to the aggregate
number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered
K-72
<PAGE>
-2-
holder shall be entitled to receive, upon surrender hereof, another Rights
Certificate or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Corporation at a redemption price of
$.00001 per Right, subject to adjustment in certain events, under certain
circumstances at its option.
No fractional Common Shares will be issued upon the exercise of any Rights
evidenced hereby, but in lieu thereof a cash payment will be made, as provided
in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of Common Shares or of
any other securities which may at any time be issuable upon the exercise hereof,
nor shall anything contained in the Rights Agreement or herein be construed to
confer upon the holder hereof, as such, any of the Rights of a shareholder of
the Corporation or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting shareholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights, or otherwise, until the Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Corporation
and its corporate seal.
Date: _________________________________
PRUDENTIAL STEEL LTD.
By: _____________________________
Authorized Officer
By: _____________________________
Authorized Officer
Countersigned:
CIBC MELLON TRUST COMPANY
By: _____________________________
Authorized Officer
K-73
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Rights represented by this Rights Certificate.)
FOR VALUE RECEIVED ______________________ hereby sells, assigns and
transfers to
(Please print name and address of transferee) the Rights represented by this
Rights Certificate, together with all right, title and interest therein, and
hereby irrevocably constitutes and appoints _____________________ as attorney,
to transfer the within Rights on the books of the Corporation, with full power
of substitution.
Dated: ____________________
Signature Guaranteed: ___________________________________
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular, without
alteration or enlargement or any change
whatsoever.)
Signature must be guaranteed by a Canadian chartered bank, a Canadian trust
company, a member of a recognized stock exchange or a member of the Securities
Transfer Association Medallion (STAMP) Program.
--------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights and
Common Shares, that the Rights evidenced by this Rights Certificate are not,
and, to the knowledge of the undersigned, have never been, Beneficially Owned by
an Acquiring Person or an Affiliate or Associate thereof or by any Person acting
jointly or in concert with any of the foregoing (all capitalized terms are used
as defined in the Rights Agreement).
Dated: ____________________ Signature: __________________________
NOTICE
In the event the certification set forth above in the Form of Election to
Exercise is not completed upon exercise of the Right(s) evidenced hereby or in
the event that the certification set forth above in the Form of Assignment is
not completed upon the assignment of the Right(s) evidenced hereby, the
Corporation will deem the Beneficial Owner of the Right(s) evidenced by this
Rights Certificate to be an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and, in the case of an assignment,
will affix a legend to that effect on any Rights Certificates issued in exchange
for this Rights Certificate.
K-74
<PAGE>
(To be attached to each Rights Certificate)
FORM OF ELECTION TO EXERCISE
TO: PRUDENTIAL STEEL LTD.
The undersigned hereby irrevocably elects to exercise ____________________ whole
Rights represented by the attached Rights Certificate to purchase the Common
Shares (or other securities or property) issuable upon the exercise of such
Rights and requests that certificates for such shares (or other securities or
title to such property) be issued in the name of:
_______________________________________________
(Name)
_______________________________________________
(Street)
_______________________________________________
(City and State or Province)
_______________________________________________
(Country, Postal Code or Zip Code)
_______________________________________________
SOCIAL INSURANCE, SOCIAL SECURITY OR
OTHER TAXPAYER IDENTIFICATION NUMBER
K-75
<PAGE>
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance of such Rights shall be
registered in the name of and delivered to:
_______________________________________________
(Name)
_______________________________________________
(Street)
_______________________________________________
(City and State or Province)
_______________________________________________
(Country, Postal Code or Zip Code)
_______________________________________________
SOCIAL INSURANCE, SOCIAL SECURITY OR
OTHER TAXPAYER IDENTIFICATION NUMBER
Dated: ____________________
Signature Guaranteed: ___________________________________
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular, without
alteration or enlargement or any change
whatsoever.)
Signature must be guaranteed by a Canadian chartered bank, a Canadian trust
company, a member of a recognized stock exchange or a member of the Securities
Transfer Association Medallion (STAMP) Program.
--------------------------------------------------------------------------------
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of Rights and
Common Shares, that the Rights evidenced by this Rights Certificate are not,
and, to the knowledge of the undersigned, have never been, Beneficially Owned by
an Acquiring Person or an Affiliate or Associate thereof or by any Person acting
jointly or in concert with any of the foregoing (all capitalized terms are used
as defined in the Rights Agreement).
Dated: ____________________ Signature: __________________________
K-76
<PAGE>
NOTICE
------
In the event the certification set forth above in the Form of Election to
Exercise is not completed upon exercise of the Right(s) evidenced hereby or in
the event that the certification set forth above in the Form of Assignment is
not completed upon the assignment of the Right(s) evidenced hereby, the
Corporation will deem the Beneficial Owner of the Right(s) evidenced by this
Rights Certificate to be an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and, in the case of an assignment,
will affix a legend to that effect on any Rights Certificates issued in exchange
for this Rights Certificate.
K-77
<PAGE>
Renewal
Annual Information Form
dated May 15, 2000
[LOGO OF PRUDENTIAL STEEL]
K-78
<PAGE>
-1-
INCORPORATION
Prudential Steel Ltd. ("Prudential" or the "Corporation") was incorporated under
the Companies Act (Alberta) on April 4, 1966 and continued under the Business
Corporations Act (Alberta) on May 24, 1983. On February 2, 1994, the Articles of
the Corporation were amended to, among other things, subdivide the issued and
outstanding common shares, increase the authorized share capital to include an
unlimited number of common shares and an unlimited number of preferred shares,
issuable in series, and remove the private company restrictions. In 1994,
Prudential Steel's owner, Dofasco Inc., divested its ownership of Prudential by
way of a public secondary offering of 10 million common shares for an aggregate
of $100 million. Prudential's common shares began trading April 8, 1994 on the
Toronto Stock Exchange under the symbol "PTS." On October 28, 1997, the Articles
of the Corporation were amended to split the common shares on a three for one
basis. On May 7, 1999, the Articles of the Corporation were amended and restated
to permit a shareholders' meeting to be held outside of Alberta.
The head and principal office of the Corporation is located at #1800 SunLife
Plaza, 140 - 4th Avenue S.W., Calgary, Alberta, T2P 3N3 and the registered
office of the Corporation is located at 4500, 855 - 2nd Street S.W., Calgary,
Alberta, T2P 4K7. Prudential owns 100 per cent of its U.S. subsidiary,
Prudential Steel Inc., which is located at 1205 Prudential Blvd., P.O. Box 1846,
Longview, Washington 98632. Prudential Steel Inc. is incorporated in the state
of Washington.
GENERAL DEVELOPMENT OF THE BUSINESS
Prudential is one of North America's leading producers of high quality energy
and industrial tubular products.
Prudential was originally incorporated to produce pipe for the energy sector.
The first pipe mill, Mill #1 in southeast Calgary, had an annual capacity of
60,000 tonnes. Mill #2 was built in 1975 increasing production capacity to
153,000 tonnes. Threading and upsetting facilities were added in 1979, setting
the stage for future growth and improvement of the cost structure. In 1983 Mill
#2 capacity was increased resulting in a total annual capacity of 200,000
tonnes. In 1991 Prudential became the first company in North America to install
a Central Tooling Adjustment system. This system improved yield and product
quality, reduced changeover time and increased the product range. In 1994
Prudential opened Mill #3 expanding the total capacity to 240,000 tonnes. The
original Mill #1 was decommissioned in 1995. In 1996 Prudential installed a new
solid state welder in Mill #3 to increase mill speeds, produce higher quality
product and reduce operating costs. Also in 1996 a new 100,000 square foot
Hollow Structural Sections storage facility was constructed to increase
production flexibility while balancing customer needs. During 1997 Prudential
selected Longview, Washington as the site for a 100,000 tonne capacity tubular
manufacturing facility. Late in 1997 Mill #1 was re-commissioned, providing
60,000 tonnes of additional capacity. During 1998 a new spiral accumulator and
finishing line upgrades to Mill #2 increased throughput by 20,000 tonnes,
bringing Prudential's Calgary operations to a total of 400,000 tonnes of annual
manufacturing capacity. In 1998 construction of the Longview facility was
started, with initial production of Hollow Structural Sections commencing late
in the same year. In March 1999 the finishing line of the Longview mill was
completed, allowing the ability to produce line pipe, Oil Country Tubular Goods
and standard pipe. The new Longview mill features the latest in tubular
manufacturing technology and has an annual operating capacity of 100,000 metric
tonnes. In mid 1999 construction of a new steel coil slitter commenced at
Longview, to be operational by summer 2000.
K-79
<PAGE>
-2-
DESCRIPTION OF THE BUSINESS
General
Prudential produces tubular products for three primary applications in western
Canada and the U.S. Pacific Northwest: (1) energy related products for the
upstream oil and gas exploration and development market; (2) industrial products
for commercial construction, equipment manufacture, mining and forestry; and (3)
conversion for other steel pipe producers.
The Corporation has two segments for financial reporting purposes based upon
geographical location. The Canadian operation, serving primarily western Canada,
is based in Calgary, Alberta. The U.S. operation, serving primarily the U.S.
Pacific Northwest, is based in Longview, Washington.
The current combined annual capacity of the Corporation's facilities in Calgary,
Alberta and Longview, Washington is approximately 500,000 tonnes.
Principal Products
1. Energy Related Products
Energy related products are comprised of Oil Country Tubular Goods ("OCTG")
which are used in drilling and completing oil and gas wells, and line pipe
which is used to tie oil and gas wells into gathering systems.
Oil Country Tubular Goods
OCTG products include both casing and tubing used in the drilling and
completion stages for both oil and gas. Casing products are used to provide
support for the walls of the hole during and after drilling. Tubing is used
to transport oil or gas to the surface once the well is completed and
producing.
OCTG products are manufactured to serve either low strength or high
strength applications. The low-strength application products have yield
strengths of less than or equal to 55,000 PSI, while high-strength products
are anything above 55,000 PSI. OCTG products are produced by either welding
steel coils longitudinally (electric resistance welding or "ERW") or by the
seamless method whereby a steel bar is made into a pipe by forging. The ERW
product dominates low-strength applications, while traditionally seamless
products have supplied the high-strength applications.
Prudential is a major supplier of low-strength OCTG in western Canada and
the western U.S. Prudential produces casing in sizes ranging from 4 1/2 to
12 3/4 inches and tubing in sizes ranging from 2 3/8 to 4 1/2 inches. The
OCTG products are generally sold through distributors to oil and gas
companies engaged in exploration and development.
Line Pipe
Line pipe is the other product manufactured for use in the oil and gas
sector. It is used to transport oil or gas from the well to processing
facilities or transmission lines. These "gathering lines" are typically
small to medium in diameter, ranging from 2 3/8 to 16 inches outside
diameter.
Prudential supplies line pipe in sizes ranging from 2 3/8 to 12 3/4 inches
outside diameter. Pipe materials that resist stress corrosion cracking
("SCC") and hydrogen induced cracking ("HIC") add to the product line. Line
pipe is sold directly or through distributors to oil and gas companies and
companies which operate oil and gas distribution systems. Line pipe is
generally produced as required for specific projects, however, Prudential
also maintains inventories of line pipe in order to meet immediate customer
needs.
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<PAGE>
-3-
2. Industrial Products
Hollow Structural Sections (HSS)
HSS are round, square or rectangular shaped steel tubes used in industrial
and commercial construction and equipment manufacturing applications. They
are produced in Calgary's Mill #2 and Mill #3 in sizes ranging from one to
10 inches square and corresponding rectangles and in various wall
thicknesses. Hollow Structural Sections are generally sold to steel service
centres that inventory the product and further process the tube according
to customer needs. Prudential carries inventories for its service centre
customers for competitive reasons and for the purposes of balancing mill
loading.
Prudential's Longview facility dedicates approximately 55 per cent of its
production mix towards HSS. It manufactures HSS in a range from two through
8 inches square. Standard pipe is also produced in the Longview facility
and is intended for use in steam, water, air and gas lines. The Longview
facility produces standard pipe in sizes from 2 3/8 inches through 10 3/4
inches outside diameter.
3. Skelp Conversion
An area of business that allows Prudential to improve mill utilization by
balancing mill loading is through converting steel into finished products
for other pipe manufacturers. Other manufacturers ship their steel to
Prudential where it is converted into OCTG, line pipe or HSS and shipped
back for sale through their respective distributor network or sales force.
Skelp conversion contracts serve to increase the base load of the mill and
improve profitability. This results in longer production runs and increased
yields due to the lower number of changeovers.
4. Other Products
Other products include all non-prime products such as commercial pipe and
scrap that are incidental by-products of normal production and volumes are
directly related to total production. These other products are sold under
contract to commercial pipe and scrap distributors based on current market
prices.
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<PAGE>
-4-
Market
The following table lists Prudential's major products, their primary end uses,
customers and approximate ranges of percentage share of total sales volume
shipped:
<TABLE>
<CAPTION>
Approximate
Share of Total
Product End Use Customers Sales (1)
------- ------- --------- ---------------
<S> <C> <C> <C>
Energy Related Products - downhole exploration for - oil and gas companies 69-80%
(OCTG and line pipe) and production of oil and - transmission companies
gas
- transporting oil and gas
to processing and transmission
lines
Industrial products - support structures in - service centres 9-20%
(HSS, standard pipe construction, fabrication - agricultural OEMs
and piling pipe) and agricultural industries - construction/engineering firms
- plumbing-related uses - fabricators
Skelp conversion - HSS, OCTG, line pipe - other pipe manufacturers 2-14%
Other - commercial pipe 8-10%
- scrap
</TABLE>
Notes:
(1) Based on sales volume shipped during the eight-year period ended December
31, 1999. Product mix within these ranges is subject to variation during a
typical business cycle.
Most of Prudential's sales are made to customers located in western Canada and
the western U.S. In 1999, four customers accounted for approximately 48% (1998-
47%) of the revenues of the Canadian operations.
The following table demonstrates that Canadian OCTG and line pipe consumption is
directly related to oil and gas well drilling activity. For this reason, the
sales levels of Prudential and its competitors are dependent to a significant
degree on drilling activity levels.
Canadian Drilling Activity and Energy Related Tubular Goods Consumption
-----------------------------------------------------------------------
Metres (1) OCTG (2) Line Pipe (2)(3)
Year Drilled Consumption Consumption
----
(millions) (000s Metric Tonnes) (000s Metric Tonnes)
-------------------------------------------------------------------------------
1982 6.24 243 146
1983 8.14 245 136
1984 10.44 361 264
1985 12.96 519 175
1986 7.94 207 93
1987 8.45 264 140
1988 10.14 377 208
1989 6.58 169 148
1990 6.80 192 171
1991 6.47 197 175
1992 5.84 171 100
1993 10.60 398 163
1994 13.68 471 345
1995 12.89 412 198
1996 14.04 517 216
1997 18.23 735 430
1998 12.03 460 235
1999 11.43 415 223
Notes:
(1) Based on published information in Nickle's Daily Oil Bulletin.
(2) Line pipe and OCTG consumption figures are based on Statistics Canada
shipments as reported by the domestic producers plus imports. They include both
seamless and ERW products. No breakdown is available of the ERW and seamless
components of domestic shipments.
(3) Up to and including 16 inch outside diameter.
K-82
<PAGE>
-5-
Competition
The western Canadian markets for energy related products and industrial products
are served by a small number of domestic producers, each of whom has significant
market share.
Competitors for energy-related products include Ipsco Inc. of Regina,
Saskatchewan, Camrose Pipe Company located in Camrose, Alberta and Stelpipe
located in Welland, Ontario. Ipsco produces a broad range of energy and
industrial products. Camrose Pipe produces line pipe from 4 1/2 through 42
inches outside diameter. Stelpipe produces OCTG and line pipe primarily for
eastern Canadian markets, although they do compete in western Canada from time
to time when demand is strong. Imports make up a percentage of the energy-
related product markets, which varies depending on a number of factors,
including the exchange rate between the Canadian and U.S. dollar and supply and
demand changes. Imports of OCTG and line pipe have generally been less than 30%
of the Canadian market in recent years, of which approximately 2/3 of OCTG
imports have been seamless tubular products.
Competitors for HSS include Sonco, Stelpipe and Atlas Tube located in central
Canada. Imports of HSS have generally been less than 10% of the Canadian market
in recent years.
In the United States, competitors for OCTG include manufacturers located in the
central and southern United States. Competitors for line pipe include
manufacturers located in the western United States and imports from Asia.
Competitors for HSS include manufacturers located in the western coastal United
States, imports from Asia and suppliers from the mid-west United States.
Competitors for standard pipe include manufacturers located in the western
coastal United States and imports from Asia.
Facilities and Principal Properties
Prudential owns 93 acres of land in southeast Calgary where its production
facilities, raw material and products storage facilities are located. In
Longview, Washington, Prudential owns 35 acres of land where its production
facility, raw material and product storage facility are located.
Prudential's existing Calgary facilities consist of three pipe mills, a
threading plant, an upsetting plant, a HSS storage facility, plant office
building and four other buildings. The Longview facility consists of a pipe
mill, a storage facility and a plant office building. The following table
summarizes Prudential's production capabilities:
K-83
<PAGE>
-6-
<TABLE>
<CAPTION>
Facility Original Product Range (inches)
-------- -------- ----------------------
Construction Date Rounds Square Tubes History of Improvements
------------------ ------ ------------ -----------------------
<S> <C> <C> <C> <C>
Mill #1 1966 2 3/8 to 5 1/2 n/a 1997 Mill line refurbished and new finishing line
Mill #2 1975 4 1/2 to 12 3/4 3 1/2 to 10
1983 Looper and second finishing line additions
1988 New induction welder
1991 Addition of CTA
1991 Quick changeover
1991 Tooling added to increase size range to 12 3/4"
1994 New solid state welder
1998 Spiral accumulator & finishing line upgraded
Mill #3 1994 1 2/3 to 4 1/2 1 to 4 1996 New solid state welder
1997 Finishing line upgraded
Calgary HSS 1995 n/a n/a 1995 Adds 100,000 square feet of inside storage
storage building
Mill #4 1998 2 3/8 to10 3/4 2 to 8 1998 Construction phase began in January, initial
(Longview) production of HSS began in December
1999 Completion of finishing lines.
Commenced construction of coil slitter
(expected completion by summer 2000).
Longview HSS 1998 n/a n/a 1998 Adds 80,000 square feet of inside storage
storage building
</TABLE>
Mill #1, originally built in 1966, was closed in 1995 and re-commissioned late
in 1997. This mill was reconfigured and brought up-to-date with a number of new
components.
Mill #2, originally built in 1975 and continuously upgraded, is one of the most
efficient pipe mills in its product size range in North America. It includes
the first Central Tool Adjustment system "CTA" installed in North America (in
1991) and the largest solid state welder when it was installed in 1994. These
innovations provide fast production with quick changeover capability.
Mill #3, built in 1994, improved productivity on sizes previously manufactured
at Mill #1 and added capacity for the smaller sized industrial products. This
state-of-the-art mill is one of the most efficient small diameter mills in North
America.
The threading plant, built in 1984 consists of a small diameter threading line
for two to 5 1/2 inch tubing and casing and a larger diameter threading line for
4 1/2 to 13 3/8 inch casing. The plant applies threads and couplings on
casing and tubing for use in downhole oil and gas exploration and production.
This facility is also considered to be one of the most efficient in North
America. The upsetting plant heats and thickens the ends of 2-3/8 to 4 1/2 inch
tubing prior to the threading operation.
Mill #4, built in 1998, is located in Longview, Washington, and features state-
of-the-art technology including a new Central Tooling Adjustment, solid state
welder and spiral accumulator. This mill has been designed to allow significant
flexibility in its production capabilities.
Operations and Technology
Prudential's products meet or exceed either current Canadian Standards
Association ("CSA") or American Petroleum Institute ("API") and other
specifications demanded by customers. Prudential believes it is recognized in
the industry as a leader in meeting new product specifications. In 1994,
Prudential became the first pipe manufacturer in the world to be registered
under both the CSA Z299.3/1985 (Canadian) and ISO 9002/1987 (International)
quality assurance standards. In 1995, Prudential became the first ERW pipe
manufacturer in Canada registered under the ISO 9001 standard. Since 1966,
Prudential has been registered to produce energy-related products according to
the American Petroleum Institute (API) 5L and 5 CT, and in March 1999 was
granted license to apply the API monogram to products manufactured at its
Longview, Washington facility. In March 2000, Prudential's Longview facility
also became registered under the ISO 9001 standard. Adherence to these standards
is essential for customers who demand the highest available quality
specifications for their products.
Prudential remains at the forefront in developing customer teams consisting of
its technical and operating personnel, skelp suppliers and customers. These
teams work on quality, product development and customer service issues on an
ongoing basis.
Prudential's Total Quality Management Program named "Partners in Quality" began
in 1992. The Quality Council, composed of both employee and management members,
oversees a team-based process used to evaluate and resolve both internal issues
and those related to customers' needs.
K-84
<PAGE>
-7-
Availability of Raw Materials (Skelp Supply)
Prudential entered into a five-year skelp supply agreement dated April 1, 1996,
with Ipsco (the "Ipsco Supply Agreement"). The Ipsco Supply Agreement has a
five-year term, terminable by either party on one year's notice at any time.
Prudential is obligated to buy minimum tonnage in each contract year and in each
calendar quarter. Ipsco is committed to sell to Prudential maximum tonnage
during each calendar quarter during the term, at prices for various approved
specifications for skelp, which are subject to adjustment quarterly to reflect
changes in North American hot rolled steel market conditions.
Prudential entered into a five-year skelp supply agreement dated October 1, 1999
with Dofasco (the "Dofasco Supply Agreement"). The Dofasco Supply Agreement has
a five-year term, terminable by either party on one year's notice at any time.
Prudential is obligated to buy minimum tonnage in each calendar quarter. Dofasco
is committed to sell to Prudential maximum tonnages during each calendar
quarter, at prices for various approved specifications for skelp, which are
established quarterly based upon prices for comparable products and Dofasco's
published book prices.
The supply agreements provide the bulk of Prudential's skelp requirements for
its Canadian operations. Remaining skelp requirements are expected to be met
from open market purchases. In the event of termination of either of the supply
agreements, Prudential has identified other sources of skelp which are available
at market prices.
Prudential's U.S. operation does not have any long-term skelp purchase contracts
in place and relies upon open market purchases. The installation of the coil
slitter at Longview will allow the U.S. operation to purchase steel in bulk from
a greater number of steel suppliers.
Environment
The goal of Prudential's Environmental Policy is to meet environmental
legislation and standards for the health, welfare and safety of all Prudential
employees, customers and the community. This is achieved through employee
awareness, training, management commitment and involvement, as well as external
consulting and auditing advice.
Prudential's operations are subject to environmental legislation and regulations
and increased public awareness concerning environmental protection. Prudential
expects that the cost of complying with environmental legislation and
regulations will increase in the future. Compliance with existing environmental
legislation and regulations has not had a material effect on capital
expenditures, earnings or competitive position of Prudential to date.
Employee Relations
Prudential's work force averaged approximately 411 employees in 1999.
Approximately 71 per cent of the total work force are hourly-rated employees
represented by the United Steelworkers of America. Prudential has a good
relationship with the union and there have been no significant labour stoppages.
The current three-year collective agreement expires December 31, 2000.
Prudential's Longview employees are not represented by a union.
K-85
<PAGE>
-8-
DIRECTORS AND OFFICERS
The name, municipality of residence, position held with the Corporation and
principal occupation of each of the directors and officers are shown in the
table below. The term of office of each director will expire at the end of the
next annual meeting of shareholders.
DIRECTORS
<TABLE>
<CAPTION>
Name and Date First Elected Principal Occupation
Municipality of Residence as Director
<S> <C> <C>
Douglas D. Baldwin (A, C) April 26, 1999 President and Chief Executive Officer
Calgary, Alberta TransCanada Pipelines Limited
George S. Dembroski (A, P) April 13, 1995 Corporate Director
Toronto, Ontario
Rhys T. Eyton (C, G) July 27, 1995 Corporate Director
Sidney, B.C.
Dennis G. Flanagan (A, C, G) April 25, 1997 Corporate Director
Calgary, Alberta
Donald A. Pether (G,P) April 26, 1999 Executive Vice President
Dundas, Ontario Dofasco Inc.
Norman W. Robertson (C, G) April 17, 1973 Chairman of the Board
Calgary, Alberta Prudential Steel Ltd.
Donnel O. Sabey (A, P) April 8, 1994 Senior Partner
Calgary, Alberta Bennett Jones (Barristers and Solicitors)
J. Donald Wilson January 31, 1984 President and Chief Executive Officer
Calgary, Alberta Prudential Steel Ltd.
</TABLE>
Notes:
(A) Member of Audit Committee
(C) Member of Compensation and Succession Committee
(G) Member of Governance and Nominating Committee
(P) Member of Pension Committee
The Corporation does not have an Executive Committee.
K-86
<PAGE>
-9-
OFFICERS
<TABLE>
<CAPTION>
Name Municipality of Residence Principal Occupation
---- ------------------------- --------------------
<S> <C> <C>
Brian R. Armstrong Vancouver, Washington Vice President, General Manager,
Prudential Steel Inc.
Darren K. Flack Calgary, Alberta Corporate Comptroller
Norman E. Hall Calgary, Alberta Vice-President, Legal & Business Affairs
Allan C. Harapiak Calgary, Alberta Manager, Production & Technical Services
Robert J. Jaggard Calgary, Alberta Vice-President, Energy Sales
John I. Lacroix Calgary, Alberta Vice-President, Industrial Sales
Robert C. Lee Calgary, Alberta Vice President, Operations
Patrick J. Melanson Calgary, Alberta Chief Information Officer
Frederick N. Rea Calgary, Alberta Vice President & Chief Financial Officer
J. Donald Wilson Calgary, Alberta President and Chief Executive Officer
</TABLE>
Each of the directors and officers of the Corporation has held the principal
occupation shown opposite his name for the past five years, except as disclosed
under "Management of the Corporation" and except: Mr. Douglas D. Baldwin, who
was Senior Vice President and Director of Imperial Oil Limited until his
retirement at the end of 1998; Mr. George S. Dembroski, who was Vice Chairman
and a Director of RBC Dominion Securities Limited until his retirement in early
1998; Mr. Rhys T. Eyton, who retired as Chairman of the Board, Canadian Airlines
in 1995; and Mr. Dennis G. Flanagan, who was the Executive Chairman, Elan Energy
until 1997.
All directors stand for election at each Annual Meeting of Shareholders of the
Corporation or until their successors are elected or appointed.
As at March 31, 2000, all directors and officers of Prudential, as a group,
beneficially owned or controlled, directly or indirectly, 99,100 Common Shares
representing less than one per cent of the issued and outstanding Common Shares
of the Corporation. The directors and officers also held, as at March 31, 2000,
options to purchase an aggregate of 972,479 Common Shares which, if exercised,
would increase the beneficial ownership of the directors and officers, as a
group, to approximately three per cent of the Corporation's issued and
outstanding common shares. The information contained herein as to common shares
beneficially owned, directly or indirectly, or over which control or direction
is exercised, is based upon information furnished to the Corporation by the
respective directors and officers.
K-87
<PAGE>
-10-
MANAGEMENT OF THE CORPORATION
The senior management of Prudential has a combined total of over 140 years of
experience in the steel pipe and tube manufacturing industry.
Mr. J. Donald Wilson, President and Chief Executive Officer, has been with the
Corporation for 33 years. He was appointed Sales Manager in 1969, General Sales
Manager in 1972, Vice President, Sales 1974 and Executive Vice President and
General Manager in 1984. Mr. Wilson was appointed to his present position in
1985 and has been a Director of the Corporation since 1984.
Mr. Robert C. Lee, Vice President, Operations has been with the Corporation for
15 years. Prior to his appointment to this position in July 1997, Mr. Lee had
been General Manager, Operations.
Mr. Frederick N. Rea, Vice President & Chief Financial Officer, has been with
the Corporation for 20 years. Prior to his appointment to this position in March
2000, he was Vice-President, Finance.
Mr. Robert J. Jaggard, Vice-President, Energy Sales, has been with the
Corporation for 13 years. Prior to his appointment to this position in March
2000, he was General Manager, Tubular Sales.
Mr. John I. Lacroix, Vice-President, Industrial Sales, has been with the
Corporation for 23 years. Prior to his appointment to this position in March
2000, he was General Manager, Industrial Sales.
Mr. Brian R. Armstrong, Vice President and General Manager, Prudential Steel
Inc. has been with the Corporation for 11 years. He was appointed to his current
position in July 1997, previously serving as Director, Commercial Affairs and
Corporate Development.
Mr. Darren K. Flack, Corporate Comptroller, has been with the Corporation for 16
years. Prior to his appointment to this position in March 2000, he was
Comptroller.
Mr. Patrick J. Melanson, Chief Information Officer, joined the Corporation in
March 2000. Previously, he was Senior Manager at two independent management
consulting firms.
Mr. Norman E. Hall, Vice-President, Legal & Business Affairs, joined the
Corporation in April 2000. Previously, he was Vice-President Legal at a publicly
traded energy company.
Mr. Allan C. Harapiak, Manager, Production & Technical Services, has been with
the Corporation for 9 years. Prior to his appointment to this position in March
2000, he was Plant Engineer.
K-88
<PAGE>
-11-
DIVIDEND POLICY
In 1994, Prudential's Board of Directors established an initial quarterly
dividend* of $0.033 ($0.133 per annum) per Common Share. The first dividend was
paid on June 30, 1994. The policy of the Board is to review dividend payments in
each quarter of the year based on financial position, profitability, cash flow
and other factors considered relevant. Effective June 30, 1997, the quarterly
dividend was set at $0.042, ($0.167 per annum) per Common Share, and then
increased to $0.05 ($0.20 per annum) per Common Share effective September 30,
1997. Quarterly dividends have continued at the amount of $0.05 per common
share.
Note:
*All references to quarterly dividend amounts have been adjusted to show the
effect of a three for one stock split on November 25, 1997.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth certain financial information of the Corporation
for the past five years:
<TABLE>
<CAPTION>
For the Year Ended December 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
($000 except per share amounts and shipments)
Revenue 210,945 175,656 352,021 242,934 176,958
Net income 4,813 12,886 42, 800 21,556 9,624
Earnings per share - basic 0.16 0.43 1.42 0.72 0.32
Earnings per share - fully diluted 0.16 0.42 1.39 0.70 0.32
Expenditures on capital assets 7,921 32,251 7,246 2,909 3,740
Total assets 186,117 154,315 174,512 121,807 111,047
Working capital 70,264 72,018 93,458 59,557 40,791
Shareholders' equity 127,090 128,311 121,380 83,538 65,801
Cash dividends 6,047 6,046 5,536 4,002 4,000
Shipments (in tonnes) 232,400 180,800 369,000 257,100 193,200
</TABLE>
K-89
<PAGE>
-12-
The following table provides certain financial information for the past eight
fiscal quarters:
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited) March 31 June 30 Sept. 30 Dec. 31
1999 1999 1999 1999
<S> <C> <C> <C> <C>
($000 except per share amounts)
Revenue 40,978 27,965 53,740 88,262
Net income 1,351 (1,078) 395 4,145
Earnings per share - basic 0.04 (0.03) 0.01 0.14
Earnings per share - fully diluted 0.04 (0.03) 0.01 0.14
Three Months Ended
(Unaudited) March 31 June 30 Sept. 30 Dec. 31
1998 1998 1998 1998
($000 except per share amounts)
Revenue 64,270 33,556 34,745 43,085
Net income 6,065 2,282 2,000 2,539
Earnings per share - basic 0.20 0.08 0.06 0.09
Earnings per share - fully diluted 0.19 0.08 0.06 0.09
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis relating to the Corporation's financial
statements for the fiscal years ended December 31, 1999 and 1998 which are
contained on pages 17 to 28 of the Corporation's 1999 Annual Report are
incorporated by reference and form part of this Annual Information Form.
MARKET FOR SECURITIES
The outstanding common shares of Prudential are listed on The Toronto Stock
Exchange under the symbol "PTS".
ADDITIONAL INFORMATION
The Corporation shall provide to any person, upon request to the Corporate
Secretary of the Corporation:
(a) when the securities of the Corporation are in the course of a distribution
pursuant to a short form prospectus or a preliminary short form prospectus
has been filed in respect of a distribution of its securities,
(i) one copy of the AIF of the Corporation, together with one copy of
any document, or the pertinent pages of any document, incorporated
by reference in the AIF,
(ii) one copy of the comparative financial statements of the Corporation
for its most recently completed financial year together with the
accompanying report of the auditor and one copy of any interim
financial statements of the Corporation subsequent to the financial
statements for its most recently completed financial year,
K-90
<PAGE>
-13-
(iii) one copy of the information circular of the Corporation in respect
of its most recent annual meeting of shareholders that involved the
election of directors or one copy of any annual filing prepared in
lieu of that information circular, as appropriate, and
(iv) one copy of any other documents that are incorporated by reference
into the preliminary short form prospectus or the short form
prospectus and are not required to be provided under (i) to (iii)
above; or
(b) at any other time, one copy of any other documents referred to in (a)(i),
(ii) and (iii) above, provided the Corporation may require the payment of a
reasonable charge if the request is made by a person who is not a security
holder of the Corporation.
Additional information including directors' and officers' remuneration and
indebtedness, principal holders of the Corporation's securities, options to
purchase securities and interests of insiders in material transactions, where
applicable, is contained in the Corporation's information circular for its most
recent annual meeting of shareholders that involved the election of directors,
and additional financial information is provided in the Corporation's
comparative financial statements for its most recently completed financial year.
K-91
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion is management's opinion of the operating and financial
data for Prudential Steel Ltd. for the three month periods ending March 31, 2000
and 1999 and prior years, as well as estimates of future operating and financial
performance based on information currently available.
Statements herein that are not historical facts may be considered "forward
looking statements". These forward looking statements often include words to the
effect that management believes or expects a stated condition or result. All
estimates and statements that describe the company's objectives, goals or future
plans are forward looking statements and by their very nature they involve
inherent risks and uncertainties. Actual results could differ materially from
those currently anticipated due to any number of factors, including such
variables as changes in commodity prices for oil and gas, the price of steel,
foreign currency fluctuations, competitive pressure on selling prices, changes
in demand for the company's products and other factors discussed herein.
SUMMARY OF RESULTS OF OPERATIONS
Financial Highlights
<TABLE>
<CAPTION>
For the three months For the twelve months ended
ended March 31 December 31
($000s) 2000 1999 1999 1998 1997
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 95,297 40,978 210,945 175,656 352,021
Cost of Sales 77,218 35,078 181,301 143,842 273,269
Gross Profit 18,079 5,900 29,644 31,814 78,752
Shipments in Tonnes 102,693 40,505 232,400 180,800 369,000
Sales $/tonne 928 1,012 908 971 954
------------------------------------------------------------------------------
</TABLE>
K-92
<PAGE>
FIRST QUARTER 2000 VS FIRST QUARTER 1999
The recovery in oil and gas exploration which started in the second quarter of
1999 continued into first quarter 2000 with record levels of drilling in western
Canada. A total of 3,761 wells were reportedly drilled in the first three months
of 2000, up 48 per cent from the first quarter of 1999. Increased exploration
activity was stimulated by strong crude oil prices which averaged over US$28 per
barrel in the first quarter, compared to US$13 per barrel in the first quarter
of 1999. Improved crude oil prices in the second quarter of 1999 led to
increased gas exploration activity in western Canada and strong demand for
energy related tubular products.
Consolidated revenues from operations for the three months ended March 31, 2000
were $95.3 million representing an increase of 132 per cent or $54.3 million
over the same period in 1999. In the same period shipments of finished goods
increased 156 per cent to 102,693 tonnes compared to 40,505 in shipments in the
first quarter of 1999. Gross profit for Q1 2000 was $18 million compared to $5.9
million in first quarter 1999. Net income for Q1 2000 was $7.8 million or $0.26
per share compared to $1.4 million or $.04 per share in the first quarter of
1999.
Prudential Steel produces tubular products for three primary applications
including energy related products for the upstream oil and gas exploration and
development market, industrial products for commercial construction, equipment
manufacture, mining and forestry, and conversions for other steel pipe
producers.
In 1999, energy related products accounted for 79 per cent of Prudential's
shipments, industrial products comprised ten per cent, and conversion services
primarily related to energy products comprised four per cent. The balance of
shipments for 1999 was comprised of non-prime commercial pipe and scrap.
Energy related products accounted for 72 per cent of consolidated shipments in
the first quarter of 2000 while industrial products accounted for ten per cent
of shipments with other pipe and conversions making up the balance of shipments.
OCTG, line pipe, and conversion shipments were up as a result of increased
energy sector demand.
YEAR 1999 VS YEAR 1998
The slump in energy activity that started in 1998 continued to affect our
markets well into 1999. However, the second half of 1999 saw a strong recovery
in oil and gas drilling due to improved crude oil prices that boosted
Prudential's shipments and revenues for the year. However, net income was
reduced due to pricing pressures and the loss posted by our U.S. operation,
Prudential Steel, Inc. ("Prudential Longview") in 1999, its start-up year.
Sales for 1999 totaled $210.9 million, up 20 per cent over 1998 sales of $175.7
million. Shipments of 232,400 tonnes for the year were nearly 29 per cent higher
than in 1998. Gross profit for 1999 was $29.6 million, seven per cent below 1998
results. Net income for 1999 was $4.8 million or $0.16 per share and includes a
loss for Prudential Longview of $5.3 million. Net income for 1998 was $12.9
million or $0.43 per share.
K-93
<PAGE>
MARKETS AND SALES REVIEW
2000 CANADIAN MARKET REVIEW
First quarter 2000 Canadian energy product shipments were estimated to have
reached 269,000 tonnes compared to 109,000 tonnes in first quarter 1999 due
strong winter drilling programmes in western Canada. While Prudential's energy
related shipments increased 116 per cent in first quarter 2000 compared to first
quarter 1999 Prudential's share of energy product shipments is estimated at 26
per cent in Q1 2000 compared to 30 per cent in first quarter 1999. The drop in
total share is attributed to increased levels of imports in the first quarter of
2000 compared to first quarter 1999.
Canadian industrial product shipments totaled 118,000 tonnes in first quarter
2000, up 6 per cent over first quarter 1999 Prudential's Canadian shipments were
up 50 per cent compared to first quarter 1999, and Prudential's western Canadian
market share is estimated to have increased 8 per cent compared to first quarter
1999.
Conversion shipments, absent in first quarter 1999 due to poor demand for energy
related products in that quarter, made up almost 8 per cent of shipments in
first quarter 2000.
1999 CANADIAN MARKET REVIEW
Energy Related Products
The upstream oil and gas exploration and development industry based primarily in
western Canada accounts for the largest portion of Prudential's sales.
Prudential provides the Oil Country Tubular Goods (OCTG) needed to complete both
gas and oil wells, and the small diameter line pipe required for tying natural
gas and oil wells into gathering systems. Prudential supplied an estimated 38
per cent of domestically produced energy related products to the western
Canadian market in 1999, up from 28 per cent in 1998.
Cash flow available for oil and gas exploration and upstream capital projects in
1999 was estimated at $16.5 billion, up nearly 50 per cent from the $11 billion
cash flow estimate for the industry in 1998. This increase in cash flow was due
to strengthening crude oil pricing in the second half of 1999 and stable natural
gas pricing throughout the year. Improved industry cash flow resulted in a 65
per cent year over year increase in wells drilled in the last six months of
1999.
The energy industry's level of activity is extremely sensitive to changes in oil
and gas prices. In 1998 and early 1999 the energy industry experienced declining
world crude oil prices that led to a 42 per cent drop in drilling activity from
1997 levels. In 1999, 10,595 wells were drilled, up nine per cent from the 9,750
wells drilled in 1998. The total depth drilled in 1999 was 11.4 million metres,
down nearly six per cent from a total depth of 12.1 million metres drilled in
1998. Oil and gas well completions totaled 9,026, almost 17 per cent more than
the 7,725 completions recorded in 1998.
Oil directed drilling fell to 2,731 completed wells totaling 3.2 million metres,
a 13 per cent decrease from the 3,141 oil wells completed in 1998, and a 26 per
cent decrease from the 4.3 million oil directed metres drilled in 1998.
K-94
<PAGE>
On the other hand, higher natural gas pricing and increased transportation
capacity to U.S. markets stimulated a significant increase in natural gas
directed drilling. A total of 6,295 natural gas wells were drilled and completed
in 1999, up 37 per cent from 1998 with a total depth of 6.2 million metres, 23
per cent more than the 5.1 million metres drilled and completed in 1998.
The average depth for successful wells in 1999 was 1,053 metres. This is 180
metres shallower than in 1998 due to the higher proportion of shallow gas
drilling.
Oil Country Tubular Goods (OCTG)
OCTG are casing and tubing used in the down hole completion of oil and gas
wells. Demand for OCTG is directly related to oil and gas drilling in western
Canada as well as the depth of wells and the number of successful well
completions. Total OCTG shipments into Canada in 1999 were estimated to have
reached 415,398 tonnes, 10 per cent less than total shipments in 1998. We
believe the lower volume of shipments was due to less tonnage required in
shallow well completions and to some extent excess inventories held by brokers
and end-users that were consumed in 1999.
Imports of OCTG represented 31 per cent of shipments in 1999, similar to 1998.
Two thirds of OCTG imports were made up of high strength seamless casing and
tubing not available through domestic manufacturers in 1999. The increased level
of imports, reduced demand and excess inventories resulted in weakened prices
for OCTG products which led to a nine per cent drop in Canadian domestic prices
in the second and third quarters of 1999. By the fourth quarter, Canadian
domestic prices began to recover to 1998 levels, the result of improved demand
fueled by stronger commodity prices and lower import inventories.
In spite of the weakened OCTG market, Prudential's OCTG shipments increased both
in volume and share of total shipments compared to 1998, due to our ability to
respond quickly to changes in our market.
Line Pipe
Small diameter line pipe (less than 16-inch outside diameter) is primarily used
to connect natural gas wells into existing gas gathering lines and processing
and transmission facilities. Line pipe is also used for flow lines to transport
crude oil from well head to storage and transmission facilities. Canadian demand
for small diameter line pipe is dependent on the number of natural gas wells
completed and tied into gathering systems as well as the proximity of the gas
wells to existing transportation systems.
Total small diameter line pipe shipments in Canada in 1999 were estimated at
223,066 tonnes, down almost five per cent from the 235,126 tonnes shipped in
1998, despite a 37 per cent increase in natural gas well completions in 1999.
Canadian shipments of line pipe in 1999 were reduced due to: the shift to
drilling shallow gas wells closer in proximity to each other and closer to
existing gathering line infrastructure; and, excess broker and end-user
inventories from the 1998 season which continued to dampen new mill shipments.
Because of these factors, line pipe prices in Canada were reduced by 12 per cent
in the second quarter 1999 and did not fully recover until late in the fourth
quarter of the year. Prudential's
K-95
<PAGE>
shipments increased 20 per cent in volume and six per cent in share of total
line pipe shipments in 1999.
Imports of line pipe into Canada in 1999 were estimated at 71,381 tonnes, down
25 per cent from 1998 volumes and down eight per cent in share of 1999
shipments. This decrease in market share by imports was the result of weaker
market conditions and aggressive pricing by Canadian producers.
Industrial Products
Industrial products include hollow structural sections (HSS), squares and
rectangles used in industrial and commercial construction and equipment
manufacture. Consumption of HSS is dependent upon the overall level of economic
growth, business investment and non-residential construction. While the Canadian
economy recorded continued strong growth through 1999, estimated business
investment and non-residential construction were down from 1998 levels. Canadian
HSS consumption in 1999 reached an estimated 455,750 tonnes, similar to the
total volume of shipments in 1998. Prudential's shipments of industrial products
were up 12 per cent over 1998 shipments, due to aggressive pricing throughout
1999.
Imports of HSS in 1999 were estimated at 16,300 tonnes, a 45 per cent decrease
from 29,677 tonnes imported in 1998. This reduction in imports of HSS was due to
low domestic prices resulting from intense competition among Canadian
manufacturers.
Conversion
Prudential manufactures tubular products under agreements with other
manufacturers. Conversion agreements are negotiated to increase the base load on
our mills to extend production runs and reduce down-time from changeovers. Due
to reduced domestic demand for energy related products in the first and second
quarters of 1999, conversion volumes were down 42 per cent compared to 1998
volumes.
U.S. MARKET REVIEW
FIRST QUARTER 2000 VS FIRST QUARTER 1999
Prudential's shipments and product pricing in the Pacific Northwest continued to
improve in the first quarter of 2000, the result of improved regional trade with
Asia and increased demand for energy products in the Rocky Mountains region. A
pricing recovery for industrial product continues to lag other regions of the US
due to high levels of cheaper Asian imports landing in the Pacific Northwest and
new domestic pipe manufacturing capacity in the region.
US energy exploration activity picked up in first quarter 2000 with US rig
counts averaging 770 per week compared to 551 in first quarter 1999. Total US
OCTG shipments increased to 633,662 tons in first quarter 2000 compared to
226,680 in first quarter 1999, a three fold increase stimulated by both the
increased drilling activity and a sharp decline in inventory levels in 1999. US
OCTG inventory levels rose 158,000 tons in first quarter 2000 compared to a
117,000 ton draw down in first quarter 1999. Line pipe shipments totaled
626,236 tons in first quarter 2000 down four per cent from first quarter 2000.
Imports, however, increased
K-96
<PAGE>
almost ten per cent over Q1 1999 culminating with the Department of Commerce
Section 201 injury finding against imported line pipe announced in February
2000. US structural pipe shipments rose to 474,000 tons in first quarter 2000,
up 51 per cent over first quarter 1999 as a result of continued economic growth.
YEAR 1999 VS YEAR 1998
Prudential Longview manufactures and sells products to the construction and
equipment manufacturing markets, and the energy market of oil and gas
exploration and development. For the construction and equipment manufacturing
industries, Prudential manufactures HSS, standard pipe and commercial grade
pipe. Industrial products are marketed and sold through steel service centres
located in major cities in the Rocky Mountains and Pacific Northwest regions of
the U.S. Additionally, Prudential's U.S. operations export HSS into the western
Canadian marketplace.
For the oil and gas market, Prudential manufactures OCTG and line pipe to API
grades and specifications. Energy related products are sold through distributors
located in California, Montana and Wyoming.
Industrial Products
The Rocky Mountains and Pacific Northwest regions saw lower economic growth in
1999 due to lagging trade with the Pacific Rim countries which are still
recovering from a prolonged market correction that occurred in 1997 and 1998.
The Rocky Mountains and Pacific Northwest's growth was estimated at almost four
per cent in 1999 down from five per cent in 1998 and 1997.
The region experienced increased imports of HSS and standard pipe at price
levels that dampened both U.S. domestic shipments and prices throughout most of
1999. By the fourth quarter 1999, regional demand had strengthened with modest
improvements in regional prices.
Energy Related Products
While crude oil prices strengthened in mid 1999 and led to increased drilling in
the latter part of the year, U.S. drilling was still down an estimated 23 per
cent from 1998 levels. Estimated at less than 20,000 wells, 1999 posted the
lowest drilling level in the past 10 years. In response to improving commodity
prices, U.S. rig activity increased 30 per cent since January 1999 posting an
average of 610 active rigs for the year, still almost 26 per cent lower than
1998.
OCTG shipments in the U.S. were down an estimated 23 per cent from 1998 to an
estimated 1.4 million tons in total shipments. U.S. domestic OCTG inventory
levels were estimated to have dropped 21 per cent since January 1998, leveling
off just below one million tons. However, monthly shipments nearly doubled from
91,000 tons in January 1999 to 171,000 tons in October 1999 and imports
decreased eight per cent to 12 per cent of shipments in 1999. These improving
market conditions in the fourth quarter of 1999 allowed casing prices to regain
the six per cent lost in the first half of the year. However, the average 1999
price for casing was still 13 per cent lower than the 1998 level.
K-97
<PAGE>
While natural gas well completions were down an estimated 11 per cent from 1998,
there was a five per cent increase in gas intent drilling during 1999. Line pipe
shipments (under 16-inch outside diameter) were down an estimated 16 per cent
from 1998 volumes, and imports represented about 34 per cent of shipments, down
from a high of 41 per cent of shipments in 1998. As a result of the surge in
imports in 1998 and early 1999, U.S. domestic producers filed trade complaints
with the Department of Commerce and the U.S. International Trade Commission
(ITC) against ERW and seamless line pipe importers. The ITC and the U.S.
administration has approved three years of quotas and duties on all importing
nations except Canada and Mexico.
SALES REVENUE
Prudential's consolidated sales for the three months ended March 31, 2000 were
$95.3 million up $54.3 million representing a 132 per cent increase over total
sales of $41.0 million in the first quarter of 1999.
Sales for 1999 were $210.9 million, an increase of $35.3 million from 1998.
Shipment volume increased 51,600 tonnes to 232,400 tonnes in 1999, accounting
for a $50.1 million increase in sales. However, lower selling prices achieved in
1999 relative to 1998 reduced this increase by $14.8 million. Average selling
prices were lower in 1999 due to domestic price pressure and the addition of
Prudential Longview lower margin industrial shipments in the consolidated
product mix for the first time. The average selling price per tonne for 1999 was
$908 compared to $971 in 1998.
Shipments
Total shipments for this quarter were 102,693 tonnes up 62,188 tonnes over the
40,505 tonnes shipped in the same period last year. Energy related tubulars
accounted for approximately 72 per cent of shipments in this quarter, with OCTG
shipments up 132 per cent and line pipe shipments up 95 per cent over 1999's
results due to increased western Canadian drilling activity resulting in strong
demand. Industrial shipments, which accounted for approximately 10 per cent of
total shipments in the first quarter were up 107 per cent over last year,
primarily due to sales growth in Prudential's Longview facility located in
Washington, U.S.A.
Prudential posted a strong gain in shipments in 1999, almost entirely in the
fourth quarter. During the first quarter 1999 when oil prices were at their
lowest, Prudential shipped 27,760 fewer tonnes than the same quarter 1998. This
trend continued into the second quarter 1999 when Prudential shipped 5,531 fewer
tonnes than the same quarter 1998. However, as oil and gas commodity prices
improved in the latter half of the year, demand grew and Prudential shipped
27,190 more tonnes in the third quarter 1999 than the same quarter 1998. This
trend continued into the fourth quarter 1999 when Prudential shipped 57,690 more
tonnes than the same quarter 1998.
Selling Price per Tonne
Selling price increases instituted in the fourth quarter of 1999 contributed to
the strong first quarter results. Energy related selling prices for the first
quarter 2000 improved nearly nine per cent over the prior quarter and recaptured
price reductions implemented in the second quarter 1999. Energy related product
pricing remains stable, but is under pressure due to competitive conditions
within the market.
K-98
<PAGE>
Compared to the first quarter 1999 average selling price of $1,012 per tonne,
the average selling price per tonne of $928 achieved in the first quarter 2000
was down eight per cent. This decrease is primarily attributable to a higher
proportion of lower value industrial products in the sales mix.
During 1999, average selling prices were affected by lower priced imports and
the inclusion of lower margin industrial products sold by Prudential Longview. A
review of average selling prices over 1998 and 1999 shows the average selling
price per tonne increasing through 1998, then falling in the second quarter 1999
when Prudential responded to competitive pricing pressure from imports by
reducing selling prices for its products. Prices remained at these lower levels
until late 1999 when increased demand allowed the industry, including
Prudential, to return selling prices to their former levels.
The second factor affecting selling price was the value of industrial products
produced and sold by Prudential Longview in the product mix. In early 1999,
Prudential Longview became operational and manufactured a product mix largely
comprised of lower margin industrial products. The greater proportion of lower
margin product in the mix reduced the consolidated average selling price to $908
per tonne for 1999. Excluding Prudential Longview, the 1999 average selling
price was $934 per tonne, allowing a more meaningful comparison to the 1998
average of $971 per tonne.
COST OF SALES
The average cost of sales per tonne was $752 in the first quarter 2000 compared
to $866 per tonne in the first quarter 1999 and $737 in the fourth quarter 1999.
The year over year decrease is attributable to reduced raw material costs and
lower per tonne production costs associated with high production levels.
Additionally, the first quarter 2000 sales mix includes a greater proportion of
lower cost industrial products manufactured by Prudential Longview. Compared to
the fourth quarter 1999, the cost of sales per tonne increased in the first
quarter of 2000 in response to higher raw material costs.
Cost of sales for 1999 was $181.3 million, an increase of $37.5 million or 26
per cent over 1998. Increased shipments in 1999 raised the cost of sales by
$41.1 million while lower 1999 average costs per tonne reduced cost of sales for
1999 by $3.6 million compared to 1998. The average cost of sales for 1999 was
$780 per tonne compared to $795 in 1998.
Steel coil costs represent the largest component of cost of sales. Our average
steel costs increased during the first half of 1998 in response to strong demand
for steel in the North American economies. However, by mid-1998 steel coil
prices were under pressure and began to soften as increased levels of imported
steel entered the Canadian and U.S. markets. By the end of 1998, our steel costs
were nearly 13 per cent lower than the beginning of the year. This trend
continued until late in the first quarter 1999, when trade actions launched by
North American steel companies against producers of unfairly imported steel
caused the quantity of imported steel to fall and allow steel coil prices to
increase. As a result, our steel coil costs began to increase late in 1999,
ending the year three per cent higher than the end of 1998.
On a per tonne basis, the impact of Prudential Longview shipments in cost of
sales was marginal. During its first year of operation Prudential Longview
manufactured and shipped
K-99
<PAGE>
primarily industrial products which are less expensive to produce compared to
energy products. Prudential Longview experienced normal start up challenges in
its first operational year. As a result, manufacturing costs were somewhat
higher, but still lower relative to the cost of manufacturing energy products.
In order to make a comparison of 1999 and 1998 cost per tonne more meaningful,
removing Prudential Longview costs from 1999 increases the 1999 cost per tonne
from $780 to $788. The adjusted 1999 cost reflects a decrease of $8 per tonne
from the 1998 cost of $796 per tonne.
GROSS PROFIT
Primarily as a result of improved selling prices, the average gross profit per
tonne for the first quarter 2000 was $176, a strong improvement over the first
quarter 1999 average of $146 per tonne and $144 per tonne earned in the fourth
quarter 1999.
Gross profit for 1999 was $29.6 million compared to $31.8 million in 1998. Gross
profit as a per cent of sales was 14 per cent, down from 18 per cent in 1998.
The reduction was largely the result of reduced selling prices caused by imports
and reduced demand for tubular products as well as the impact of Prudential
Longview in the product mix.
EXPENSES
Consolidated Summary of Expenses
<TABLE>
<CAPTION>
For the three months For the twelve months ended
ended March 31 December 31
$000s 2000 1999 1999 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selling, general and
administration 3,002 2,786 12,380 7,842 8,091
Interest (income) expense 173 (37) 10 (109) (861)
Depreciation 1,736 950 6,276 3,532 3,815
--------------------------------------------------------------------------------------------------
Total Expenses 4,911 3,699 18,666 11,265 11,045
--------------------------------------------------------------------------------------------------
</TABLE>
Selling, General and Administration
Selling, general and administration expenses for 1999 were $12.4 million. Also
included in 1999 expenses were non-recurring amounts of $1.3 million for
doubtful accounts receivable and $1.5 million for early retirement costs for
senior executive and management personnel. Additional expenses of $1.2 million
for Prudential Longview are included for the first time in 1999. Removing the
non-recurring and Longview amounts reduces 1999 expenses from $12.4 million to
$8.4 million, an overall increase of $0.6 million from $7.8 million in 1998.
The Company incurred expenses of $95,000 in 1999 and $368,000 in 1998 for our
year 2000 readiness program. During 1999 the efforts of our personnel were
directed towards the development of contingency plans to minimize disruption as
a result of the year 2000 date change. The Company did not experience any
disruption to its operations due to the year 2000 issue.
K-100
<PAGE>
Interest Expense (Income), Net
Net interest expense for 1999 was $10,000 compared to 1998 interest income of
$109,000. The change is attributed to reduced cash balances and increased bank
loan requirements. At the beginning of 1998 the Company had cash on hand of
$26.3 million. During 1998 the Company used this cash plus operating income to
fund capital expenditures of $32.3 million, notably for the construction of the
Prudential Longview facility, increased working capital requirements for
inventory and for the payment of dividends. The Company had bank loans of $9.4
million by the end of 1998. During 1999 the Company funded from cash flow and
bank loans modest additional working capital requirements, capital asset
expenditures and paid dividends. At the end of 1999 bank loans totaled $14.5
million.
Depreciation
Depreciation expense for 1999 was $6.3 million compared to $3.5 million in 1998.
The 1999 amount includes depreciation expense for Prudential Longview for the
first time.
Income Taxes
Income taxes are based on taxation rates applicable to a manufacturing
corporation. Income before taxes attributable to the Calgary operation was $16.6
million. The effective tax rate applied to Canadian income was 37.3 per cent,
unchanged from the 1998 effective rate. Prudential Longview was not profitable
in 1999 and was not taxable. However, as Prudential Longview does not yet have a
history of profitability, a provision for the recovery of income tax has not
been recorded. The tax benefit related to Prudential Longview's operating losses
incurred to date will be recognized in future periods. When consolidated with
Calgary operations, the Prudential Longview loss increases the effective tax
rate from 37.3 per cent to 56.2 per cent.
Net Income and Earnings Per Share
<TABLE>
<CAPTION>
For the three months For the twelve months ended
ended March 31 December 31
In 000s except per share amounts 2000 1999 1999 1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income before
income taxes 13,168 2,201 10,978 20,549 67,707
Income tax 5,343 850 6,165 7,663 24,907
---------------------------------------------------------------------------------------------------
Net income for
the year 7,825 1,351 4,813 12,886 42,800
---------------------------------------------------------------------------------------------------
Earnings per share
basic 0.26 0.04 0.16 0.43 1.42
fully diluted 0.25 0.04 0.16 0.42 1.39
---------------------------------------------------------------------------------------------------
Shares outstanding
basic 30,239 30,236 30,239 30,236 30,213
fully diluted 31,568 31,111 31,454 31,111 30,924
---------------------------------------------------------------------------------------------------
</TABLE>
K-101
<PAGE>
Net Income and Earnings per Share
Net income for March 31, 2000 was $7.8 million or $0.26 per share ($0.25 fully
diluted) compared to March 31, 1999 net income of $1.4 million or $0.04 per
share ($0.04 fully diluted). Net income for 1999 was $4.8 million or $0.16 per
share ($0.16 fully diluted) compared to 1998 net income of $12.9 million or
$0.43 per share ($0.42 fully diluted).
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Statement of Cash Flows
For the three months For the twelve months ended
ended March 31 December 31
$000s 2000 1999 1999 1998 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash provided from operations
before non-cash working capital 10,456 2,125 11,913 16,766 46,056
Net change in non-cash working
capital balances 201 11,977 (3,388) (14,226) (10,093)
-----------------------------------------------------------------------------------------------------
Cash provided by
operating activities 10,657 14,102 8,525 2,540 35,963
Cash used in financing
activities (excluding debt) (1,512) (1,512) (6,034) (5,955) (4,958)
Cash used in investing activities (1,980) (2,590) (7,633) (32,251) (7,197)
Cash position (borrowing),
end of year (7,364) 613 (14,529) (9,387) 26,279
-----------------------------------------------------------------------------------------------------
</TABLE>
Operating Activities
Reduced profit in 1999 relative to the prior year reduced the amount of cash
provided from operations before non-cash working capital changes. Non-cash
working capital requirements grew $3.4 million over 1998. The change is
attributable to an increased accounts receivable balance at year end, indicative
of strong sales results achieved late in the year. These sales were offset by
increased current liabilities associated with purchases of raw material required
to service the increasing demand for our finished tubular products. The working
capital change for 1999 also included the working capital requirements for
Prudential Longview.
Financing Activities
Prudential paid dividends of just over $1.5 million in first quarter 2000, and
just over $6.0 million in 1999, or $0.05 per share per quarter, unchanged from
the prior year. Additional bank loans of $5.1 million provided the balance of
cash requirements for 1999.
K-102
<PAGE>
Investing Activities
Cash used in investing activities fell from $32.3 million in 1998 to more normal
levels of $7.6 million in 1999. The 1999 amount includes costs for completing
the finishing line plus amounts for the new slitter currently under construction
at Prudential Longview. In addition, amounts were spent for operational
improvements in the Calgary facilities. In 1998, the primary uses of cash in
investing activities were for the construction of our new facility at Longview
along with finishing line improvements and the installation of a spiral
accumulator in our Calgary operation.
Capital expenditures totaled $2 million in the first quarter 2000 compared to
$2.6 million the first quarter 1999 when Prudential's facilities in Longview
were completed. Prudential's capital expenditures for fiscal 2000 are expected
to be approximately $11 million and will include the completion of the coil
slitting facilities and an extension to the finished goods warehouse space in
Longview as well as a premium threading facility in Calgary. The premium
threading facility will enable Prudential to provide proprietary connections for
our OCTG products to service our customers' more demanding applications.
Loan Position, at End of Year
Prudential had bank loans of $11.0 million at the end of March 2000 compared to
bank loans of $5.2 million at the end of March 1999.
Prudential had bank loans of $14.5 million at the end of 1999 compared to bank
loans of $9.4 million at the end of 1998.
Credit Facilities
Prudential has two forms of credit facilities available: a Canadian chartered
bank provides a $50 million unsecured demand operating credit facility and a
U.S. financial institution provides a US$10 million credit facility for use in
funding the working capital requirements of Prudential Longview. The $10 million
U.S. facility is secured by letters of credit drawn on the Canadian bank line
and any borrowings on the U.S. line reduce the amount available on the Canadian
line. Funds can be borrowed in a variety of forms and bear interest at either
Canadian prime, U.S. base rate, Libor plus 0.5 per cent or Bankers' Acceptance
rates plus stamping fees. At March 31, 2000 there was $11.0 million outstanding,
at December 31, 1999 there was a $14.5 million outstanding loan balance.
PRUDENTIAL LONGVIEW, Operational Update
The first quarter 2000 marks the end of four complete operating quarters for
Longview. Operationally, productivity has improved and production costs are
lower. Productivity of the mill has now surpassed planned capability and
product has been well received in the market. Prudential Longview is currently
operating at two shifts due to improving demand for all products. Longview also
continues to develop its customer and distributor relationships in the U.S.
market. The first quarter 2000 loss for Longview was $0.96 million for which a
tax benefit has not yet been recorded.
K-103
<PAGE>
Expansion of Industrial product storage is planned for completion during the
third quarter 2000 and will further the opportunities to facilitate growth
within that market. In addition, the construction of the new slitter facility
remains on track for a third quarter 2000 startup.
Our Prudential Longview facility commenced operation in December 1998, becoming
fully operational late in the first quarter 1999. Capital expenditures at
Prudential Longview totaled $5.6 million in 1999 notably for the completion of
the finishing line and other facility requirements. To date the company has
invested $34.2 million in capital assets at Longview.
As anticipated, Prudential Longview experienced a loss in 1999 as the Company
dealt with operational start-up and market development issues. In 2000 our focus
will be on improving the financial performance of Prudential Longview and
completing construction of a new coil slitter. This facility will generate
savings as it will allow Prudential to purchase lower cost master steel coils
that we can cut into smaller coils required for tubular products. The Company
will also complete construction of an expanded storage building for our
industrial products by mid-year. Capital spending at Prudential Longview in 2000
is estimated at $7 million.
HEDGING PRACTICES
The Company periodically enters into forward contracts for the purchase of U.S.
dollars to reduce its exposure to foreign exchange fluctuations on materials and
supplies denominated in U.S funds. These contracts may be acquired when the
Company has issued purchase orders for significant purchases of steel coils or
other materials, supplies and equipment denominated in U.S. funds. At March 31,
2000 no forward exchange contract were outstanding. At December 31, 1999 an
option dated forward exchange contract was outstanding for US$3 million at a
rate of 1.44995 or Cdn$4.35 million, exercisable not before January 10, 2000 and
no later than January 31, 2000.
LABOUR
In Calgary, Prudential's hourly employees are represented by the United
Steelworkers of America with whom the Company has negotiated a three-year
contract, which expires December 31, 2000. Prudential has a good working
relationship with the union and there have been no significant labour stoppages
in the Company's history. Prudential Longview employees are not represented by a
union.
RISKS AND UNCERTAINTIES
There are several factors impacting Prudential's business that are beyond the
control of management including oil and gas prices, steel prices and exchange
rates.
The oil and gas industry is subject to dramatic fluctuations in supply and
demand that can affect commodity pricing. This pricing is a key determinant of
our customers' level of
K-104
<PAGE>
activity and their demand for our products, which in turn impacts Prudential's
production and shipment volumes.
The price of steel is the major component of Prudential's cost of sales. The
price Prudential pays for steel is largely dependent on the prevailing North
American price of steel. Changes in this price impact Prudential's gross
margins.
Changes in exchange rates also impact the profitability of our energy customers'
exploration and development programs, which in turn can affect the demand for
energy related products. Exchange rates can also affect steel prices in Canada
and impact the consolidated financial results of Prudential Longview.
OUTLOOK
Canadian Outlook
Increased Natural gas transportation capacity and strong demand in the US led to
a 37 per cent increase in natural gas drilling in 1999. With the Alliance
pipeline scheduled for completion in October of 2000, industry forecasts are
calling for over 7,000 gas wells in 2000, or about 45 per cent of all forecast
drilling in 2000. Natural gas prices, which increased 67 per cent in the past
two years, are expected to continue to rise in 2000 to $3.50/MMBtu due to
growing demand in North America for cleaner energy fuel substitutes.
OPEC's second quarter 1999 production cuts and improved global economic
conditions led to a strong run-up in crude oil prices and drilling activity in
the second half of 1999 and early 2000. WTI crude oil prices which had fallen to
US$12 per barrel in first quarter 1999, rose to as high as US$34 per barrel in
first quarter 2000. As a result, drilling activity increased in 1999 reaching
10,500 wells, and first quarter 2000 saw a total of 3,764 wells drilled, one of
the strongest quarters in recent years.
Drilling forecasts for western Canadian in 2000 call for between 14,500 to
17,000 wells based upon an average WTI crude oil price of US$20 to US$21 per
barrel. This level of drilling represents a 38 per cent to 62 per cent increase
in activity compared to 1999 and could match the record setting volumes
established in 1996 and 1997.
Increased drilling in 2000 should lead to a corresponding increase in demand for
energy tubulars which we believe will bring domestic mills to full capacity in
2000. Based upon our increased production capabilities and strong market
position, Prudential Steel Ltd. is well positioned to meet the expected increase
in demand for energy tubulars and achieve strong sales and shipments in 2000.
The Canadian economy should continue to grow but at a more modest rate than 1998
and 1999. Growth in both non-residential construction and business investment is
expected to slow in 2000 due to fears of rising interest rates on both sides of
the border. Western regional growth is expected from increased Pacific Rim trade
and stronger commodity prices, while agricultural expenditures are expected to
remain low due to the continuing farm crisis in western Canada. As a result of
these factors, demand for our industrial products should remain largely
unchanged in 2000.
K-105
<PAGE>
Western Canadian drilling, which reached 10,600 wells in 1999, is expected to
increase to between 14,500 and 16,500 wells provided crude oil prices remain in
the US$20 per barrel range. Domestic OCTG and line pipe prices recovered in the
last half of 1999 and should continue to improve with the rapidly increasing
level of demand from the energy sector. Price pressures on line pipe caused by
cheaper U.S. imports should diminish as the U.S. line pipe market recovers in
2000 due to a combination of improving market conditions and import quotas.
While Canada may see an increase in offshore imports of line pipe, this increase
will likely be limited to replacing line pipe previously imported from the U.S.
We will be carefully monitoring line pipe imports into our market for signs of
unfair trade practices and seek remedies where necessary.
As a result of these factors, we expect our prices, sales volumes and share of
energy shipments in Canada to continue to improve throughout 2000.
U.S. Outlook
The U.S. economy should continue to grow but at a more modest pace in 2000 due
to increasing fears of inflation and higher interest rates. As well, growth in
business investment and non-residential construction are forecast to grow at
more modest levels in 2000. With lower levels of economic growth and business
investment, demand for industrial products will soften in 2000. Regional growth
in the Pacific Northwest however is recovering due to improving Pacific Rim
trade, increasing regional population growth and increasing personal income
levels. We believe that demand for industrial products in our market should firm
up in 2000 although prices will remain under pressure from imports and excess
domestic mill capacity.
As a result of improving oil and gas prices, U.S. drilling should increase six
per cent to around 21,000 wells in 2000. OCTG prices and shipments are expected
to increase due to the combination of rising demand and lower distributor
inventory levels. Domestic line pipe shipments and prices are expected to firm
up with the recently announced imposition of import quotas and duties on small
diameter line pipe. This decision specifically targets the big importers of line
pipe under 16 inches in outside diameter and, as a result, we can expect an
improvement in our opportunities in this market in 2000.
Overall the outlook for 2000 in both Canada and the U.S. is positive. Our
facilities in Calgary and Longview are well positioned to meet the opportunities
found in the improving market conditions of 2000, and will allow us to continue
to grow our business in western Canada and the U.S. Pacific Northwest.
K-106
<PAGE>
AUDITORS' REPORT
To the Directors of Prudential Steel Ltd.
We have audited the consolidated statements of financial position of Prudential
Steel Ltd. as at December 31, 1999 and 1998, and the consolidated statements of
income and retained earnings and cash flows for each of the years in the three
year period ended December 31, 1999. These 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 auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1999
and 1998 and the results of its operations and its cash flows for each of the
years in the three years period ended December 31, 1999 in accordance with
accounting principles generally accepted in Canada.
Calgary, Canada ERNST & YOUNG LLP
January 31, 2000 except for Note 9 which is as of Chartered Accountants
July XX, 2000
K-107
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
As At March 31
2000 As at December 31
($000) (unaudited) 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents 3,656 -- --
Accounts receivable 47,004 50,936 25,491
Inventory [note 2] 98,656 75,271 69,867
Prepaid expenses 769 845 792
--------------------------------------------------------------------------------
Total current assets 150,085 127,052 96,150
--------------------------------------------------------------------------------
LIABILITIES
Current
Bank loans [note 4] 11,020 14,529 9,387
Accounts payable and
accrued liabilities 61,837 42,259 14,745
--------------------------------------------------------------------------------
Total current liabilities 72,857 56,788 24,132
--------------------------------------------------------------------------------
Working capital 77,228 70,264 72,018
Capital assets [note 3] 58,795 58,551 57,153
Deferred pension expense [note 5] 378 514 1,012
--------------------------------------------------------------------------------
Capital employed 136,401 129,329 130,183
--------------------------------------------------------------------------------
Deduct
Post employment
benefits payable [note 5] 731 691 482
Future income taxes 2,267 1,548 1,390
--------------------------------------------------------------------------------
Shareholders' equity 133,403 127,090 128,311
--------------------------------------------------------------------------------
Represented by -
Share capital [note 6] 41,966 41,966 41,953
Retained earnings 91,437 85,124 86,358
--------------------------------------------------------------------------------
133,403 127,090 128,311
--------------------------------------------------------------------------------
</TABLE>
See accompanying notes
On behalf of the Board:
J. DONALD WILSON NORMAN W. ROBERTSON
President and Chief Executive Officer Chairman of the Board
K-108
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
Three months ended March 31
2000 1999 Twelve months ended December 31
($000s except per share amounts) (unaudited) (unaudited) 1999 1998 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 95,297 40,978 210,945 175,656 352,021
Cost of sales 77,218 35,078 181,301 143,842 273,269
-------------------------------------------------------------------------------------------------
Gross profit 18,079 5,900 29,644 31,814 78,752
-------------------------------------------------------------------------------------------------
Expenses
Selling, general
and administration 3,002 2,786 12,380 7,842 8,091
Interest expense
(income), net 173 (37) 10 (109) (861)
Depreciation 1,736 950 6,276 3,532 3,815
-------------------------------------------------------------------------------------------------
4,911 3,699 18,666 11,265 11,045
-------------------------------------------------------------------------------------------------
Income before income taxes 13,168 2,201 10,978 20,549 67,707
Income tax expense [note 7] 5,343 850 6,165 7,663 24,907
-------------------------------------------------------------------------------------------------
Net income for the period 7,825 1,351 4,813 12,886 42,800
Retained earnings,
beginning of period 85,124 86,358 86,358 79,518 42,254
Dividends (1,512) (1,512) (6,047) (6,046) (5,536)
-------------------------------------------------------------------------------------------------
Retained earnings,
end of period 91,437 86,197 85,124 86,358 79,518
-------------------------------------------------------------------------------------------------
Earnings per share [note 6]
Basic 0.26 0.04 0.16 0.43 1.42
Fully diluted 0.25 0.04 0.16 0.42 1.39
-------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
K-109
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31
2000 1999 Twelve months ended December 31
($000s except per share amounts) (unaudited) (unaudited) 1999 1998 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income for the year 7,825 1,351 4,813 12,886 42,800
Add (deduct) items not
affecting cash
Depreciation 1,736 950 6,276 3,532 3,815
Future income taxes 719 (277) 158 (520) (344)
Deferred pension expense 136 94 498 851 (271)
Accrued post
employment benefits 40 7 209 17 19
(Gain) loss on sale of
capital assets - - (41) - 37
-------------------------------------------------------------------------------------------------
10,456 2,125 11,913 16,766 46,056
Net change in non-cash
working capital 201 11,977 (3,388) (14,226) (10,093)
-------------------------------------------------------------------------------------------------
Cash provided by
operating activities 10,657 14,102 8,525 2,540 35,963
-------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Bank loans (3,509) (4,174) 5,142 9,387 -
Dividends paid (1,512) (1,512) (6,047) (6,046) (5,536)
Common shares issued - - 13 91 578
-------------------------------------------------------------------------------------------------
Cash (used in) provided
by financing activities (5,021) (5,686) (892) 3,432 (4,958)
-------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures on capital assets (1,980) (2,590) (7,921) (32,251) (7,246)
Proceeds from sale of assets - - 288 - 49
-------------------------------------------------------------------------------------------------
Cash used in investing
activities (1,980) (2,590) (7,633) (32,251) (7,197)
-------------------------------------------------------------------------------------------------
Net (decrease) increase in cash 3,656 5,826 - (26,279) 23,808
Cash position, beginning of period - - - 26,279 2,471
-------------------------------------------------------------------------------------------------
Cash position, end of period 3,656 5,826 - - 26,279
-------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
K-110
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information at March 31, 2000 and for the three months ended March 31, 2000 and
1999 is unaudited (all dollar amounts in thousands except per share and option
amounts)
Prudential Steel Ltd. (the "Company"), was continued under the Business
Corporations Act (Alberta) on May 24, 1983. The Company is a steel fabricator
of tubular goods for sale to the energy and construction sectors in Western
Canada and the United States Pacific Northwest.
1. ACCOUNTING POLICIES
-------------------------------------------------------------------------------
These consolidated financial statements, which include the accounts of the
Company and its wholly owned subsidiaries, have been prepared by management in
accordance with accounting principles generally accepted in Canada, consistently
applied. Significant accounting policies are summarized below.
Inventory
Inventories of raw materials, work in process, finished goods and stores are
valued at the lower of cost and net realizable value. Cost for all categories
is determined on a moving average basis.
Capital Assets
Capital assets are recorded at cost. Depreciation is computed generally on the
straight-line method applied to the cost of the assets used in operations at
rates based on their estimated useful lives as follows:
Buildings 5%
Plant Equipment 5% - 20%
Yard Equipment Based on machine operating hours
Office furnishings and equipment 10% - 50%
Leasehold improvements Over the life on the lease
Income taxes
Effective January 1, 2000 the Company adopted the liability method of accounting
for income taxes as recommended by The Canadian Institute of Chartered
Accountants. Under the liability method, future tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities and measured using substantively enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
This change has been applied prospectively and results in no changes to the
Company's consolidated statement of financial position or net income.
K-111
<PAGE>
Prior to January 1, 2000 the Company followed the deferral method in providing
for income taxes. Deferred income taxes resulted primarily from timing
differences between depreciation of capital assets and capital cost allowance,
and the differences between pension expense and pension payments.
Retirement plans
The Company's defined benefit pension plan covers substantially all of its
employees. The Company also has a defined benefit supplemental pension plan
which covers certain of its officers. The cost of pension benefits is
determined on an actuarial basis using the projected benefits method prorated on
services and is charged to income annually. Actuarial valuations reflect
management's best estimates of investment yields, salary escalation and other
cost factors. Adjustments resulting from benefit amendments, experience gains
and losses and changes in assumptions are amortized over the remaining service
life of active employees. Pension assets are valued on a four-year average
market valuation.
The Company accrues for other post-employment benefits to retired employees and
their surviving spouses, including medical benefits (supplementary to government
benefits), dental care, vision care and life insurance for both active and
retired employees, on a basis similar to that used for pension costs.
On January 1, 2000 the Company adopted the new recommendations of The Canadian
Institute of Chartered Accountants with respect to accounting for employee
future benefits. The recommendations established new standards for the
measurement and recognition of pension and other post-employment benefit
obligations as liabilities. Employee future benefit assets and liabilities must
be valued using current market interest rates. Previously, long-term averages
were used.
This change has been applied prospectively and results in an approximate $8,000
employee future benefit asset that will be amortized on a straight line basis as
a reduction in pension expense over the expected remaining service life of
employees, which is approximately 14 years.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated
at exchange rates in effect at the balance sheet date. Revenue and expenses are
translated at rates of exchange prevailing on the transaction date. Gains and
losses on translation are reflected in income as incurred.
The Company's U.S. operations have been accounted for using the temporal method
which results in monetary items being translated at the current rate in effect
at the year end; non-monetary items being translated at the historic rates; and
revenue and expense items being translated at the exchange rates in effect at
the date of the underlying transactions. Gains and losses on translation are
reflected in income as incurred.
K-112
<PAGE>
The Company periodically enters into forward contracts for the purchase of U.S.
dollars to reduce its exposure to foreign exchange fluctuations on purchases of
materials and supplies denominated in U.S. currency. Gains and losses on these
contracts that constitute effective hedges, and the related costs of the hedges,
are deferred and recognized as a component of the related transactions. At March
31, 2000 no forward exchange contracts were outstanding. At December 31, 1999
an option dated forward exchange contract was outstanding for $3,000 USD at a
rate of 1.44995 or $4,350 CAD, exercisable not before January 10, 2000 and no
later than January 31, 2000 [December 31, 1998 - nil, December 31, 1997 - nil].
Financial instruments
Financial instruments of the Company consist mainly of accounts receivable, bank
loans, and accounts payable and accrued liabilities. As at March 31, 2000,
December 31, 1999, and 1998, there were no significant differences between the
carrying amounts of these financial instruments reported on the balance sheet
and their estimated fair values.
2. INVENTORY
------------------------------------------------------------------
March 2000 1999 1998
$ $ $
------------------------------------------------------------------
Raw materials 41,353 31,123 20,509
Work in process 423 613 235
Finished goods 55,133 41,635 47,648
Stores 1,747 1,900 1,475
------------------------------------------------------------------
98,656 75,271 69,867
------------------------------------------------------------------
3. CAPITAL ASSETS
------------------------------------------------------------------
MARCH 31, 2000
-------------------------------
Net
Accumulated Book
Cost Depreciation Value
$ $ $
------------------------------------------------------------------
Land and land improvements 6,635 --- 6,635
Buildings 18,474 7,280 11,194
Plant and yard equipment 85,335 45,113 40,222
Office furnishings, equipment
and leasehold improvements 4,119 3,375 744
------------------------------------------------------------------
114,563 55,768 58,795
------------------------------------------------------------------
K-113
<PAGE>
1999
------------------------------------
Net
Accumulated Book
Cost Depreciation Value
$ $ $
---------------------------------------------------------------------
Land and land improvements 6,632 --- 6,632
Buildings 18,474 6,908 11,566
Plant and yard equipment 83,388 43,852 39,536
Office furnishings, equipment
and leasehold improvements 4,089 3,272 817
---------------------------------------------------------------------
112,583 54,032 58,551
---------------------------------------------------------------------
1998
------------------------------------
Net
Accumulated Book
Cost Depreciation Value
$ $ $
---------------------------------------------------------------------
Land and land improvements 6,020 --- 6,020
Buildings 19,173 6,414 12,759
Plant and yard equipment 77,095 39,488 37,607
Office furnishings, equipment
and leasehold improvements 3,683 2,916 767
---------------------------------------------------------------------
105,971 48,818 57,153
---------------------------------------------------------------------
4. OPERATING CREDIT FACILITY
The Company has two forms of credit facilities available for its use. A $50
million unsecured demand operating credit facility is available through a
Canadian chartered bank, and a US$10 million credit facility is available
through a U.S. financial institution for use in funding the working capital
requirements of the Longview, Washington operation. The US$10 million facility
is secured by letters of credit drawn on the Canadian bank line and any
borrowings on the U.S. line reduce the amount available on the Canadian line.
Funds can be borrowed in a variety of forms and bear interest at either Canadian
prime, U.S. base rate, Libor plus 0.5%, or Bankers' Acceptances rates plus
stamping fees. At March 31, 2000 there is $11,020 [December 31, 1999 - $14,529,
December 31, 1998 - 9,387]. The effective interest rate on the amount
outstanding at March 31, 2000 is 6.633% [December 31, 1999 - 6.27%, December 31,
1998 - 5.70%]. Interest paid to March 31, 2000 was $226 (1999 - $411, 1998 -
$383).
K-114
<PAGE>
5. RETIREMENT PLANS
-------------------------------------------------------------------------------
Deferred pension expense is the excess of the cumulative contributions made to
fund the pension plan over the cumulative estimated pension expense charged to
income. The Deferred Pension Expense amount recorded on the Consolidated
Statements of Financial Position is net of an unfunded supplemental pension
obligation of $1,845 at December 31, 1999 [1998 - $1,379, 1997 - $1,031].
The obligation for pension benefits, based on amounts determined by independent
actuaries, was $31,115 at December 31, 1999 [1998 - $29,447, 1997 - $25,871],
including a supplemental pension obligation of $2,195 at December 31, 1999 [1998
- $1,770, 1997 - $1,410]. The market-related valuation of pension assets, was
$36,824 at December 31, 1999 [1998 - $32,471, 1997 - $29,508].
Post-employment benefits payable are based on amounts determined by independent
actuaries. The Company does not fund post employment benefits in advance.
6. SHARE CAPITAL
--------------------------------------------------------------------------------
Authorized
An unlimited number of common shares without par value
An unlimited number of preferred shares issuable in series
<TABLE>
<CAPTION>
Common Shares Issued March 2000 1999 1998
------------------------------------------------------------
Number Amount Number Amount Number Amount
$ $ $
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning
of period 30,239,106 41,966 30,235,572 41,953 30,213,138 41,862
Exercise of options -- -- 3,534 13 22,434 91
-------------------------------------------------------------------------------------
Balance,
end of period 30,239,106 41,966 30,239,106 41,966 30,235,572 41,953
-------------------------------------------------------------------------------------
</TABLE>
Stock-based Compensation Plans
Under the Company's Stock option Plan, the Company may grant stock options to
its management and directors for the purchase of up to 2,760,895 common shares.
Options vest on a one-third basis starting on the first anniversary from the
date of each grant and have a maximum term of ten years subject to reduction
under certain circumstances. The exercise price of each option equals the market
price of the Company's shares on the date of the grant. No
K-115
<PAGE>
compensation expense is recognized for this plan when stock options are issued
or exercised and consideration paid on exercise is credited to share capital.
A summary of the status of the Company's stock option plan as at March 31, 2000,
December 31, 1999, 1998, and 1997 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
Weighted
Number of Average Exercise
Options Price/Share
-----------------------------
<S> <C> <C>
Outstanding at January 1, 1998 902,954 $ 5.83
Exercised (22,433) ($ 4.06)
----------------------------
Outstanding, December 31, 1998 880,521 $ 5.87
Granted 432,537 $ 5.97
Exercised (3,534) ($ 3.67)
----------------------------
Outstanding, December 31, 1999 1,309,524 $ 5.91
Granted 111,569 $14.50
----------------------------
Outstanding, March 31, 2000 1,421,093 $ 6.59
----------------------------
</TABLE>
The following table summarizes information about stocks outstanding at March 31,
2000:
Option Price Options Options Options
Per Share Outstanding Exercisable Expire
--------------------------------------------------------------------------------
$ 3.33 145,000 145,000 2004
$ 4.00 195,496 195,496 2005
$ 3.67 264,793 264,793 2006
$ 8.00 146,698 146,698 2007
$14.00 125,000 83,334 2007
$ 5.25 312,259 104,086 2009
$ 6.75 7,778 2,593 2009
$ 7.90 112,500 37,500 2009
$14.50 111,569 --- 2010
--------------------------------------------------------------------------------
An additional 1,339,802 shares are reserved for future issue under the terms of
the plan.
Fully diluted earnings per share reflect the dilutive effect of the conversion
of the stock options outstanding at the end of the year, as if they had been
exercised at the beginning of the year. The number of shares used for the
calculation of the fully diluted earnings per share is 31,568,059 (1999 -
31,453,784, 1998 - 31,110,551, 1997 - 30,923,632).
K-116
<PAGE>
7. INCOME TAXES
--------------------------------------------------------------------------------
Income tax expense varies from the amount that would result from applying the
combined Canadian federal and provincial income tax rate to income before taxes.
The reason for these differences are as follows:
<TABLE>
<CAPTION>
March March
2000 1999 1999 1998 1997
$ $ $ $ $
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basic rate applied to
pre-tax income 5,876 982 4,898 9,169 30,210
(Decrease) increase in taxes
resulting from Manufacturing
processing deduction (1,025) (247) (1,337) (1,674) (5,449)
Large corporation tax --- 54 --- --- ---
Other (224) 61 135 168 146
U.S. tax losses not
yet recognized 716 --- 2,469 --- ---
-----------------------------------------------------------------------------------
5,343 850 6,165 7,663 24,907
-----------------------------------------------------------------------------------
</TABLE>
Cash payments made to March 31, 2000 for income taxes were $1,505 (1999 -
$6,420, 1998 - $20,712, 1997 - $19,769).
8. SEGMENTED INFORMATION
--------------------------------------------------------------------------------
The Company has two segments for financial reporting purposes based on
geographical location. The Canadian operation, serving primarily western Canada,
is based in Calgary, Alberta. The U.S. operation, serving primarily the U.S.
Pacific Northwest is based in Longview, Washington. Both segments fabricate
steel tubular goods. Information about segment profits, assets and capital
expenditures prior to 1998 is not provided as the U.S. operations did not
commence until late December 1998.
The accounting policies of the segments are the same as those described in Note
1 - Accounting Policies. The Company accounts for intersegment sales as if the
sales were to third parties, at current market prices.
K-117
<PAGE>
Geographic information
--------------------------------------------------------------------------------
CANADA U.S. TOTAL
$ $ $
--------------------------------------------------------------------------------
March 31, 2000
Revenue 89,543 5,754 95,297
Segmented profit (loss) 9,471 (1,646) 7,825
Capital Assets - Cost 79,272 35,291 114,563
Capital Assets - NBV 26,658 32,137 58,795
March 31, 1999
Revenue 40,978 --- 40,978
Segmented profit (loss) 1,351 --- 1,351
Capital Assets - Cost 77,915 30,646 108,561
Capital Assets - NBV 28,147 30,646 58,793
1999
Revenue 199,591 11,354 210,945
Segmented profit (loss) 10,110 (5,297) 4,813
Capital Assets - Cost 78,363 34,220 112,583
Capital Assets - NBV 26,681 31,870 58,551
1998
Revenue 176,656 --- 176,656
Segmented profit 12,886 --- 12,886
Capital Assets - Cost 77,378 28,593 105,971
Capital Assets - NBV 28,560 28,593 57,153
--------------------------------------------------------------------------------
Revenues have been allocated to country based on the location where the products
were produced. To March 31, 2000, U.S. revenues exclude $5,998 of sales to the
Canadian parent (three month ended March 31, 1999 - $15, 1999 - $2,960, 1998 -
nil). Segment profit has been measured exclusive of intersegment sales. The
benefit of the tax losses in the U.S. operation has not been recorded on these
financial statements.
Major customers
In 1999, four customers account for approximately 48% (1998 - 47%, 1997 - 47%)
of the revenue of the Canadian segment.
9. SUBSEQUENT EVENT
--------------------------------------------------------------------------------
On June 11, 2000 the Company and Maverick Tube Corporation ("Maverick") entered
into a combination agreement whereby each common share of the Company would be
exchanged for 0.52 of an exchangeable share of Maverick Tube (Canada) Ltd., a
wholly owned subsidiary of Maverick. Each exchangeable share will be the
economic equivalent of one share of Maverick common stock and will be
exchangeable, at the option of the holder, for one share of Maverick common
stock on a one-for-one basis. The transaction is subject to shareholder approval
by the Company and Maverick shareholders and regulatory approval.
K-118
<PAGE>
10. UNITED STATES ACCOUNTING PRINCIPLES
--------------------------------------------------------------------------------
Reconciliation of Accounting Principles Generally Accepted in the United States:
<TABLE>
<CAPTION>
March 2000 March 1999 1999 1998 1997
$ $ $ $ $
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income in accordance
with Canadian basis 7,825 1,351 4,813 12,886 42,800
Add (Deduct) adjustments
for start up costs (1) 52 (421) (185) (1,150) ---
---------------------------------------------------------------------------------------
Net income using United
States basis 7,877 930 4,628 11,736 42,800
----------------------------------------------------------------------------------------
Net income per share using
United States basis
Basic 0.26 0.03 0.15 0.39 1.42
fully diluted (2) 0.25 0.03 0.15 0.39 1.40
----------------------------------------------------------------------------------------
Balance sheet items in
accordance with United
States basis
Capital assets 57,512 57,222 57,216 56,003 28,434
Retained earnings 90,154 84,626 83,789 85,208 79,518
----------------------------------------------------------------------------------------
</TABLE>
U.S. GAAP requires that all start up costs be expensed as incurred. Canadian
GAAP allows capitalization of start up costs if certain criteria are satisfied.
In accordance with US GAAP the number of shares used for the calculation of the
fully diluted earnings per share for March 31, 2000 is 31,005,754 (March 31,
1999 - 30,387,476, 1999 - 30,953,182, 1998 - 30,366,357, 1997 - 30,592,637).
Under U.S. GAAP, the Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123") requires that companies
with stock-based compensation plans either recognize compensation expense based
on new fair-value accounting methods or continue to apply the provisions of
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") and disclose pro forma net earnings (loss) per share
assuming the fair-value method had been applied. The Company has elected to
follow APB 25 and related interpretations in accounting for employee stock
options.
For March 31, 2000, the SFAS 123 pro forma calculation includes those options
under the Company's Stock Option Plan that were granted and vested during this
period plus options granted in 1999, 1998 and 1997. A total of 156,177 vested
during this period (1999 - 231,993, 1998 - 282,031, 1997 - 280,866).
K-119
<PAGE>
Options are issue at the market price on date of grant and therefore, under APB
25, no compensation expense has been recorded.
Under SFAS 123, the Company's pro forma net income under U.S. GAAP would be
$7,674 for the three months ended March 31, 2000 (March 31, 1999 - $777; 1999 -
$3,851; 1998 - $11,118; 1997 - $42,410) and pro forma net income per common
share would be $0.25 for the three months ended March 31, 2000 (March 31, 1999 -
$0.03; 1999 - $0.13; 1998 - $0.37; 1997 - $1.40).
For disclosure purposes, the fair value of each stock option grant is estimated
on the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for stock options granted in 1999
and 1997, respectively: expected dividend yield of 2% and 1%; expected
volatility of 49.6% and 40.7%; risk-free interest rate of 6% and 5%; and
expected life of 7 years. The weighted average fair value of the stock options
granted in 1999 and 1997 was $2.90 and $4.89 respectively.
K-120
<PAGE>
ADDITIONAL INFORMATION REGARDING MAVERICK
BUSINESS
Our Company
We are a leading domestic producer of tubular steel products used in
energy and industrial applications. We manufacture "oil country tubular goods,"
which are steel tubular products used in the completion and production of oil
and natural gas wells. We also serve the energy industry by manufacturing line
pipe, which is used primarily in the transportation of oil and natural gas. For
industrial applications, we manufacture structural tubing and standard pipe. We
also recently began producing "cold drawn tubing" in our industrial products
segment, which is used as a component of high quality products that require
close tolerances. During fiscal 1999, energy products accounted for
approximately 59% of our total revenues.
The following table summarizes our current manufacturing facilities and the
products they produce:
Facility Products Sizes (1)
-------- -------- -----
Hickman, AR Oil country tubular goods 1 1/2" - 5 1/2"
Line pipe 1 1/2" - 5 9/16"
Standard pipe 2"- 5"
Hickman, AR Structural tubing 1 1/2" - 8"
Hickman, AR Oil country tubular goods 6"- 16"
Line pipe 6"- 16"
Standard pipe 5 1/2" - 16"
Structural tubing 8" - 16"
Piling 8" - 16"
Conroe, TX Oil country tubular goods 4 1/2" - 9 5/8"
Line pipe 4 1/2" - 8"
Structural tubing 4 1/2" - 8"
Standard pipe 6" - 8"
Beaver Falls, PA Cold drawn tubular products 1 7/8" - 12"
(1) Represents outside diameter measurement. Structural tubing can have a
square, rectangular or round cross-section.
Our Business Strategy
Increase market share by expanding our existing product lines. We
believe that the expansion of our product lines in both the energy and
industrial segments of our business will allow us to increase our market share
by capitalizing on our existing customer relationships to market additional
products. The current construction and on-going purchases of additional
equipping for the new large-diameter facility is an important part of this
strategy.
K-121
<PAGE>
Identify And Enter New Markets. We continually seek and make acquisitions
and capital expenditures to enter new markets as evidenced by our entry into the
structural tube market in 1994, our recent entry into the cold drawn tubular
market in 1998 and our planned expansion of our product lines. We intend to
seek additional opportunities to expand our business to new markets where we
believe we can compete effectively and profitably.
Continually Improve The Efficiency Of Our Manufacturing Process. We intend
to continue to pursue our objective of being a low-cost, high-volume producer of
quality steel tubular products by seeking to:
. maintain product manufacturing cost controls;
. maximize production yields from raw materials;
. make capital expenditures designed to lower costs and improve quality;
. minimize unit production costs through effective utilization of plant
capacity; and
. minimize freight costs.
Deliver Quality Products And Service To Our Customers. We believe that we have
achieved an excellent reputation with our existing customers. We intend to
continue to build long-term customer relationships with new and existing
customers by seeking to:
. offer broad-based product lines;
. focus on product availability;
. deliver competitively priced quality products; and
. provide a high level of customer support before and after the sale.
Product Line Expansion
To further our growth and enhance our ability to compete in our energy and
industrial business, we are expanding our current product lines to include
larger diameter pipe and tubing products. As the focal point to this expansion,
we currently have a facility under construction which includes equipment to
manufacture large-diameter pipe and tubing. This facility is immediately
adjacent to our current facilities in Hickman, Arkansas, at an estimated cost of
$40 million. We have chosen this strategic location for the new facility to
achieve significant cost-saving advantages. These advantages include:
. utilization of lower-cost, non-union labor;
. access to rail, truck and barge transportation
. proximity to the Nucor Corporation steel mill, Maverick's primary
steel supplier; and
. shared overhead.
Based principally on historical product relationships, we estimate that our
current product size range allows us to compete for approximately 49% of the
total tons consumed in all of the markets we serve. We believe that our
expansion into the production of large diameter pipe and tubing products should
allow us to compete for approximately 67% of the tons consumed in these markets.
This represents an increase of approximately 37% of the total tons consumed for
which we can compete in the markets we serve.
The Energy Pipe Industry
General. Oil country tubular goods consist of drill pipe, production
casing, surface casing and production tubing. Drill pipe is used and may be
reused to drill wells. Production casing
K-122
<PAGE>
forms the structural wall in oil and gas wells to provide support and prevent
caving during drilling operations and is generally not removed after its has
been installed in a well. Surface casing is used to protect water-bearing
formations during the drilling of a well. Production tubing is placed within the
casing and is used to convey oil and natural gas to the surface and may be
replaced during the life of a producing well.
The domestic oil country tubular goods market is affected by several
factors, the most significant being the number of oil and natural gas wells
being drilled. The level of drilling activity is largely a function of current
prices for oil and natural gas and the industry's future price expectations.
The prices are determined by various supply and demand factors, such as
consumption levels, current inventory levels, weather, import levels, production
economics and future expectations. The following chart shows the price of oil
and natural gas since October 1996:
Crude Oil and Natural Gas Prices
<TABLE>
<CAPTION>
Source: Spears And Associates, INC.
WTI Oil Price Average U.S. Natural Gas Price
----------------------------------------------
<S> <C> <C>
Oct-96 $24.90 $2.12
Nov-96 $23.79 $2.76
Dec-96 $25.27 $3.77
Jan-97 $25.23 $3.56
Feb-97 $22.61 $2.44
Mar-97 $22.54 $1.77
Apr-97 $19.60 $1.88
May-97 $20.87 $2.09
Jun-97 $19.30 $2.13
Jul-97 $19.46 $2.09
Aug-97 $19.97 $2.29
Sep-97 $19.77 $2.72
Oct-97 $21.56 $2.94
Nov-97 $20.57 $3.17
Dec-97 $18.54 $2.29
Jan-98 $16.58 $2.08
Feb-98 $16.54 $2.08
Mar-98 $15.11 $2.17
Apr-98 $15.47 $2.37
May-98 $15.09 $2.13
Jun-98 $13.76 $2.05
Jul-98 $14.04 $2.19
Aug-98 $13.65 $1.84
Sep-98 $14.69 $1.83
Oct-98 $14.55 $1.91
Nov-98 $13.51 $2.01
Dec-98 $11.21 $1.69
Jan-99 $12.53 $1.80
Feb-99 $11.94 $1.71
Mar-99 $14.80 $1.69
Apr-99 $17.27 $1.99
May-99 $18.04 $2.21
Jun-99 $17.73 $2.22
Jul-99 $20.18 $2.18
Aug-99 $21.20 $2.70
Sep-99 $23.39 $2.58
Oct-99 $22.86 $2.61
Nov-99 $24.07 $2.48
Dec-99 $25.96 $2.28
Jan-00 $27.31 $2.33
Feb-00 $29.51 $2.58
Mar-00 $29.81 $2.70
Apr-00 $25.91 $2.96
May-00 $29.20 $3.36
</TABLE>
The most commonly cited indicator of the level of domestic drilling
activity is the Baker Hughes rig count which represents the number of active oil
and natural gas rigs currently being operated in the U.S. Since July 1987, the
Baker Hughes rig count hit a high in December 1990 of 1,179 rigs and a low in
April 1999 of 488. However, by March 31, 2000, the active rig count increased
57.6% from this low to 769 rigs. The following chart shows the U.S. rig count
at each month end since October 1996 and our shipments of oil country tubular
goods for the same period:
K-123
<PAGE>
[US Rig Count and Maverick Domestic OTCG Shipment]
<TABLE>
<CAPTION>
Source: Baker Hughes, Historical Data
U.S. Rig Count Maverick Domestic OCTG Shipments
------------------------------------------------
<S> <C> <C>
Oct-96 836 21,954
Nov-96 799 16,664
Dec-96 852 22,856
Jan-97 822 19,021
Feb-97 849 21,108
Mar-97 897 19,923
Apr-97 901 22,507
May-97 924 22,390
Jun-97 976 24,777
Jul-97 969 26,815
Aug-97 993 24,130
Sep-97 1,009 24,149
Oct-97 996 22,222
Nov-97 983 20,832
Dec-97 1,013 24,691
Jan-98 993 19,918
Feb-98 974 19,238
Mar-98 932 20,420
Apr-98 886 15,698
May-98 855 15,861
Jun-98 854 14,246
Jul-98 816 13,700
Aug-98 792 15,453
Sep-98 774 14,000
Oct-98 734 12,602
Nov-98 688 7,643
Dec-98 647 14,291
Jan-99 587 8,817
Feb-99 542 7,552
Mar-99 526 7,908
Apr-99 496 9,488
May-99 516 12,343
Jun-99 558 14,270
Jul-99 588 14,557
Aug-99 639 16,341
Sep-99 696 19,492
Oct-99 564 22,613
Nov-99 782 24,603
Dec-99 798 24,744
Jan-00 775 22,344
Feb-00 763 21,385
Mar-00 773 25,299
Apr-00 805 23,638
May-00 844 25,669
</TABLE>
The oil country tubular goods market is also affected by the level of
industry inventories maintained by manufacturers, distributors and end users.
When customers draw-down on inventory rather than purchase new products, this
has an adverse effect on the demand for new production. Conversely, when
distributors and end users increase inventory levels, this has a positive effect
on the demand for new production. For calendar years 1996 and 1997, increasing
industry inventory levels added an estimated 4.3% and 14.6%, respectively, to
oil country tubular goods demand for new production. However, for calendar year
1998 and 1999, declining industry inventory levels satisfied 8.5% and 13.9%,
respectively, of oil country tubular goods consumption. Management believes
that at March 31, 2000 industry inventories are at or below normal levels in
relation to demand, as months of supply of inventory has decreased from 5.4
months at fiscal year end 1999 to 5.2 months at March 31, 2000, a decrease of
3.7%.
Import levels of foreign oil country tubular goods also significantly
affect the oil country tubular goods market. High levels of imports reduce the
volume sold by domestic producers and tend to suppress selling prices. We
believe that domestic import levels are affected by, among other things, overall
world demand for oil country tubular goods, the trade practices of and
government subsidies to foreign producers and the presence or absence of
governmentally imposed trade restrictions in the U.S. Since 1986, the level of
imports of oil country tubular goods from Canada and Taiwan has been reduced by
the existence of duties imposed by the United States government. The U.S.
International Trade Commission has recently made the decision to sunset these
orders. The impact of this action is not yet known but could result in
increased competition due to imports from these countries. In addition, since
1995, the level of imports of oil country tubular goods from Argentina, Italy,
Japan, Korea and Mexico has also been reduced by the existence of anti-dumping
duties. The U.S. International Trade Commission is scheduled to review these
duties in 2000. If these duties expire or are renewed on a less stringent
basis, we could be exposed to increased competition from imports.
K-124
<PAGE>
The following table illustrates certain factors related to industry-wide
domestic drilling activity, domestic oil country tubular goods consumption,
shipments, imports and inventories during the calendar years presented:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
U.S. drilling activity
Average rig count 625 831 943 779 723
===== ===== =====================
U.S. oil country tubular goods consumption
(in thousands of tons):
U.S. producer shipments 858 1,217 2,097 1,742 1,413
Imports 170 343 412 231 180
Inventory (increase)/decrease 202 156 (349) (84) 2
Used pipe 219 111 223 78 144
Total U.S. consumption 1,449 1,827 2,383 1,967 1,739
===== ===== =====================
</TABLE>
The rig count in the table is based on weekly rig count reporting from
Baker Hughes, Inc. Imports are as reported by Duane Murphy and Associates in
"The OCTG Situation Report." Inventory (increase)/decrease are management
estimates based upon independent research by Duane Murphy and Associates. Used
pipe quantities are calculated by multiplying 8.3 recoverable tubing and casing
tons (as determined by independent research by Duane Murphy and Associates) by
the number of abandoned oil and gas wells. U.S consumption of OCTG are
management estimates based on estimated per rig consumption of OCTG multiplied
by the Backer Hughes rig count. U.S. producer shipments are our estimates
calculated based on the components listed above.
Manufacturers produce oil country tubular goods in numerous sizes, weights,
grades and end finishes. We believe that most oil country tubular goods are
produced to American Petroleum Institute specifications. The grade of pipe used
in a particular application depends on technical requirements for strength,
corrosion resistance and other performance qualities. Oil country tubular goods
are generally classified into groupings of "carbon" and "alloy" grades. Carbon
grades of oil country tubular goods have yield strength levels of 75,000 pounds
per square inch or less and are generally used in oil and natural gas wells
drilled to depths less than 8,000 feet. Alloy grades of oil country tubular
goods have yield strength levels of 75,000 pounds per square inch or more and
are generally used in oil and natural gas wells drilled to depths in excess of
8,000 feet, or for high temperature wells, highly corrosive wells or critical
applications.
Carbon and alloy grades of oil country tubular goods are available from
both electric resistance welded and seamless pipe producers. Electric
resistance welded pipe is produced by processing flat rolled steel into strips
which are cold-formed, welded, heat-treated or seam-annealed and end-finished
with threads and couplings. Seamless products are produced by individually
heating and piercing solid steel billets into pipe and then end finishing such
pipe into oil country tubular goods in a manner similar to electric resistance
welded pipe. We believe that the seamless manufacturing process involves higher
costs than the welded process and that, as a result, seamless products are
generally priced higher than comparable welded products.
Based on published industry statistics, electric resistance welded
products, which did not have significant market penetration prior to the mid-
1970's, now account for approximately half of
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<PAGE>
the tonnage of domestic oil country tubular goods consumed annually. We believe
electric resistance welded products have captured a significant majority of the
carbon grade oil country tubular goods market, while seamless products retain a
significant majority of the alloy grade oil country tubular goods market. We
also believe that further significant market penetration of welded products will
depend upon increased market acceptance of welded products and technological
advances in the types of raw materials and equipment utilized in the electric
resistance welding process.
Line pipe products are used for surface production flow lines, gathering
systems and pipeline transportation and distribution systems for oil, natural
gas and other fluids. Line pipe is produced in both welded and seamless form.
Line pipe markets are dependent not only on the factors which influence the oil
country tubular goods market, but also on the level of pipe line construction
activity, line pipe replacement requirements, new residential construction and
utility purchasing programs.
Our Products. We manufacture oil country tubular goods used for production
tubing, production casing and surface casing, and we also manufacture line pipe.
We do not make drill pipe. We produce all of our oil country tubular goods and
line pipe using only the electric resistance welding process.
The following table shows our oil country tubular goods and line pipe
shipments in tons, net sales and as a percentage of overall net sales measured
in dollars:
Oil Country Tubular Goods Line Pipe
% of Maverick % of Maverick
Tons Net Sales Net Sales Tons Net Sales Net Sales
Six months of
Fiscal 2000 160,758 $ 94,380 67.0% 8,640 $ 4,193 3.0%
Fiscal 1999 165,200 93,331 54.1 19,758 8,533 4.9
Fiscal 1998 242,146 173,329 65.3 21,097 11,496 4.3
Fiscal 1997 308,427 208,932 71.8 26,501 14,947 5.1
Our decreased sales of oil country tubular goods in fiscal 1998 were due to
declining demand and a smaller industry inventory increase. Our decreased sales
of oil country tubular goods in fiscal 1999 were due to declining demand and
draw-downs of industry inventories. Our increased sales of oil country tubular
goods for the six months ended March 31, 2000 was due to increasing demand and a
small industry inventory increase. Our decreased sales of line pipe in fiscal
1998, fiscal 1999 and for the six months ended March 31, 2000 were due in large
part to competition from imported pipe.
Our energy products meet or exceed applicable American Petroleum Institute
standards. In addition, similar to other producers, we manufacture oil country
tubular goods in custom or proprietary grades. We design and engineer our
custom and proprietary oil country tubular goods to be used in similar
applications as products meeting American Petroleum Institute standards and to
provide performance features comparable to products meeting those standards. We
warrant our American Petroleum Institute casing and tubing to be free of defects
in material or workmanship in accordance with the Institute's applicable
specifications. In addition, we warrant our proprietary grade products to be
free of defects in accordance with our published standards. We have not
incurred significant costs in connection with these warranties. We maintain
insurance coverage against potential claims in an amount which we believe to be
adequate.
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<PAGE>
We manufacture finished goods in both carbon and alloy steel grades.
Virtually all of our products are fully completed or "end-finished" at our
facilities. In contrast, some of our competitors outsource the end-finishing of
their products or do not end-finish their products at all, thus adding to their
freight and handling costs. The end-finish process includes, as appropriate,
upsetting, beveling, threading, pressure testing and the application of
couplings. Our fully finished oil country tubular goods are ready to be
installed in oil or natural gas wells. By end-finishing our products, we are
better able to control quality, cost and service to customers. Our energy
facilities provide heat-treatment capabilities necessary for the production of
alloy grade pipe. Our alloy grade tubing and casing products accounted for 28%,
24%, 24% and 21% of the tons of energy products sold in the first six months of
fiscal 2000 and fiscal years ended September 30, 1999, 1998 and 1997,
respectively. Carbon grade tubing and casing accounted for the balance of these
tons.
Currently, we manufacture oil country tubular goods and line pipe ranging
in size from 1 1/2" to 9 5/8" in outside diameter. Excluding drill pipe, which
we do not manufacture, approximately 61% of the total oil country tubular goods
and line pipe tonnage produced in the western hemisphere in calendar 1997 fell
into this size range. Approximately 19% of the total tonnage produced was
greater than 9 5/8" through 16" in outside diameter, and the remaining 20% was
outside this size range.
Our large-diameter facility, which is under construction, will enable us to
manufacture oil country tubular goods and line pipe in sizes ranging from 1 1/2"
to 16" in diameter. This capability will broaden our product line of oil
country tubular goods and line pipe. We expect the product line expansion to
allow us to increase market share by selling to our existing customers with
minimal increases in cost, improve our bargaining position with existing
distributors and increase complementary product sales of existing products by
offering larger sizes.
Marketing. We sell oil country tubular goods and line pipe primarily
throughout the United States and Canada to numerous distributors, which then
resell the pipe to major and independent oil and natural gas production,
gathering and pipeline companies. Sales to Canadian customers in for the first
six months of fiscal 2000, fiscal year ended September 30, 1999, 1998 and 1997
were $14.0 million, $11.3 million, $17.9 million and $26.3 million,
respectively. Sales to other foreign customers in fiscal 1999, 1998 and 1997
made up an additional $200,000, $900,000 and $400,000, respectively. Our
marketing philosophy emphasizes delivering competitively priced quality products
and providing a high level of service to our customers. With the completion of
our new large diameter facility, we plan to also market ourselves as a broad
line supplier of oil country tubular goods and line pipe products. We maintain
inventories of finished goods that are housed at both of our production
facilities and at field locations close to the areas of drilling activity which
allows us to provide timely delivery of our products.
As of March 31, 2000 and 1999, our backlog orders (including bill and hold
orders not yet shipped) for oil country tubular goods and line pipe products
were approximately $86.3 million and $14.1 million, respectively. All of the
backlog orders as of March 31, 2000 are expected to be filled by the end of
fiscal 2000. We consider only $13.4 million and $1.4 million of our backlog
orders, respectively, to be firm as remaining orders may generally be cancelled
without penalty. Our backlog orders, as of any particular date, may not be
indicative of our actual operating results for any fiscal period. We cannot
give any assurance that the amount of backlog at any particular date will
ultimately be realized.
At June 1, 1999 the average price we charged for our oil country tubular
goods had decreased to $559 per ton from $665 per ton in November 1998 and $760
per ton in late 1997. At March 31, 2000 the average price charged increased to
$668 per ton as a result of price increases of $25 per ton on June 30, 1999, $30
per ton on September 1, 1999, $75 per ton on
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<PAGE>
September 1, 1999 and $35 per ton on January 1, 2000. These increases have
allowed us to increase our price per ton to levels just above the November 1998
level or just over one-half of the total decrease since late 1997. In addition,
Maverick has announced price increased of $30 per ton on April 1, 2000. The
price increases, along with further implementation of prior increases would
result in pricing above late 1997 levels. However, we cannot assure you that any
of our price increases will hold.
In fiscal 1999, four distributors, including National-Oilwell, Inc.
combined to become Sooner Pipe & Supply Corp. ("Sooner"), one of the largest
distributors of oil country tubular goods. Sooner accounted for 13% of our net
sales for fiscal 1999. Also, in fiscal 1999, another distributor, McJunkin
Appalachian Oilfield accounted for an additional 13% of our net sales. In
fiscal 1998 and 1997, one distributor, National-Oilwell, Inc., accounted for 14%
of our net sales in each year. In fiscal 1997, another distributor, Master
Tubulars, Inc., accounted for 11% of our net sales. We currently use several
distributors and believe that additional qualified distributors are available to
assist us in meeting the end-users' needs. While we believe that we could
replace any one distributor, including Sooner, McJunkin Appalachian Oilfield or
Master Tubulars, with other qualified distributors, the loss of Sooner, McJunkin
Appalachian Oilfield or Master Tubulars could have a material adverse effect on
our net sales or results of operations.
Manufacturing. We manufacture oil country tubular goods and line pipe
products at our facilities in Hickman, Arkansas and Conroe, Texas. We believe
we will begin limited production of select industrial and energy products at our
new large-diameter facility adjacent to our Hickman, Arkansas facilities, by
July 2000 with full production capability of all products by October 2000. The
facilities are strategically located to serve the energy markets in the United
States. We can currently produce at a consolidated maximum rate of
approximately 669,000 tons of finished products per year with approximately
477,000 tons currently dedicated to energy related products. After completion
of our new large-diameter facility, we expect these amounts to increase to
919,000 tons and 627,000 tons per year, respectively. We operated our energy
facilities at a capacity utilization of approximately 75% during the six months
ended March 31, 2000, 40% during fiscal 1999 and approximately 55% during fiscal
1998.
In order to control our manufacturing costs, we attempt to maximize
production yields from purchased steel and reduce unit labor costs. In the
first six months of fiscal 2000, fiscal years ended September 30, 1999 and
fiscal 1998, purchased steel represented approximately 66%, 61% and 67%,
respectively, of our cost of goods sold. For the first six months of fiscal
2000, fiscal years ended September 30, 1999 and fiscal 1998, direct and indirect
labor costs accounted for approximately 11%, 12% and 10%, respectively, of our
cost of goods sold. We control labor costs by automating some of our activities
and by seeking to optimize product throughput and scheduling. We maintain an
innovative compensation plan at our Hickman, Arkansas and Conroe, Texas
facilities, whereby employees receive quarterly bonuses for superior
productivity and cost savings. In addition, some employees are eligible to
receive annual profitability bonuses based on our consolidated earnings. The
maximum achievable incentives and bonuses range from 15% to 75% of an employee's
salary and wages.
During fiscal 1999 and fiscal 1998, we spent $3.0 million and $7.5 million,
respectively, on new capital equipment for our energy facilities. Our capital
budget for fiscal 2000 is $4.0 million. We expect these capital expenditures to
result in manufacturing cost savings, quality improvements and/or expanding or
maintaining production capabilities and product lines. In addition, we expect
to spend approximately $40.0 million to construct and equip the new large-
diameter facility that will produce, in part, oil country tubular goods and line
pipe in larger sizes than we currently produce.
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<PAGE>
Competition. The suppliers of oil country tubular goods and line pipe
products face a highly competitive market. We believe that the principal
competitive factors affecting our business are price, quality, delivery,
availability and service. We believe we enjoy an excellent reputation for
quality products and outstanding customer service. We compete with several
domestic and numerous foreign producers of oil country tubular goods, some of
which have greater financial resources than we do. In the oil country tubular
goods market, our more significant competitors are Lone Star Steel Company and
Newport Steel Company, which produce electric resistance welded pipe, and United
States Steel Corporation and North Star Steel Company, which primarily produce
seamless pipe. We also compete in the line pipe market with these same
competitors, and with foreign producers of oil country tubular goods, most of
which are units of large foreign steel makers. During calendar years 1997,
1998, 1999 and the first three months of 2000, we estimate that domestic oil
country tubular goods market penetration of tons consumed by imports was 17.3%,
18.8%, 11.0% and 27.3%, respectively.
The Structural Tube and Standard Pipe Industry
General. Our structural tubing products are used in the following
applications:
. construction, including handrails, building columns and bridge frames;
. transportation, including boat trailers;
. agricultural, including farm implement components and tillage
equipment;
. material handling, including storage rack systems and conveying
systems support; and
. recreational, including exercise equipment.
In addition, structural tubing is an attractive alternative to other
structural steel forms, such as I-beams and H-beams. Structural tubing products
offer strength and other product characteristics similar to beams, but with less
steel content, resulting in lower costs to the end user in many applications.
Structural tubing and standard pipe are produced by processing flat rolled
steel into strips which are cold-formed, welded and heat-treated or seam-
annealed. The machinery and equipment used for the manufacture of structural
tubing products are similar to that used for the manufacture of oil country
tubular goods. Structural tubing and standard pipe are not, however, subject to
the same degree of tolerances as are oil country tubular goods, which results in
lower production costs related to testing and inspection than for oil country
tubular goods. Moreover, structural tubing does not require end finishing,
flash elimination for the welding process or seam-annealing. Because less
finishing is required of structural tubing products as compared to oil country
tubular goods, the average cost per ton to convert steel into structural tubing
is significantly less than oil country tubular goods.
We believe that demand for structural tubing is influenced primarily by the
level of general economic activity in the United States. We estimate that
domestic consumption of structural tubing during calendar years 1999, 1998 and
1997 was 2.0 million, 2.0 million and 1.9 million tons, respectively.
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<PAGE>
Standard pipe products are used in industrial applications such as steam,
water, air and gas lines, and plumbing and heating. As with structural tubing,
we believe that demand for standard pipe is influenced primarily by the level of
general economic activity in the United States. We estimate that domestic
consumption of standard pipe during calendar years 1999, 1998 and 1997 was 2.3
million, 2.6 million and 2.7 million tons, respectively. In recent years,
standard pipe has faced limited new competition from plastic pipe in certain
applications.
Our Products. We produce square, rectangular and round structural tubing
at our facilities in sizes ranging from 1 1/2" to 8" square and the equivalent
sizes in rectangular and round tubing. Our products range from .120 to .500
inches in thickness. Because of the large number of applications for structural
tubing and standard pipe, the number of different products produced for the
industrial market is considerably larger than that produced for the oil country
tubular goods market. The annual capacity at our Hickman structural facility is
approximately 192,000 tons. We were operating at approximately 75% of our
structural capacity during the first six months of fiscal 2000, 67% of capacity
during fiscal 1999 and 86% of capacity during fiscal 1999.
The following table shows our structural tubing and standard pipe shipments
in tons, net sales and as a percentage of overall net sales measured in dollars:
<TABLE>
<CAPTION>
Structural Tubing Standard Pipe
% of Maverick % of Maverick
Tons Net Sales Net Sales Tons Net Sales Net Sales
<S> <C> <C> <C> <C> <C> <C>
Period
Six months of
Fiscal 2000 72,428 $31,678 22.5% 8,121 $ 3,972 2.8%
Fiscal 1999 129,829 56,369 32.7 18,447 8,414 4.9
Fiscal 1998 142,779 68,892 26.0 22,196 11,632 4.4
Fiscal 1997 111,735 54,639 18.8 23,294 12,542 4.3
</TABLE>
Completion of the new large-diameter facility will increase the size range
of our structural tube and standard pipe offerings, thus allowing us to market a
broader line of products for industrial applications. As a result of this new
facility, we expect to gain additional complementary sales by offering larger
sizes, while limiting the amount of additional expenses. We also believe this
new facility will allow us to market ourselves as a broad line producer of
structural tubing and standard pipe.
Marketing. The structural tubing and standard pipe markets are somewhat
regional in nature, primarily because order sizes are smaller and lead-time
requirements are shorter than for oil country tubular goods. We currently sell
principally to distributors, but since fiscal 1997, we significantly increased
our sales to large end-user customers. As in the case of oil country tubular
goods, our marketing strategy emphasizes delivering competitively priced quality
products and providing a high level of service to our customers. In addition,
we expect our marketing ability will be enhanced by the addition of larger
diameter pipe and tubing that we will produce upon completion of our large-
diameter facility. Because the application of structural tubing and standard
pipe products is diverse, and a short lead time is required for customer
satisfaction, we
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<PAGE>
maintain inventory levels, in terms of months of supply, comparable to those for
oil country tubular goods. This finished goods inventory will consist of a
larger number of items than in the case of oil country tubular goods. We use
experienced manufacturing representatives in our sales efforts.
As of March 31, 2000 and 1999, our backlog of orders for structural tubing
and standard pipe was $8.0 million and $5.5 million, respectively. All of the
backlog orders as of March 31, 2000 are expected to be filled by the end of
fiscal 2000. We do not consider any of our backlog orders to be firm as they
may generally be cancelled without penalty. Our backlog orders as of any
particular date may not be indicative of our actual operating results for any
fiscal period. We cannot give any assurance that the amount of backlog at any
given time ultimately will be realized.
Manufacturing. We are currently producing structural square and
rectangular shaped tubing products in our structural tube facility located in
Hickman, Arkansas. We are also currently producing structural round tubing
products and standard pipe at our two energy facilities in Hickman, Arkansas and
Conroe, Texas and expect to begin production of larger sized structural tubing
and standard pipe upon completion of our large diameter facility to be located
adjacent to our Hickman, Arkansas location by July 2000.
We believe that the sizes of structural tubing products we currently are
capable of manufacturing account for more than 85% of the domestic tonnage of
all sizes of domestic structural tubing products consumed. After completing the
new large-diameter facility, we expect to be capable of manufacturing sizes that
account for more than 97% of the domestic tonnage consumed.
Based on an industry source, we believe that the types of standard pipe
products we are capable of manufacturing account for approximately 25% of the
domestic tonnage of all types of standard pipe products consumed. After
completing the new large diameter facility, we expect to be capable of
manufacturing more than 41% of the domestic tonnage of all sizes of products
consumed.
Consistent with our manufacturing strategy for oil country goods
production, we believe we are a low-cost, high-volume producer of quality
structural tubing and standard pipe products. We believe that the application
of our efficient manufacturing process originally developed for the production
of oil country tubular goods, the labor costs at our Arkansas facility and the
strategic location of the facility provide a conversion cost advantage relative
to the majority of existing domestic structural tubing and standard pipe
manufacturers.
During fiscal 1999 and fiscal 1998, we spent $1.5 million and $722,000,
respectively, on additional equipment needed for manufacturing of structural
tubing and standard pipe products. Our capital budget for fiscal 2000 is $3.0
million. We expect these capital expenditures to result in manufacturing cost
savings and quality improvements.
Competition. Although a significant market for structural tubing is located
within a 400 mile radius of our Hickman structural facility, no other major
structural tubing facility is currently located within this area. Foreign
competition, primarily from Canada, represented 23%, 23% and 22% of total
domestic sales of structural tubing in calendar years 1999, 1998 and 1997,
respectively. We compete primarily against several domestic and numerous
foreign producers of structural tubing. Our more significant structural tube
competitors are Leavitt Tube Company, Welded Tube Corporation of America,
Copperweld, Bull Moose Tube Corporation and Ex-L-Tube, Inc.
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<PAGE>
A significant market for standard pipe also exists. Foreign competition
has had a large presence in the standard pipe market. Foreign competition
represented approximately 33%, 31% and 24% of total domestic sales of standard
pipe in calendar years 1999, 1998 and 1997, respectively. Our more significant
standard pipe competitors are Wheatland Tube Company, Armco, Inc., Sawhill
Tubular Division, Laclede Steel Company and IPSCO Tubulars, Inc.
We believe that the principal competitive factors affecting our structural
tubing and standard pipe businesses are price, product availability, delivery
and service.
The Cold Drawn Tubing Market
General. The cold drawn tubing market is made up of mechanical or pressure
tubing used for applications that require closer tolerances and/or a better
surface finish than ordinary electrical resistance welded or seamless tubing.
The following table describes some of these applications:
Industrial Uses Oilfield Uses Consumer Uses
--------------- ------------- -------------
. Hydraulic, pneumatic Mud pumps Motorcycle forks
And gas cylinder stock
Precision pumps Exercise equipment
. Power takeoff and auger
shafts Perforating tubes Office furniture
. Electric motor housings Subsurface pump shells Playground equipment
. Conveyor rollers Coupling stock Bicycles
. Axles Boat trailers
Cold drawn tubing starts with either a plain-end electric resistance welded
or seamless tube. The source tube is then pulled through a die and over a
mandrel to create precise outside and inside diameters or wall tolerances and to
create a smoother finish.
The cold drawn tubing market is driven primarily by the general economy.
Other factors include agricultural prices and infrastructure construction due to
the large quantity of cold drawn tubing consumed in cylinder manufacturing for
agriculture and construction machinery. We believe the market size is currently
about 550,000 tons per year. Imports have typically satisfied about 5% of
consumption.
The market is made up of three segments based upon outside diameter and wall
thickness of the tube, as follows:
Outside Diameter Wall Thickness
Group 1 through 4" through .134"
Group 2 4" through 7 1/2" through .320"
Group 3 above 7 1/2" all
Our Products. We primarily manufacture and sell cold drawn tubing products
in the Group 2 and Group 3 market segments as shown above. As of March 31,
2000, the sales of our cold drawn tubing products represented 4.7% of our net
sales dollars.
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<PAGE>
Marketing. Our current customer base for cold drawn tubing is primarily
made up of service centers. Generally, because cold drawn tubing products are
components of larger products, order sizes range from 5,000 to 10,000 pounds,
which is smaller than our typical order sizes for structural tubing or oil
country tubular goods. We almost always manufacture cold drawn tubing products
to order resulting in a finished goods inventory that is smaller than our
finished goods inventory of structural or energy products. Currently, the
industry lead time for cold drawn tubing is approximately six to seven weeks.
As of March 31, 2000, our backlog of cold drawn tubing orders was
approximately $3.5 million. We do not consider any of our backlog firm. Our
backlog orders as of any particular date may not be indicative of our actual
operating results for any fiscal period. We cannot give any assurance that the
amount of backlog at any given time ultimately will be realized.
Manufacturing. In fiscal 1998, we acquired the assets used in the
production of cold drawn tubular products at our production facility in Beaver
Falls, Pennsylvania. This facility began production during the first quarter of
fiscal 1999. We expect to supply approximately 75% of this facility's raw
material requirements from our other production facilities. We purchase the
remainder from outside sources, which include both smaller diameter pipe that is
less than 1 9/10" and larger diameter pipe that is greater than 10", and
seamless pipe.
During fiscal 1999, we spent approximately $2.7 million on additional
equipment for the Beaver Falls facility. Our capital budget for fiscal 2000 is
$2.0 million. We expect these capital expenditures to result in manufacturing
cost savings and quality improvements. We currently have approximately 75,000
tons of drawing capacity annually.
Competition. A significant market for drawn tubing is located within a 500
mile radius of the Pennsylvania facility. Our primary competitors in this
market are Alliance Midwest, Copperweld, Lone Star Steel, LTV, Metal Matic,
Pacific Tube, Plymouth Tube, Pittsburgh Tube, Vision Metals and Webco. We
believe that the principal competitive factors affecting our drawn tubular
products are price, quality, product availability, delivery and service.
Raw Materials
We make all steel purchases at our headquarters in order to optimize
pricing, quality, availability and delivery of our raw materials. During 1999,
we consumed approximately 2.0% of the total amount of hot rolled steel produced
in the United States. Accordingly, we believe that we are generally considered
to be a significant purchaser by our steel suppliers. We maintain favorable
working relationships with our steel suppliers and believe that we are treated
favorably with respect to volume allocations and deliveries. We presently
purchase the majority of our steel from several domestic suppliers, with
approximately 75% of consolidated purchases made from Nucor Corporation.
Nucor's mill in Hickman, Arkansas is directly connected by rail to our Hickman
facilities, thus eliminating our raw material freight costs for raw materials
purchased from Nucor. To date, we have not experienced any significant
disruption in our supply of raw materials.
Employees
As of March 31, 2000, we employed approximately 1,237 persons, of whom
approximately 20% were salaried and approximately 80% were employed on an hourly
basis. None of our employees are represented by a union. We consider our
employee relations to be excellent.
K-133
<PAGE>
Properties
We lease approximately 40,000 square feet of office space in Chesterfield,
Missouri for our executive offices under a lease which expires in 2008.
Currently, we use 160 acres of our 200 acre site in Hickman, Arkansas for three
facilities with approximately 315,000 square feet of oil country tubular goods
manufacturing and storage space which utilizes 55 acres. A 275,000 square foot
structural tube manufacturing plant is located adjacent to the existing oil
country tubular goods facility. Approximately 120,000 square feet of this
facility is utilized for manufacturing with the remainder used for inventory and
material storage and shipping. The 300,000 square foot large mill facility is
located adjacent to the structural tube manufacturing plant. We occupy both the
oil country tubular goods and the structural tube manufacturing facilities under
separate leases, each providing us an option to purchase which is exercisable on
the expiration dates of the leases. The expiration dates are August 1, 2007 for
the oil country tubular goods facility and February 1, 2004 for the structural
tube facility. Approximately 40 acres remain in Hickman, Arkansas for future
expansion. We also own 117 acres and a 244,000 square foot manufacturing
facility located in Conroe, Texas. Of the 117 acres, approximately 30 acres is
used for manufacturing and storage and 60 acres is available for future
expansion. We lease a 21 acre site and a 370,000 square foot manufacturing
facility in Beaver Falls, Pennsylvania for the production of cold drawn tubing,
with an option to purchase which is exercisable on September 17, 2001 which is
the expiration date of the lease. Each manufacturing facility operated by
Maverick is served by truck, has its own rail spur, other than the Beaver Falls
facility, and is within close proximity of barge facilities.
We believe each of our facilities is in good condition, is adequately
insured and is adequate and suitable for our planned level of operations.
Legal Proceedings
General. From time to time, we are involved in litigation relating to
claims arising out of our operations in the normal course of our business. We
maintain insurance coverage against potential claims in an amount which we
believe to be adequate. We believe that we are not presently a party to any
litigation in which the outcome would have a material adverse effect on our
business or operations.
Environmental Matters
We are subject to federal, state and local environmental laws and
regulations concerning, among other things, waste water disposal and air
emissions. We believe we are currently in compliance with all applicable
environmental regulations.
K-134
<PAGE>
Our Executive Officers
<TABLE>
<S> <C> <C>
Name Age Title
Gregg M. Eisenberg 50 Chairman of the Board, President and
Chief Executive Officer
Barry R. Pearl 51 Vice President - Finance and Administration, Treasurer,
Secretary and Chief Financial Officer
Sudhakar Kanthamneni 53 Vice President - Manufacturing and Technology
T. Scott Evans 52 Vice President - Commercial Operations
William E. Macaulay 54 Director
David H. Kennedy 52 Director
C. Robert Bunch 45 Director
C. Adams Moore 66 Director
Wayne P. Mang 62 Director
John M. Fox 59 Director
</TABLE>
Set forth below are descriptions of the backgrounds of our executive officers
and their principal occupations for at least the last five years:
Gregg M. Eisenberg has served as Chairman of the Board since February 1996.
He has served as President, Chief Executive Officer and a director of Maverick
since 1988. Prior to joining Maverick in 1983, he was employed with Central
Steel Tube Company for six years. He is a former director and past chairman of
the Committee on Pipe and Tube Imports.
Barry R. Pearl has served as Vice President - Finance and Administration,
Treasurer, Secretary and Chief Financial Officer since June 1998. He was
formerly employed by Santa Fe Pacific Pipeline Partners, L.P. in Orange,
California where he was the Senior Vice President and Chief Financial Officer
from January 1995 until March 1998 and Senior Vice President, Business
Development from 1992 to January 1995.
Sudhakar Kanthamneni has served as Vice President - Manufacturing and
Technology of Maverick since August 1992. From May 1991 to August 1992, Mr.
Kanthamneni served as Maverick's Vice President - Manufacturing. Prior to
joining Maverick in 1987, he was employed with Central Steel Tube Company for
ten years.
T. Scott Evans has served as Vice President - Commercial Operations of
Maverick since September 1992. Prior to joining Maverick in 1988 as General
Sales Manager, he was employed with Wolverine Tube Corporation. From January
1981 to June 1986, Mr. Evans was employed with Republic Steel Corporation.
William E. Macaulay has served as Chairman and Chief Executive Officer of
First Reserve Corp. since 1983; he is also a director of Weatherford
International, Inc. National-Oilwell, Inc., Pride International, Inc. and
Superior Energy Services, Inc.
K-135
<PAGE>
David H. Kennedy served as Managing Director of First Reserve Corp. form
1981 to 1998; he is also a director of Berkley Petroleum Corporation and Pursuit
Resources, Inc.
C. Robert Bunch has been a Partner in the law firm of King & Pennington,
L.L.P. since 1997; from June 1995 to May 1996 he served as the Executive Vice
President and Chief Operating Officer of Oyo Geospace Corporation; from June
1994 to May 1995, he was an attorney with the law firm of Scott, Douglass &
Luton, L.L.P.; from July 1993 to May 1994, he served as the President of Geo-
Capital Resources, L/C; from June 1992 To June 1993, he was the Senior Vice
President of Siberian American Limited Liability Company.
C. Adams Moore has been an independent consultant in the steel distribution
and fabrication business since February 1992; from January 1983 to February
1992, he was Vice President of Sales of Bethlehem Steel Corporation and
President of Bethlehem Steel Export Corporation; He is also a director of Fisher
Tank Company and Warren Fabrication Corporation.
Wayne P. Mang has served as a "Non-Executive" Chairman and Director of
Laclede Steel Co. since 1997; from 1982 to 1991, he was President and Chief
Executive Officer of Metals Group of Federal Industries Ltd.; he was the
President and Chief Operation Officer of Russel Metals from 1991 to May 1997.
John M. Fox has served as the President, Chief Executive Officer and a
member of the Board of Directors of Markwest Hydrocarbon, Inc. since 1988 and
1996, respectively; he was the founder of Western Gas Resources, Inc. and its
Executive Vice President and Chief Operation Officer from 1972 to 1986.
Principal Stockholders
The following table sets forth information regarding the beneficial
ownership of Maverick common stock as of July 5, 2000 by:
. each person or group we have reason to believe owns beneficially more than
five percent of the outstanding shares of common stock;
. each of our executive officers and each of our directors; and
. all of our executive officers and directors as a group.
Unless otherwise indicated, each of the persons or entities listed below
exercise sole voting and investment power over the shares that each of them
beneficially owns.
<TABLE>
<CAPTION>
Amount and Nature Currently
----------------- ---------
of Beneficial Exercisable
------------- -----------
Name and Address Ownership(1) Options(2) Percent of Class
---------------- ------------ ---------- ----------------
<S> <C> <C> <C>
Directors and named executive officers
Gregg M. Eisenberg 94,708 -- *
William E. Macaulay 22,500(3)(4) 22,500 *
David H. Kennedy 52,650 15,000 *
C. Robert Bunch 21,150 18,750 *
C. Adams Moore 15,000 15,000 *
Barry R. Pearl 10,000 -- *
</TABLE>
K-136
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
T. Scott Evans 58,286 36,000 *
Sudhakar Kanthamneni 41,008 30,000 *
Wayne P. Mang 19,000 19,000 *
John M. Fox 21,000 15,000 *
All current directors and executive officers as a group (10
persons) 355,302 171,250
Beneficial owners in excess of 5% of the outstanding common
stock
Woodbourne Partners, L.P. (5) Sole Voting: 1,250,000 ---
10 South Broadway, Shared Voting: 90,000 ---
Suite 2000 Sole Investment: 1,250,000 ---
St. Louis, MO 63102 Shared Investment: 90,000 ---
Amvescap PLC (6) Sole Voting: -0-
11 Devonshire Square Shared Voting: 1,393,400
London EC2M 4 Yr Sole Investment: -0-
Shared Investment: 1,393,400
</TABLE>
________________________
* Represents less than 1% of the class.
(1) Includes currently exercisable options.
(2) Reflects the number of shares of common stock issuable upon the exercise of
options which are presently exercisable or will first become exercisable within
60 days of July 5, 2000.
(3) Excludes: (a) 300,000 shares of common stock owned by American Gas and Oil
Investors, Limited Partnership ("AmGO") and (b) 200,000 shares of common stock
owned by AmGO II, Limited Partnership ("AmGO II"). First Reserve Corp. is the
managing general partner of AmGO and AmGOII. William E. Macaulay is a director
of Maverick and serves as Chairman and Chief Executive Officer of First Reserve
Corp. Mr. Macaulay disclaims beneficial ownership of these shares.
(4) Excludes 24,000 shares of common stock owned by Linda R. Macaulay, the wife
of Mr. Macaulay. Mr. Macaulay disclaims beneficial ownership of these shares.
(5) Based on Schedule 13D filed with the SEC by Woodbourne Partners, L.P. on
March 12, 1999.
(6) Based on Schedule 13G filed with the SEC on February 4, 2000 by a group
consisting of AIM Management Group Inc., Amvescap Group Services, Inc. Amvescap
PLC, Amvestcap PLC (GA.), AVZ Inc., Investcap (NY), Asset Management, Inc.,
Investco Capital Management, Inc., Investco Management & Research, Inc. Investco
Realty Advisors, Inc. and Investco, Inc.
K-137
<PAGE>
K-138
<PAGE>
INDEX TO MAVERICK FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors.......................................................
Consolidated Balance Sheets as of September 30, 1999 and 1998........................
Consolidated Statements of Operations for the years ended September 30, 1999, 1998
and 1997............................................................................
Consolidated Statements of Stockholders' Equity for the years ended September 30,
1999, 1998 and 1997.................................................................
Consolidated Statements of Cash Flows for the years ended September 30, 1999, 1998
and 1997............................................................................
Notes to Consolidated Financial Statements...........................................
</TABLE>
K-139
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Maverick Tube Corporation
We have audited the accompanying consolidated balance sheets of Maverick Tube
Corporation and subsidiaries as of September 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1999. These 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 consolidated financial position of
Maverick Tube Corporation and subsidiaries at September 30, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles.
St. Louis, Missouri
October 29, 1999
K-140
<PAGE>
Maverick Tube Corporation
and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999 1998
(Unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 1,091 $ 1,625 $ 748
Accounts receivable, less allowances of
(unaudited) $745 at March 31, 2000 and $542
and $391, respectively 29,073 19,661 15,515
Inventories 89,125 54,486 61,685
Deferred income taxes 1,933 1,933 1,827
Income taxes refundable 261 3,739 5,078
Prepaid expenses and other current assets 1,645 1,469 1,200
---------- ---------- ----------
Total current assets 123,128 82,913 86,053
Property, plant and equipment, net 100,011 74,518 69,879
Other assets 637 2,717 953
---------- ---------- ----------
$ 223,776 $ 160,148 $ 156,885
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 35,195 $ 28,244 $ 15,721
Accrued expenses and other liabilities 6,634 5,929 5,733
Deferred revenue 13,398 3,716 3,584
Current maturities of long-term debt 736 708 653
---------- ---------- ----------
Total current liabilities 55,963 38,597 25,691
Long-term debt, less current maturities 7,112 7,518 8,226
Revolving credit facility 44,000 31,000 27,400
Deferred income taxes 2,667 3,387 5,505
Commitments and contingencies
(Notes 6, 12 and 13) -- -- --
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000
authorized shares -- -- --
Common stock, $.01 par value; 40,000,000
authorized shares; (unaudited) 17,832,974 at
March 31, 2000 and 15,440,474 and 15,437,474
shares issued and outstanding in 1999 and
1998, respectively 178 154 154
Additional paid-in capital 79,752 44,248 44,216
Retained earnings 34,104 35,244 45,693
---------- ---------- ----------
114,034 79,646 90,063
---------- ---------- ----------
$ 223,776 $ 160,148 $ 156,885
========== ========== ==========
</TABLE>
See accompanying notes
K-141
<PAGE>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
March 31, Years ended September 30,
--------- -------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $140,870 $75,515 $172,417 $265,389 $291,060
Cost of goods sold 134,044 75,624 169,562 232,038 252,803
------------------------------------------------------
Gross profit 6,826 (109) 2,855 33,351 38,257
Selling, general and administrative 7,941 6,870 13,703 14,815 13,966
Start-up costs -- 1,671 3,462 -- --
------------------------------------------------------
Income (loss) from operations (1,115) (8,650) (14,310) 18,536 24,291
Interest expense, net (668) (793) 1,861 1,731 2,067
------------------------------------------------------
Income (loss) before income taxes (1,783) (9,443) (16,171) 16,805 22,224
Provision (benefit) for income taxes 644) (3,391) (5,722) 5,420 7,339
------------------------------------------------------
Net income (loss) $ (1,139) $(6,052) $(10,449) $ 11,385 $ 14,885
======================================================
Basic earnings (loss) per share $ (0.06) $ (0.39) $ (.68) $ .74 $ .99
======================================================
Diluted earnings (loss) per share $ (0.06) $ (0.39) $ (.68) $ .73 $ .97
======================================================
</TABLE>
See accompanying notes.
K-142
<PAGE>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
------------
Additional
Paid-In Retained
Shares Amount Capital Earnings
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1996 14,944,142 $150 $37,674 $ 19,423
Net income -- -- -- 14,885
Exercise of stock options 466,832 4 2,482 --
Tax benefit associated with the
exercise of non-qualified stock
options -- -- 3,250 --
------------------------------------------------------------
Balance at September 30, 1997 15,410,974 154 43,406 34,308
Net income -- -- -- 11,385
Exercise of stock options 26,500 -- 162 --
Tax benefit associated with the
exercise of non-qualified stock
options -- -- 648 --
------------------------------------------------------------
Balance at September 30, 1998 15,437,474 154 44,216 45,693
Net loss -- -- -- (10,449)
Exercise of stock options 3,000 -- 19 --
Tax benefit associated with the
exercise of non-qualified stock
options -- -- 13 --
------------------------------------------------------------
Balance at September 30, 1999 15,440,474 $154 $44,248 $ 35,244
Net loss * (1,139)
Proceeds from issuance of 2,300,000 23 35,204
Common Stock *
Exercise of stock options * 92,500 1 300
------------------------------------------------------------
Balance at March 31, 2000 * 17,832,974 $178 $79,752 $ 34,104
============================================================
</TABLE>
* Unaudited
See accompanying notes.
K-143
<PAGE>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months ended
March 31, Year ended September 30,
--------- ------------------------
2000 1999 1999 1998 1997
------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss) $ (1,139) $(6,052) $(10,449) $ 11,385 $ 14,885
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,162 3,527 7,355 6,172 5,697
Deferred income taxes (720) 102 (2,211) 1,161 2,577
Provision for losses on accounts receivable 203 229 151 3 44
Loss on sale of equipment -- -- -- 49 50
Loss on write-down of software development -- -- -- --
costs 1,605
Changes in operating assets and liabilities:
Accounts receivable (9,615) 4,199 (4,297) 12,196 (9,358)
Inventories (34,639) 18,462 7,199 7,751 (18,812)
Prepaid expenses and other current assets 5,322 (442) 1,070 (1,582) 59
Other assets -- -- 236 (381) (67)
Accounts payable 6,951 (2,180) 12,523 (15,756) 8,435
Accrued expenses and other liabilities 705 (1,219) 196 (6,881) 5,136
Deferred revenue 9,682 (2,225) 132 (12,667) 8,075
------------------------------------------------------
Cash provided by operating activities (19,088) 14,401 11,905 3,055 16,721
</TABLE>
K-144
<PAGE>
Maverick Tube Corporation
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
March 31, Year ended September 30,
--------- ------------------------
2000 1999 1999 1998 1997
-----------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Investing activities
Expenditures for property, plant and equipment (29,596) (7,908) (11,869) (10,717) (9,537)
Expenditures for purchase of production facility -- -- -- (11,464) --
Deposit on equipment -- -- (2,125) -- --
Proceeds from disposals of equipment
-- -- -- 30 96
Collection of notes receivable -- -- -- -- 18
-----------------------------------------------------------
Cash used by investing activities (29,596) (7,908) (13,994) (22,151) (9,423)
Financing activities
Proceeds from long-term borrowings and notes 86,750 20,350 57,600 121,000 92,400
Principal payments on long-term borrowings and notes (74,128) (26,098) (54,653) (104,204) (99,911)
-----------------------------------------------------------
12,622 (5,748) 2,947 16,796 (7,511)
Proceeds from Issuance of Common Stock 35,227
Proceeds from exercise of stock options 301 -- 19 162 2,486
-----------------------------------------------------------
Cash provided (used) by financing activities 48,150 (5,748) 2,966 16,958 (5,025)
-----------------------------------------------------------
Increase (decrease) in cash and cash equivalents (534) 745 877 (2,138) 2,273
Cash and cash equivalents at beginning of period
1,625 748 748 2,886 613
-----------------------------------------------------------
Cash and cash equivalents at end of period $ 1,091 $ 1,493 $ 1,625 $ 748 $ 2,886
===========================================================
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest (net of amounts capitalized of $672, $316
$543, $355 and $268)* $ 630 $ 793 $ 1,855 $ 1,733 $ 2,138
Income taxes $ (3,551) $ (5,398) $ (5,003) $ 6,242 $ 4,020
</TABLE>
* Unaudited
See accompanying notes.
K-145
<PAGE>
1. Summary of Significant Accounting Policies
Interim Financial Statements
The interim financial information as of March 31, 2000 and for the six months
ended March 31, 2000 is unaudited and reflects all adjustments, consisting of
only normal recurring items, which management considers necessary for a fair
presentation. Also, all information in the footnotes dated subsequent to
September 30, 1999 is unaudited. The results for the interim periods are not
necessarily indicative of the results for the full year.
Principles of Consolidation
The consolidated financial statements include the accounts of Maverick Tube
Corporation and its wholly owned subsidiaries (collectively referred to as the
Company). All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition
The Company records revenue from product sales when the product is shipped from
its facilities.
Inventories
Inventories are principally valued at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost. Depreciation is
computed under the straight-line method over the respective assets' useful
lives. Useful lives of the Company's assets are as follows:
Land and leasehold improvements 10 to 20 years
Buildings 20 to 40 years
Transportation equipment 4 to 5 years
Machinery and equipment 5 to 12 years
Furniture and fixtures 3 to 7 years
Computer software 7 years
Income Taxes
Deferred taxes are provided on an asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and other tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," the Company follows Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its director and employee stock options.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to periodically make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Earnings (Loss) per Common Share
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings per
Share." SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and dilutive earnings per share. Basic earnings
per share exclude any dilutive effects of options. Diluted earnings per share
are very similar to the previously reported fully diluted earnings per share.
All earnings per share amounts have been presented and, where appropriate,
restated to conform to the SFAS No. 128 requirements.
K-146
<PAGE>
1. Summary of Significant Accounting Policies (Continued)
The reconciliation for diluted earnings (loss) per share for years ended
September 30, 1999, 1998 and 1997 is as follows (in thousands):
1999 1998 1997
---------------------------
Average shares outstanding 15,438 15,437 15,018
Dilutive effect of outstanding stock options -- 127 264
---------------------------
Average shares deemed outstanding 15,438 15,564 15,282
===========================
Net income (loss) used in basic and diluted
earnings (loss) per share $(10,449) $11,385 $14,885
===========================
Business Segments
The Company's two identifiable segments are energy products, consisting of Oil
Country Tubular Goods (OCTG) and line pipe products sold primarily to customers
in the energy industry, and industrial products, consisting primarily of
structural tubing, standard pipe and cold drawn tubing products. Energy
products are used in the completion of new wells and the handling and
transporting of the oil and natural gas produced from these wells. Industrial
products are sold to customers in various industries including construction,
agriculture and transportation. The Company's products are sold primarily to a
network of distributors and are sold throughout the United States and Canada.
Sales commission expenses are charged directly to the associated business
segments. Remaining selling, general and administrative expenses are allocated
based upon the net sales dollars generated by each segment.
Cash Equivalents
The Company's policy is to consider demand deposits and short-term investments
with a maturity of three months or less when purchased as cash equivalents.
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts receivable,
accounts payable and long-term debt obligations. The carrying value of amounts
reported in the consolidated balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate a fair value. Management's
estimate of the fair value of long-term debt obligations is discussed in Note 6
to the consolidated financial statements.
Reclassifications
Certain amounts in the 1998 financial statements have been reclassified to
conform with the classifications in the 1999 financial statements with no effect
on previously reported net income or stockholders' equity.
2. Purchase of Equipment and Sale of Stock
On September 3, 1999, the Company entered into an Asset Purchase Agreement to
purchase mill equipment for $11.75 million. This equipment will be used by the
Company in connection with the construction and equipping of a new large
diameter pipe and tubing facility adjacent to its existing facilities in
Hickman, Arkansas. The Company estimates that the total cost for this project
will be $40 million. In September 1999, the Company made a deposit of $2.1
million on the equipment and will be required to fund the remaining $9.65
million of the purchase price on November 10, 1999. The deposit is nonrefundable
if the seller fulfills its obligations under the agreement.
K-147
<PAGE>
The Company funded this project principally through the issuance of 2,300,000
shares of its common stock. The original 2,000,000 shares offered to the public
closed on October 6, 1999. The underwriters' overallotment of 300,000 shares
closed on October 21, 1999. Total proceeds to the Company from the sale, net of
the underwriting discount and other expenses, are expected to be $34.9 million.
3. Start-Up Costs
On September 18, 1998, the Company acquired assets to be used in the production
of cold drawn tubular products at a production facility in Beaver Falls,
Pennsylvania from PMAC, Ltd. for $11,464,000. The Company incurred operating
losses of $3,462,000 in the fiscal year ended September 30, 1999 related to the
operations at this facility which had not reached normal production capacity.
These costs are comprised primarily of salary and related costs for the
production, sales and administrative personnel prior to the fully integrated
operation of the facility. These start-up costs increased the net loss of the
Company for fiscal 1999 by $0.14 per share.
4. Write-Down of Software Developments Costs
During the year ended September 30, 1998, the Company recorded a charge of
$1,605,000 in selling, general and administrative expense for the write-down of
certain software development costs relating to information systems being
replaced by a new enterprise resource planning system.
5. Stock Split
On August 1, 1997, the Company declared a two-for-one stock split effected in
the form of a 100 percent stock dividend to all stockholders of record as of
August 12, 1997. The dividend was paid on August 21, 1997 and increased the
number of shares outstanding from 7,544,071 to 15,088,142. Approximately
$75,000 was transferred from retained earnings to common stock to record this
dividend. All share and per share amounts, including stock option information,
in the accompanying consolidated financial statements have been restated to
reflect this stock dividend.
6. Long-Term Debt and Revolving Credit Facility
Long-term debt and revolving credit facility at September 30, 1999 and 1998
consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31,
2000 1999 1998
<S> <C> <C> <C>
Capital lease obligation, secured by property, plant and equipment (net
book value $9,390,000 at September 30, 1999); payable in monthly
installments (including interest at 8.0%) of $59,479; final payment due on
August 1, 2007 $ 3,572 $ 4,176 $ 4,540
Capital lease obligation, secured by property and plant (net
Book value $6,444,000 at September 30, 1999); interest of
7.5% payable monthly; payable in monthly principal
installments of approximately $20,000 (plus interest)
commencing on March 1, 1996; gradually increasing to
$31,250 by year seven and increasing to $240,417 in year
eight; final payment due on February 1, 2004 3,540 4,050 4,339
===========================================================================================================================
</TABLE>
K-148
<PAGE>
<TABLE>
<S> <C> <C> <C>
Revolving credit notes, secured by all accounts receivable, inventories and
certain equipment; due on September 30, 2003; interest payable monthly at
either prime or the Eurodollar rate, adjusted by an interest margin,
depending upon certain financial measurements (7.36% at September 30, 1999)
44,000 31,000 27,400
51,112 39,226 36,279
Less current maturities (736) (708) (653)
---------------------------------------
$50,376 $38,518 $35,626
===========================================================================================================================
</TABLE>
K-149
<PAGE>
6. Long-Term Debt and Revolving Credit Facility (Continued)
The Company's revolving credit agreement provides for advances up to the lesser
of $50,000,000 or the eligible borrowing base as defined in the facility
agreement. In addition, the Company had an outstanding letter of credit under
this revolving credit agreement of $350,000 at September 30, 1999 (which expires
in September 2000). Additional available borrowings under the credit agreement
at that date were $15,842,000. The agreement includes restrictive covenants
relating to levels of funded debt and other financial measurements and restricts
the amount of dividends that can be paid on common stock. The revolving credit
agreement requires an annual commitment fee based upon certain financial
measurements.
The present value of future minimum lease payments under the capital lease
obligations as of September 30, 1999 is as follows (in thousands):
Present Value of
Total Minimum Minimum Lease
Lease Payments Payments
Interest
-----------------------------------------------
2000 $ 1,320 $ 612 $ 708
2001 1,315 555 760
2002 1,315 493 822
2003 2,711 371 2,340
2004 1,959 215 1,744
Thereafter 2,113 261 1,852
-----------------------------------------------
$10,733 $2,507 $8,226
===============================================
Property, plant and equipment at September 30, 1999 and 1998 include $18,654,000
and $18,295,000, respectively, under leases that have been capitalized.
Accumulated depreciation for these assets was $2,820,000 and $2,307,000 at
September 30, 1999 and 1998, respectively.
The fair value of the Company's long-term debt is based on estimates using
discounted cash flow analyses, based on quoted market prices for similar issues.
The estimated fair value of debt at September 30, 1999 was $39,383,000.
7. Inventories
Inventories at September 30, 1999 and 1998 consist of the following (in
thousands):
March 31,
2000 1999 1998
------------------------------------------
Finished goods $39,810 $29,309 $34,674
Work-in-process 3,496 3,011 2,868
Raw materials 25,577 10,358 12,042
In-transit materials 14,304 6,867 7,003
Storeroom parts 5,938 4,941 5,098
------------------------------------------
$89,125 $54,486 $61,685
==========================================
Finished goods (unaudited) at March 31, 2000, September 30, 1999 and 1998
include $12,766,672, $3,560,000, and $3,538,000 respectively, of customer-
obligated inventory.
K-150
<PAGE>
8. Property, Plant and Equipment
Property, plant and equipment at September 30, 1999 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
March 31,
2000 1999 1998
-----------------------------------
<S> <C> <C> <C>
Land $ 1,488 $ 1,520 $ 1,520
Land and leasehold improvements 1,510 2,015 1,132
Buildings 24,952 24,256 23,392
Transportation equipment 1,497 1,376 1,356
Machinery and equipment 104,117 76,188 70,859
Computer software 8,695 5,252 675
Furniture and fixtures 977 3,033 2,838
-----------------------------------
143,236 113,640 101,772
Less accumulated depreciation (43,226) (39,122) (31,893)
-----------------------------------
$100,010 $ 74,518 $ 69,879
===================================
</TABLE>
9. Income Taxes
The components of the provision (benefit) for income taxes for the years ended
September 30, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
---------------------------
Current:
Federal $(3,399) $4,120 $3,804
State (112) 139 958
Deferred (2,211) 1,161 2,577
---------------------------
$(5,722) $5,420 $7,339
===========================
The difference between the effective income tax rate and the U.S. federal income
tax rate for the years ended September 30, 1999, 1998 and 1997 is explained as
follows (in thousands):
1999 1998 1997
---------------------------
Provision (benefit) at statutory tax rate $(5,660) $5,714 $ 7,845
State and local taxes, net of federal tax benefit (112) 139 958
Alternative minimum tax -- -- (510)
Decrease in valuation allowance -- -- (1,147)
Benefit of foreign sales corporation -- (354) --
Other items 50 (79) 193
---------------------------
$(5,722) $5,420 $ 7,339
===========================
The 1997 decrease in the valuation allowance relates primarily to the
utilization of alternative minimum tax credit carryforwards.
K-151
<PAGE>
9. Income Taxes (Continued)
Temporary differences which give rise to deferred tax assets and liabilities at
September 30, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Deferred tax assets:
Various accrued liabilities and reserves $ 1,835 $ 1,280
Net operating loss carryforwards 4,132 818
Alternative minimum tax carryforwards 2,541 598
Tax benefit associated with the exercise of non-qualified
stock options 13 --
------- -------
Total deferred tax assets 8,521 2,696
Deferred tax liabilities:
Accelerated depreciation 6,777 5,712
Asset valuations 3,198 662
------- -------
Total deferred tax liabilities 9,975 6,374
------- -------
Net deferred tax liabilities $(1,454) $(3,678)
======= =======
</TABLE>
The Company has available net operating loss carryforwards of $2,320,000 at
September 30, 1999 which were acquired in prior years and expire in 2000. In
addition, the Company has $8,611,000 of net operating loss carryforwards which
were generated during fiscal 1999 and expire in 2019. In 2000, all of these net
operating loss carryforwards can be utilized to offset financial statement
earnings after temporary differences. At September 30, 1999, the Company had
alternative minimum tax credit carryforwards of $2,541,000 available for income
tax purposes. These credit carryforwards do not expire.
Realization of the Company's net operating loss carryforwards which expire in
2000 is dependent on generating approximately $3.0 million of taxable income
during fiscal 2000 as a result of normal operations or the adoption of certain
available tax planning strategies. Although realization is not assured,
management believes it is more likely than not that the net deferred tax assets
will be realized.
10. Defined Contribution Plans
The Company sponsors a defined contribution 401(k) plan that is available to
substantially all employees. The plan may be amended or terminated at any time
by the Board of Directors. The Company, although not required to, has provided
matching contributions to the plan for the years ended September 30, 1999, 1998
and 1997 of $691,000, $704,000 and $590,000, respectively.
The Company also began sponsoring two deferred compensation plans covering
officers and key employees in 1996. One plan provides for discretionary
contributions based solely upon the Company's profitability and the individuals'
gross wages. The other plan provides for fixed contributions to certain
officers of the Company. The Company contribution to these plans for the years
ended September 30, 1999, 1998 and 1997 was $60,000, $310,000 and $200,000,
respectively.
11. Segment Information
The following table sets forth data for the years ended September 30, 1999, 1998
and 1997 for the reportable industry segments of energy products and industrial
products. Intersegment sales are not material. Identifiable assets are those
used in the Company's operations in each segment.
K-152
<PAGE>
11. Segment Information (continued)
<TABLE>
<CAPTION>
Energy Industrial
Products Products Corporate Total
-------- ---------- --------- -----
<S> <C> <C> <C> <C>
1999:
Net sales $101,864 $70,553 $ -- $172,417
Operating loss (10,628) (3,682) (1) -- (14,310)
Identifiable assets 93,238 49,392 17,518 160,148
Depreciation and amortization 4,812 2,019 524 7,355
Capital expenditures 2,963 4,233 4,673 11,869
Energy Industrial
Products Products Corporate Total
-------- ---------- --------- -----
<S> <C> <C> <C> <C>
1998:
Net sales $184,824 $80,565 $ -- $265,389
Operating income (loss) 14,680 5,461 (1,605) (2) 18,536
Identifiable assets 99,357 46,095 11,433 156,885
Depreciation and amortization 4,255 1,448 469 6,172
Capital expenditures 7,512 12,186 2,483 22,181
1997:
Net sales $223,879 $67,181 $ -- $291,060
Operating income 17,641 6,650 -- 24,291
Identifiable assets 116,433 34,565 11,066 162,064
Depreciation and amortization 3,760 1,455 482 5,697
Capital expenditures 8,385 363 789 9,537
</TABLE>
(1) During the year ended September 30, 1999, the Company incurred
operating losses of $3,462,000 related to the operations of its
Beaver Falls, Pennsylvania facility which has not reached normal
production capacity.
(2) During the year ended September 30, 1998, the Company recorded a
charge of $1.6 million in selling, general and administrative
expense for the write-down of certain software development costs
relating to information systems being replaced by a new enterprise
resource planning system.
Transactions with two significant energy customers for the years ended September
30, 1999 and 1997 represented approximately 26 percent and 25 percent of total
sales, respectively. Transactions with one significant energy customer for the
year ended September 30, 1998 represented approximately 14 percent of total
sales.
K-153
<PAGE>
12. Operating Leases
The Company rents office facilities and equipment under various operating
leases. Future minimum payments under noncancelable operating leases with
initial or remaining terms in excess of one year are as follows at September 30,
1999 (in thousands):
2000 $ 3,350
2001 2,911
2002 2,105
2003 1,976
2004 2,216
-------
$12,558
=======
Rent expense for all operating leases was $2,715,000, $1,937,000 and $1,222,000
for the years ended September 30, 1999, 1998 and 1997, respectively.
13. Contingencies
Various claims, incidental to the ordinary course of business, are pending
against the Company. In the opinion of management, after consultations with
legal counsel, resolution of these matters is not expected to have a material
effect on the accompanying financial statements.
14. Stock Option Plans
The Company sponsors two employee stock option plans (the "1990 Plan" and the
"1994 Plan") allowing for incentive stock options and non-qualified stock
options. The Company also sponsors a stock option plan for eligible directors
(the "Director Plan") allowing for non-qualified stock options. The 1990 Plan,
1994 Plan and Director Plan provide that 340,000, 1,000,000 and 200,000 shares,
respectively, may be issued under the plans at an option price not less than the
fair market value of the stock at the time the option is granted. The 1990 Plan,
1994 Plan and Director Plan expire in December 2000, November 2004 and November
1999, respectively. The options vest pursuant to the schedule set forth for each
option. In general, the options issued under the Director Plan vest six months
from the date of grant and the options issued under the 1990 and 1994 Plans vest
ratably over periods ranging from three to five years. Effective August 29,
1997, the Compensation Committee of the Board of Directors removed the exercise
restriction with respect to certain options granted in 1995, which made them
immediately exercisable. At September 30, 1999 and 1998, 156,500 and 502,500
shares were available for grant under all of the option plans.
The Company grants stock options for a fixed number of shares to directors and
employees with an exercise price equal to the fair value of the shares at the
time of the grant. Accordingly, the Company has not recognized compensation
expense for any of its stock option grants. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
the grant date as prescribed by SFAS No. 123, net income (loss) and earnings
(loss) per share would have been reduced (or increased) to the pro forma amounts
in the table below. The fair value of the options granted in 1999, 1998 and 1997
was determined to be $1,693,000, $1,101,000 and $67,000, respectively. For the
purposes of these pro forma disclosures, the estimated fair value of the options
is recognized as compensation expense over the options' vesting period.
K-154
<PAGE>
14. Stock Option Plans (Continued)
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Pro Forma
Net income (loss) (in thousands) $(10,972) $10,948 $14,719
Basic earnings (loss) per share $ (.71) $ .71 $ .98
Diluted earnings (loss) per share $ (.71) $ .70 $ .96
</TABLE>
The compensation expense associated with the fair value of the options
calculated in 1999, 1998 and 1997 is not necessarily representative of the
potential effects on reported net income (loss) in future years.
The fair value of the options granted was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for the fiscal years ended September 30, 1999, 1998 and 1997,
respectively: risk-free interest rate of 4.81%, 5.57% and 5.53%; no dividend
payments expected; volatility factors of the expected market price of the
Company's common stock of 0.613, 0.555 and 0.478; and a weighted average
expected life of the options of 8.4 years, 7.2 years and 1.0 year.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
The following table summarizes option activity and related information for years
ended September 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted Weighted
Shares Under Average Average
Option Exercise Price Fair Value
------------ -------------- ----------
<S> <C> <C> <C>
Options outstanding at
October 1, 1996 872,000 $ 5.39
Options exercised (466,832) 5.33
Options expired (3,000) 5.92
Options granted 37,500 8.50 $ 1.80
-------
Options outstanding at
September 30, 1997 439,668 5.71
Options exercised (26,500) 6.13
Options expired (60,000) 5.31
Options granted 125,000 15.11 $ 8.80
-------
Options outstanding at
September 30, 1998 478,168 8.20
Options expired (5,000) 7.13
Options exercised (3,000) 6.46
Options granted 351,500 6.96 $ 4.82
-------
Options outstanding at
September 30, 1999 821,668 $ 7.68
======= ======
</TABLE>
K-155
<PAGE>
Stock Option Plans (Continued)
The following table summarizes information about fixed stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------
Range of Weighted Average Weighted Weighted
Exercise Remaining Average Average
Prices Options Contractual Life Exercise Price Options Exercise Price
-------- ------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$4.00 to $5.88 167,000 5.1 years $ 4.58 57,000 $ 5.70
$5.92 to $8.50 529,668 6.1 6.90 228,168 $ 6.61
$11.38 to $21.75 125,000 7.2 15.11 45,000 $21.75
----------------------------------------------------------------------------------------------------
$4.00 to $21.75 821,668 5.9 7.68 330,168 $ 8.51
====================================================================================================
</TABLE>
15. Shareholder Rights Plan
In July 1998, the Company's Board of Directors adopted a common stock
shareholder rights plan ("Right") which entitles each shareholder of record to
receive a dividend distribution of common stock upon the occurrence of certain
events. The Right becomes exercisable the day that a public announcement is made
that a person or group of affiliated or associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of common stock, or the tenth day following the commencement
of a tender offer or exchange offer that would result in a person or a group
becoming the beneficial owners of 20% or more of such outstanding share of
common stock. When exercisable, each Right entitles the holder to purchase $100
worth of the Company's common stock for $50. Until a Right is exercised or
exchanged, the holder thereof will have no rights as a shareholder of the
Company, including, without limitation, the right to receive dividends. The
Right is subject to redemption by the Company's Board of Directors for $.01 per
Right at any time prior to the date which a person or group acquires beneficial
ownership of 20% or more of the Company's common stock or subsequent thereto at
the option of the Board of Directors. The Rights expire July 23, 2008.
16. Quarterly Financial Data (Unaudited)
The results of operations by quarter for 1999 and 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
1998 1999 1999 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
----
Net sales $ 41,388 $ 34,126 $ 42,896 $ 54,007
Gross profit (loss) 745 (1) (854) 473 2,491
Net loss (2,364) (2) (3,688) (2) (2,637) (2) (1,760) (2)
Basic and diluted loss per share (.15) (2) (.24) (2) (.17) (2) (.11) (2)
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
1997 1998 1998 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
----
Net sales $ 86,479 $ 70,548 $ 56,590 $ 51,773
Gross profit 13,774 10,329 5,671 3,578
Net income (loss) 6,570 4,707 1,330 (1,221) (3)
Basic earnings (loss) per share
.43 .30 .09 (.08) (3)
Diluted earnings (loss) per share
.42 .30 .09 (.08) (3)
</TABLE>
(1) Gross profit for the three months ended December 31, 1998 includes a
$707,000 ($451,000 after tax effect or $.03 per share) charge to earnings for
the reduction in carrying value of finished goods inventory, primarily related
to a decline in the selling prices of the Company's energy products.
(2) Net loss for the quarters ended December 31, 1998, March 31, 1999, June
30, 1999 and September 30, 1999 included charges for the start-up of the cold
drawn tubular production facility of $719,000, $952,000, $825,000 and
$966,000, respectively ($460,000, $609,000, $528,000 and $618,000 after tax
effect or $0.03, $0.04, $0.03 and $0.04 per share, respectively).
K-156
<PAGE>
(3) During the quarter ended September 30, 1998, the Company recorded a pretax
charge of $1.6 million ($1.1 million after tax effect or $.07 per share ) in
selling, general and administrative expense for the write-down of certain
software development costs relating to information systems being replaced by a
new enterprise resource planning system.
17. Subsequent Events (Unaudited)
On June 11, 2000, Maverick Tube Corporation ("Maverick") and Prudential
Steel Ltd. ("Prudential") entered into a definitive Combination Agreement
providing for the combination of Prudential with Maverick. The combination is
expected to be accounted for as a pooling of interest. The transaction is
subject to the approval of the stockholders of each of Maverick and Prudential
and by the Alberta courts, as well as customary closing conditions, including
regulatory and governmental approval in the U.S. and Canada.
Under the proposed transaction, Prudential shareholders will receive
exchangeable shares for each of their Prudential common shares. Each
exchangeable share will have the economic and voting rights equivalent to one
share of Maverick common stock. The exchangeable shares will be exchangeable at
any time, at the holder's option, for shares of Maverick common stock on a one-
for-one basis.
K-157
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Our products include Electric Resistance Welded (ERW) Oil Country Tubular
Goods (OCTG) and line pipe, which are sold primarily to distributors who supply
end users in the energy industry. We also make structural tubing and standard
pipe, which are sold primarily to service centers who supply end users in
construction, transportation, agriculture and other industrial enterprises.
During the first quarter of fiscal 1999, we began the production of cold drawn
tubing products for industrial applications.
Energy Products. Demand for our energy related products depends primarily
upon the number of oil and natural gas wells being drilled, completed and worked
over in the United States and Canada and the depth and drilling conditions of
these wells. The levels of these activities are primarily dependent on oil and
natural gas prices. Domestic end-users obtain oil country tubular goods from
domestic and foreign pipe producers and draw-downs of their or distributors'
inventories. According to published industry reports, domestic drilling activity
remained relatively constant from fiscal 1997 to fiscal 1998 averaging
approximately 900 rigs over those two years. However, average U.S. drilling
declined by 33.3% from fiscal 1998 to fiscal 1999, averaging approximately 602
rigs, with gas-related drilling declining by 22.3% and oil-related drilling
declining by 55.6%. For the six months ended March 31, 2000, average U.S.
drilling increased by 28.4%, with gas-related drilling increasing 32.2% and oil-
related drilling remaining relatively constant. Average energy prices decreased
during fiscal 1999, with natural gas decreasing 8.8% and oil decreasing 3.4%.
The decreases in energy prices seen throughout the year had a negative effect on
drilling levels in fiscal 1999. At the end of fiscal 1998, drilling was at 754
rigs, down 24.4% from its fiscal 1997 year-end level of 998 rigs, and continued
to decline to 488 rigs by April 1999. Drilling activity during the last half of
1999 increased substantially from its April low to close the fiscal year at 730
rigs, down by only 3.2% from fiscal 1998 year-end levels. For the six months
ended March 31, 2000, natural gas prices increased 20.9% and oil prices
increased 62.5% from the average prices at the end of fiscal 1999.
The following table illustrates certain factors related to industry-wide
domestic drilling activity, domestic energy prices, domestic oil country
tubular goods consumption, shipments, imports and inventories for the periods
presented:
<TABLE>
<CAPTION>
Six Months Fiscal Year
ended March 31, ended September 30,
2000 1999 1999 1998 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
U.S. drilling activity:
Average rig count 773 623 602 903 905
Average U.S. energy prices:
Oil per barrel (West Texas
Intermediate) $26.59 $13.09 $16.36 $16.94 $21.94
Natural gas per MCF
(Average U.S.) $ 2.49 $ 1.80 $ 2.06 $ 2.26 $ 2.47
U.S. oil country tubular goods consumption
(in thousands of tons):
U.S. producer shipments 847 283 661 1,548 2,021
Imports 187 74 134 402 360
Inventory (increase)/decrease (125) 219 370 (66) (299)
Used pipe 65 72 158 139 187
Total U.S. consumption 974 648 1,323 2,023 2,269
</TABLE>
K-158
<PAGE>
The rig count in the table is based on weekly rig count reporting from
Baker Hughes, Inc. Energy prices in the table are monthly average period prices
as reported by Spears and Associates for West Texas Intermediate grade crude oil
and the average U.S. monthly natural gas cash price as reported by Natural Gas
Week. Imports are as reported by Duane Murphy and Associates in "The OCTG
Situation Report." Inventory (increase)/decrease are our estimates based upon
independent research by Duane Murphy and Associates. Used pipe quantities are
calculated by multiplying 8.3 recoverable tubing and casing tons by the number
of abandoned oil and gas wells. U.S. consumption of OCTG are management
estimates based on estimated per rig consumption of OCTG multiplied by the Baker
Hughes rig count. U.S. producer shipments are our estimates calculated based on
the components listed above.
Imports decreased during fiscal 1999 from a 19.9% market share in 1998 to
10.1% market share in fiscal 1999. However, imports increased to a 19.2% market
share for the six months ended March 31, 2000. During fiscal 1998, industry
inventory increases resulted in an estimated additional demand of 3.3% of total
U.S. oil country tubular goods consumption. During fiscal 1999, industry
inventory decreases adversely affected U.S. producer shipments by satisfying an
estimated 28.0% of consumption. During the six months ended March 31, 2000,
industry inventory increases resulted in an estimated additional demand of
12.8%. Management believes that at March 31, 2000, industry inventories were at
or below normal levels in relation to demand, as inventory months of supply
decreased 3.7% from 5.4 months at fiscal year-end 1999 to 5.2 months at March
31, 2000.
As a result of declining drilling activity and a substantial decline in
industry inventories, partially offset by decreased imports, we estimate that
total U.S. producer shipments declined by 57.3% as compared to the fiscal year
ended September 30, 1998. During that same period, our shipments of U.S. OCTG
were down 32.8% and our export sales, primarily to Canada declined by 22.9%.
However, we estimate that our domestic OCTG market share increased to 22% during
fiscal 1999 from 14% during fiscal 1998.
During the six months ended March 31, 2000, as a result of increased
drilling activity, we estimate that total U.S. producer shipments increased
199.3% compared to the six months ended March 31, 1999. During that same period,
our domestic shipments of OCTG increased 139.7% and our export sales, primarily
to Canada, increased 378.9%. We estimate that our domestic OCTG market share
decreased to approximately 17% during the six months ended March 31, 2000 from
approximately 21% during the comparable period in 1999.
Published information suggests that demand for line pipe was also down
during fiscal 1999 by an estimated 3.7%. However, domestic shipments rose by
7.4% as the import market share fell from 41.6% to 34.8%. For the six months
ended March 31, 2000 as compared to the same period for 1999, demand was down
3.6%. However, during this time period, domestic shipments rose by 13.2% as the
import market share fell from 43.0% to 33.0%.
Industrial products. Given the numerous applications for our industrial
products, sources of demand for such products are diversified. Such demand
generally depends on the general level of economic activity in the construction,
transportation, agricultural, material handling and recreational segments, the
use of structural tubing as a substitute for other structural steel forms, such
as I-beams and H-beams, and draw-downs of existing customer inventories.
We estimate that demand for structural tube products (commonly referred to
a hollow structural sections or HSS) of the type we produced declined by 2.1% in
fiscal 1999 as compared to fiscal 1998 and total U.S. producer shipment declined
by 3.0% as import market share increased slightly. For the six months ended
March 31, 2000 as compared to the same period in 1999, we estimate the demand
increased 8.1% and total U.S. producer shipments increased 10.9% as the import
penetration fell to 21.7% from 23.7%. According to published reports, the
standard pipe market demand decreased 10.3% in fiscal 1999, while total domestic
producer shipments declined by 15.7% as the import market share increased from
K-159
<PAGE>
28.4% to 32.6%. For the six months ended March 31, 2000 as compared to the same
period in 1999, standard pipe demand rose 3.5%, while total domestic producer
shipments decreased 8.4% as the import market share increased from 30.1% to
38.2%.
General. Pricing of our products was down during fiscal 1999 compared to
fiscal 1998. Average pricing of our OCTG, line, structural and standard product
pricing decreased by 19.9%, 19.7%, 10.2% and 12.2%, respectively. Energy product
pricing was down due to the decrease in drilling activity. Structural and
standard pricing was down primarily due to declining steel prices during most of
the year. During the six months ended March 31, 2000, pricing of our products
was mixed over our product lines, with oil country tubular goods down 5.2%, line
pipe up 10.4%, standard pipe up 4.9%, structural tubing down 0.8% and cold drawn
tubing down by 15.5% Energy product pricing was down due to a change in mix to
lower priced products.
Steel costs included in cost of goods sold decreased during fiscal
1999 by $42 per ton, or 13.0%, from $321 per ton to $279 per ton. However, steel
costs included in cost of goods sold for the six months ended March 31, 2000
increased $20 per ton, or 7.2%, from $279 per ton to $299 per ton. Our major
supplier of steel announced three price decreases from mid-September 1998 to
November 1998, reducing our replacement cost of steel by $50 per ton. These
price reductions were reflected in our cost of goods sold in the second, third
and fourth quarters of fiscal 1999. The current replacement cost of steel is
approximately 8% higher than the cost recorded in cost of goods sold during the
six months ended March 31, 2000 due to recent price increases implemented by our
major supplier of steel. However, we believe there is a potential for
stabilization of the current steel prices based upon world market conditions.
The supply of steel in the United States increased significantly
during calendar 1998, primarily due to previous capacity additions and increased
import levels. These market conditions kept steel costs relatively low during
1999. However, steel trade cases filed with the International Trade Commission
by U.S. steel producers against foreign steel producers in September, 1998 have
been a contributing factor to the recent steel cost increases and could have an
additional adverse impact on our future replacement cost of steel. As a result
of these factors, anticipated future steel price increases may impact our
product margins.
The OCTG market conditions described above impacted our operations and our
competitors significantly during 1999, as sales were substantially reduced
throughout the year due to the rapid fall in oil prices and the resulting
significant decrease in drilling activity. Consequently, industry-wide inventory
levels were excessive and the impact of these industry draw-downs sharply
reduced domestic shipments. As our recent experience indicates, oil and natural
gas prices are volatile and can have a substantial effect upon drilling levels
and resulting demand for our energy related products. Uncertainty also exists as
to the future demand and pricing for HSS and other industrial related products.
Although drilling activity has been recovering from the recently depressed
levels, no assurance can be given regarding the timing and extent of such
recovery.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, information
relating to our operations expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Six months
Ended March 31 Year ended September 30,
-------------- -----------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................................... 95.2 100.1 98.3 87.4 86.9
Gross profit............................................ 4.8 (.1) 1.7 12.6 13.1
</TABLE>
K-160
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Selling, general and administrative..................... 5.6 9.1 8.0 5.6 4.8
Start up costs.......................................... - 2.3 2.0 - -
Income (loss) from operations........................... (.8) (11.5) (8.3) 7.0 8.3
Interest expense, net................................... .5 1.0 1.1 .7 .7
Income (loss) before income taxes....................... (1.3) (12.5) (9.4) 6.3 7.6
Provision (credit) for income taxes..................... (.5) (4.5) (3.3) 2.0 2.5
Net income (loss)....................................... (.8) (8.0) (6.1) 4.3 5.1
</TABLE>
Six Months Ended March 31, 2000 Compared to Six Months Ended March 31, 1999
Overall Company. Net sales of $140.9 million during the six months ended
March 31, 2000, increased $65.4 million or 86.5%, compared to the prior year
period. These results were primarily attributable to an increase of 76.4% in
total product shipments, from 145,102 tons in the first six months of fiscal
1999 to 255,930 tons in the current year, and an overall increase of 5.8% in the
average selling prices of our products.
Cost of goods sold of $134.0 million increased $58.4 million, or 77.3%,
during the six months ended March 31, 2000, compared to the same period of the
previous year. The overall increase was due primarily to increased product
shipments.
The gross profit of $6.8 million during the six months ended March 31,
2000, compared to a gross loss of $109,000 during the six months ended March 31,
1999. The gross profit, as a percentage of net sales, was 4.8% for the six
month period ended March 31, 2000, compared to a gross loss, as a percentage of
net sales, of 0.1% for the prior year period. The change in the gross profit
for the six month period ended March 31, 2000 was due to the factors affecting
net sales and cost of goods sold discussed above.
Selling, general and administrative expenses increased $1.2 million, or
17.1%, in the first six months of fiscal 2000 over the prior year period.
Selling, general and administrative expenses were primarily impacted by
additional depreciation on our new enterprise resource planning system and
general wage increases effective at of the beginning of the fiscal year.
Selling, general and administrative expenses as a percentage of net sales in the
first six months of fiscal 2000 were 5.8%, compared to 9.2% for the prior year
periods.
During September 1998, we acquired assets that are being utilized in the
production of cold drawn tubular products at a facility in Beaver Falls,
Pennsylvania. We incurred net costs of $1.7 million during the first six months
of fiscal 1999 related to the commencement of operations at this facility.
These costs were comprised of salary and related costs for the production, sales
and administrative personnel prior to the fully integrated operation of the
facility. These start-up costs were included in the industrial products segment
operating loss for the six month period ended March 31, 1999.
Interest expense decreased $125,000, or 15.8%, in the first six months of
fiscal 2000 over the prior year period. This was due to a lower average
borrowing base during the first quarter and the capitalization of interest for
the large mill facility. Our long-term debt to capitalization ratio decreased
from 33.0% at September 30, 1999 to 31.3% at March 31, 2000, primarily due to
the sale of 2.3 million shares of common stock in October 1999, which increased
stockholders' equity by $35.1 million.
The benefit from income taxes decreased $2.7 million, from $3.4 million in
the first six months of fiscal 1999 to $644,000 in the first six months of
fiscal 2000, as a result of the reduced pre-tax loss.
K-161
<PAGE>
As a result of the increased gross profit and the other factors discussed
above, we generated a net loss of $1.1 million for the first six months of
fiscal 2000, a decrease of $4.9 million from the comparable prior year period.
Energy Products Segment. Energy product sales of $98.6 million increased
$56.9 million, or 136.4%, for the first six months of fiscal 2000, compared to
the prior year period. Energy product shipments increased 98,515 tons, or
139.0%, from 70,883 tons to 169,398 tons. Our domestic shipments of OCTG
increased by 139.7% from the six month period ended March 31, 1999 due to the
rig count increasing from 623 active rigs to 773 active rigs. The Company's
export shipments, primarily to Canada, increased 378.9%, from 4,129 tons for the
six months ended March 31, 1999 to 19,775 tons for the six months ended March
31, 2000, as the average level of Canadian drilling rose 65.4% from 243 active
rigs to 402 active rigs. Management believes that the increase in shipments to
Canada reflects current and anticipated drilling activity arising from the
improved oil and natural gas price environment. Line pipe shipments increased
21.9% for the six month period ended March 31 of fiscal 2000 over the prior year
period. The average net selling price for energy products was $582 per ton, a
decrease of $6 per ton, or 1%, compared to the six month period ended March 31,
1999. These increases are primarily due to improved market conditions and a
change in mix to higher priced products. See "Overview."
Energy products cost of goods sold of $92.1 million increased $47.4
million, or 106.0% for the first six months of fiscal 2000, compared with the
prior year period. The gross profit for energy products of $6.4 million for the
six month period ended March 31, 2000 compares to a gross loss of $3.0 million
for the six month period ended March 31, 1999. Energy products gross profit
percentage was 6.5% for the first six months of fiscal 2000, compared to a gross
loss margin percentage of 7.3% for the prior year period.
Industrial Products Segment. The industrial products segment gross profit
margin as of March 31, 2000 includes the results of operations of our cold drawn
tubing facility, which were previously categorized as start-up costs.
Industrial products sales of $42.3 million increased $8.5 million, or 25.1%, for
the first six months of fiscal 2000, compared with the prior year period.
Industrial product shipments increased 12,313 tons, or 16.6%, from 74,219 tons
to 86,532 tons (including 5,982 tons of cold drawn tubing sales). The average
selling price for industrial products for the six months ended March 31,2000 was
$489, an increase of $33 per ton from the prior year. This increase was due to
a selling price increase during the second quarter on structural and standard
pipe and the addition of cold drawn tubing sales, which have a substantially
higher selling price per ton ($1,111 per ton).
Cost of goods sold of $41.9 million increased $11.0 million, or 35.8%, for
the first six months of fiscal 2000, compared with the prior year period. Gross
profit for industrial products of $383,000 for the six months ended March 31,
2000 compares to a gross profit of $2.9 million for the prior year period. The
decreased gross profits were due to the inclusion of our cold drawn tubing
losses of $1.7 million, increased steel prices and higher conversion costs.
Industrial products gross profit percentage was 0.9% for the first six months of
fiscal 2000, compared to 8.7% for the first six months of fiscal 1999.
Fiscal Year 1999 Compared to Fiscal Year 1998
Overall Company. In fiscal 1999, net sales decreased $93.0 million, or
35.0%, from $265.4 million in fiscal 1998 to $172.4 million in fiscal 1999.
These results were attributable primarily to a decrease of 21.1% in total
product shipments, from 428,216 tons in fiscal 1998 to 337,959 tons in fiscal
1999. Overall average net selling prices decreased during fiscal 1999 by 17.7%,
from an average of $620 per ton to $510 per ton.
Cost of goods sold decreased $62.5 million, or 26.9%, from $232.0 million
in fiscal 1998 to $169.5 million in fiscal 1999. The overall decrease was due
primarily to decreased product shipments. However, the overall unit cost per
ton of products sold decreased 7.4% (from an average of $542 per ton to $502 per
ton) in fiscal 1999. The decrease was due primarily to a decrease in steel
costs. Steel cost of
K-162
<PAGE>
goods sold decreased 13.0%, or $42 per ton during fiscal 1999. See "Overview."
Overall conversion costs remained relatively stable during fiscal 1999.
Gross profit decreased $30.5 million, or 91.4%, from $33.4 million in
fiscal 1998 to $2.9 million in fiscal 1999. Gross profit as a percentage of net
sales was 1.7% for fiscal 1999, as compared to 12.6% for fiscal 1998. The
change in the gross profit is due to the factors discussed above.
Selling, general and administrative expenses decreased $1.1 million or
7.5%, from $14.8 million in fiscal 1998 to $13.7 million in fiscal 1999. These
expenses decreased principally as a result of the write-down of software
development costs of $1.6 million in fiscal 1998. These costs were also reduced
by lower sales commissions on industrial products sales, partially offset by an
increase in bad debt expense (which reflects the deterioration of a specific
accounts receivable balance) and normal wage increases. Selling, general and
administrative expenses as a percentage of net sales increased from 5.6% in
fiscal 1998 to 8.0% in fiscal 1999 due primarily to the decreased sales level.
During September 1998, we acquired assets that are being utilized in the
production of cold drawn tubular products at a facility in Beaver Falls,
Pennsylvania. We incurred operating losses of $3.5 million in fiscal 1999
related to the operations at this facility which had not reached normal
production capacity. These costs are comprised primarily of salary and related
costs for the production, sales and administrative personnel prior to the fully
integrated operation of the facility. These start-up costs increased our net
loss by $0.14 per diluted share for fiscal 1999.
Interest expense increased $130,000, or 7.5%, from $1.7 million in fiscal
1998 to $1.9 million in fiscal 1999 as a result of increased interest rates.
The increased interest rates were primarily due to revisions to our Revolving
Credit Facility to reflect our operating results, largely attributable to the
effects of the unfavorable energy market, and to provide additional availability
in the borrowing base.
The benefit from income taxes was $5.7 million for fiscal 1999, compared to
the prior year when we recorded a provision of $5.4 million. This change is
attributable to the generation of pre-tax losses of $16.2 million in fiscal
1999, compared to pre-tax income in fiscal 1998 of $16.8 million.
At September 30, 1999, we had available net operating loss carryforwards of
$2,320,000 which were acquired in prior years and expire in 2000. In addition,
we had $8,611,000 of net operating loss carryforwards which were generated
during fiscal 1999 and expire in 2019. All of these net operating loss
carryforwards can be utilized in fiscal 2000 to offset financial statement
earnings after temporary differences. At September 30, 1999, we had alternative
minimum tax credit carryforwards of $2,541,000 available for income tax
purposes. See Note 9 of the Notes to the Consolidated Financial Statements.
Realization of our net operating loss carryforwards which expire in 2000 is
dependent on generating approximately $3.0 million of taxable income from normal
operations during fiscal 2000, or the adoption of certain available tax planning
strategies. Although realization is not assured, we believe it is more likely
than not that the net deferred tax assets will be realized.
As a result of the decreased gross profit and the other factors discussed
above, we generated a net loss of $10.4 million, or $0.68 diluted loss per
share, a decrease of $21.8 million from the $11.4 million, or $0.73 diluted
earnings per share reported for fiscal 1998.
Energy Products Segment. Energy product sales decreased $82.9 million, or
44.9%, from $184.8 million in fiscal 1998 to $101.9 million in fiscal 1999.
OCTG product shipments decreased 76,946 tons, or 31.8%, from 242,146 tons to
165,200 tons. Our domestic shipments of OCTG fell by 32.8% due to a declining
rig count throughout the fiscal year and inventory draw-downs by our customers.
Our export sales, primarily to Canada, decreased by 22.9%, from 25,866 tons in
fiscal 1998 to 19,931 tons in fiscal 1999, as the average Canadian rig count
fell 34.4% from 323 rigs to 212 rigs. Line pipe shipments
K-163
<PAGE>
decreased by 6.3%. The average selling price for energy products was $551 per
ton, a decrease of $151 per ton. The decrease was principally due to the
deterioration in the energy market throughout fiscal 1999.
Energy products costs of goods sold decreased $57.2 million, or 35.3%, from
$162.1 million in fiscal 1998 to $104.9 million in fiscal 1999. Gross profit
for energy products decreased approximately $25.8 million, from $22.8 million of
gross profit in fiscal 1998 to $3.0 million of gross loss in fiscal 1999.
Energy products gross loss percentage was 3.0% compared to a gross profit
percentage of 12.3% in fiscal 1998.
Industrial Products Segment. Industrial products sales decreased $10.0
million, or 12.4%, from $80.6 million in fiscal 1998 to $70.6 million in fiscal
1999. Industrial products shipments decreased 7.3% from 164,973 tons in fiscal
1998 to 153,001 in fiscal 1999. The average selling price of industrial
products was $461 per ton, a decrease of $27 per ton. This decrease was
principally due to decreasing steel prices in the first six months of fiscal
1999.
Industrial products costs of goods sold decreased $5.3 million, or 7.6%,
from $70.0 million in fiscal 1998 to $64.6 million in fiscal 1999. Industrial
products gross profit decreased $4.7 million, or 44.1%, from $10.6 million in
fiscal 1998 to $5.9 million in fiscal 1999. Gross profit as a percentage of net
sales was 8.4% for fiscal 1999, as compared to 13.1% for fiscal 1998. The
decreased gross profit was primarily attributable to the reduction in selling
prices.
Fiscal Year 1998 Compared to Fiscal Year 1997
Overall Company. In fiscal 1998, net sales decreased $25.7 million, or
8.8%, from $291.1 million in fiscal 1997 to $265.4 million in fiscal 1998.
These results were attributable primarily to a decrease of 8.9% in total product
shipments, from 469,958 tons in fiscal 1997 to 428,216 tons in fiscal 1998.
Overall average net selling prices remained relatively constant during fiscal
1998.
Cost of goods sold decreased $20.8 million, or 8.2%, from $252.8 million in
fiscal 1997 to $232.0 million in fiscal 1998. The overall decrease was due
primarily to decreased product shipments. However, the overall unit cost per ton
of products sold increased 0.7% (from an average of $538 per ton to $542 per
ton) in fiscal 1998. This increase was due primarily to an increase in
conversion costs from a higher cost product mix and less favorable fixed cost
absorption due to lower production. The increase in conversion costs was mostly
offset by a decrease in steel costs by $18 per ton, or 5.3% in fiscal 1998.
Gross profit decreased $4.9 million, or 12.8%, from $38.3 million in fiscal
1997 to $33.4 million in fiscal 1998. Gross profit as a percentage of net sales
was 12.6% for fiscal 1998, as compared to 13.1% for fiscal 1997.
Selling, general and administrative expenses increased $849,000, or 6.1%,
from $14.0 million in fiscal 1997 to $14.8 million in fiscal 1998. These
expenses increased principally as a result of the write-down of software
development costs of $1.6 million in fiscal 1998. These costs were also
increased by higher sales commissions on industrial products sales and partially
offset by decreased employee incentive compensation and decreased selling
expenses related to lower energy sales volumes. Selling, general and
administrative expenses as a percentage of net sales increased from 4.8% in
fiscal 1997 to 5.6% in fiscal 1998.
Interest expense decreased $336,000, or 16.3%, from $2.1 million in fiscal
1997 to $1.7 million in fiscal 1998 as a result of decreased average borrowings,
decreased interest rates and additional amounts of interest expense capitalized
on additions to property, plant and equipment. The decreased borrowings were
primarily the result of principal repayments from funds generated from
operations.
K-164
<PAGE>
The provision for income taxes decreased $1.9 million from $7.3 million in
fiscal 1997 to $5.4 million in fiscal 1998 as a result of the reduced level of
income before income taxes recorded in fiscal 1998.
As a result of the foregoing factors, net income decreased $3.5 million
from net income of $14.9 million, or $0.97 diluted earnings per share, in fiscal
1997 to net income of $11.4 million, or $0.73 diluted earnings per share, in
fiscal 1998.
Energy Products Segment. Energy product sales decreased $39.0 million, or
17.4%, from $223.9 million in fiscal 1997 to $184.8 million in fiscal 1998. OCTG
product shipments decreased 66,282 tons, or 21.5%, from 308,428 tons to 242,146
tons. Our domestic shipments of OCTG fell 14.7% due to excessive levels of
industry inventory and a declining rig count throughout the fiscal year. Our
export sales, primarily to Canada, decreased by 37.1%, from 41,092 tons in
fiscal 1997 to 25,866 tons in fiscal 1998, as Canadian drilling activity fell
from 392 rigs at the end of fiscal 1997 to 161 at the end of fiscal 1998. Line
pipe shipments decreased by 20.4% principally due to increased import
penetration. The average net selling price for energy products was $702 per ton,
an increase of $34 per ton. The increase was principally due to higher product
pricing early in the year and an improved mix of higher value products.
Energy products cost of goods sold decreased $30.6 million, or 15.9%, from
$192.7 million in fiscal 1997 to $162.1 million in fiscal 1998. Gross profit for
energy products decreased approximately $8.4 million or 27.0%, from $31.2
million in fiscal 1997 to $22.8 million in fiscal 1998. Energy products gross
profit percentage was 12.3%, compared to 13.9% in fiscal 1997.
Industrial Products Segment. Industrial products sales increased $13.4
million, or 19.9%, from $67.2 million in fiscal 1997 to $80.6 million in fiscal
1998. Industrial products shipments increased 22.2%, from 135,029 tons in fiscal
1997 to 164,973 tons in fiscal 1998. The average net selling price of industrial
products was $488 per ton, a decrease of $10 per ton from the prior year. This
decrease was principally due to the decline in standard pipe pricing caused by
an increase in imports.
Industrial products costs of goods sold increased $9.8 million, or 16.3%,
from $60.1 million in fiscal 1997 to $69.9 million in fiscal 1998. Industrial
products gross profit increased $3.5 million, or 49.9% from $7.1 million in
fiscal 1997 to $10.6 million in fiscal 1998. The improved gross profit was
primarily attributable to declining steel costs and improved operating
efficiencies during fiscal 1998, partially offset by slightly lower selling
prices. Industrial products gross profit percentage was 13.1%, compared to
10.5% in fiscal 1997.
Liquidity and Capital Resources
Working capital at March 31, 2000 was $67.2 million and the ratio of
current assets to current liabilities was 2.2 to 1.0, compared to September 30,
1999 when working capital was $44.3 million and the ratio of current assets to
current liabilities was 2.1 to 1.0. The increase in working capital for the six
month period ended March 31, 2000 was principally due to a $34.6 million
increase in inventory and a $9.6 million increase in accounts receivable,
partially offset by a $9.7 million increase in deferred revenue, a $7.0 million
increase in accounts payable and a $5.3 million increase in prepaid expenses and
other assets. The above changes were primarily due to the increased energy
business volume and purchasing of steel in advance to lessen the effect of
announced price increases. Cash used by operating activities was $19.1 million
for the six month period ended March 31, 2000. The primary use of cash was the
above described changes in operating assets and liabilities, which offset the
net cash provided of $3.0 million (excluding depreciation and amortization of
$4.2 million).
K-165
<PAGE>
Cash used in investing activities was $29.6 million, primarily for the
purchases of equipment of $3.1 million, completion of and enhancements to our
new enterprise resource planning system of $1.7 million and the construction and
equipping of our new large diameter pipe and tubing facility of $24.8 million.
Cash provided by financing activities was $48.2 million for the six month
period ended March 31, 2000. Outstanding borrowings on our Revolving Credit
Facility increased $13.0 million, primarily due to the construction and
equipping of our new large diameter pipe and tubing facility and the increased
steel inventories. Other long-term indebtedness, including current maturities,
was reduced by approximately $378,000.
Our capital budget for fiscal 2000 is $49.0 million, of which $29.6 million
was expended during the six month period ended March 31, 2000. The capital
budget includes $40.0 million for the construction and equipping of a new large
diameter pipe and tubing facility which is being constructed adjacent to our
existing facilities in Hickman, Arkansas. We are funding this project
principally through the proceeds of our public offering of 2.3 million shares of
common stock completed in October 1999. Total proceeds from the sale, net of
underwriting discount and other expenses were $35.1 million. The remaining $9
million of our capital expenditure budget will be used to acquire new equipment
for our existing manufacturing facilities and to enhance our new enterprise
resource planning system. As of March 31, 2000, we had an additional $15.4
million committed for the purchase of equipment. We expect to meet our ongoing
working capital and capital expenditure requirements from a combination of cash
flows from operating activities and available borrowings under our Revolving
Credit Facility, all of which constitute our primary source of liquidity.
During March 2000, we amended our Revolving Credit Facility to increase the
maximum borrowings up to the lesser of the eligible borrowing base or $57
million. The $7.0 million overline is available until June 30, 2000. The
Revolving Credit Facility bears interest at either the prevailing prime rate or
an adjusted Eurodollar rate, plus an interest margin, depending upon certain
financial measurements. The Revolving Credit Facility is secured by the
Company's accounts receivable, inventories and equipment and will expire on
September 30, 2003. As of March 31, 2000, the applicable interest rate on this
Credit Facility was 8.1 percent per annum and we had $12.6 million in additional
available borrowings. As of March 31, 2000, we had $1.1 million in cash and
cash equivalents
K-166
<PAGE>
PROXY PROXY
MAVERICK TUBE CORPORATION
This Proxy is Solicited By the Board of Directors
For the Special Meeting of Stockholders-- , 2000
The undersigned hereby appoints GREGG M. EISENBERG and BARRY R. PEARL, and
each of them the true and lawful attorneys-in-fact, agents and proxies of the
undersigned, with full power of substitution, to vote on behalf of the
undersigned all of the shares of stock of MAVERICK TUBE CORPORATION
("Maverick") that the undersigned is entitled to vote at the Special Meeting of
Stockholders of Maverick to be held at ,
, St. Louis, Missouri at , Central time on
, , 2000, and at all adjournments thereof, hereby revoking any
proxy heretofore given with respect to such stock, and the undersigned
authorizes and instructs said proxies to vote as follows:
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
MAVERICK TUBE CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. Proposal to approve the issuance of Maverick's common stock, par value $0.01
per share, in connection with the combination of Maverick and Prudential
Steel Ltd.
For Against Abstain
[_] [_] [_]
2. Proposal to approve the amendment to Maverick's Amended and Restated
Certificate of Incorporation, as amended, to increase the number of
authorized shares of Maverick's common stock from 40,000,000 to 80,000,000.
For Against Abstain
[_] [_] [_]
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting and all adjournments
thereof.
Dated:
----------------------------------------- , -----------
Signature(s)
-------------------------------------------------------------------
-------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE STOCKHOLDER(S) SIGNING SAME. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2.
Please sign exactly as name appears on this Proxy Card. When shares are held
by joint tenants both should sign. When signing as attorney-in-fact, personal
representative, trustee or guardian, please give full title as such. If a cor-
poration, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by an authorized
person.
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
. FOLD AND DETACH HERE .
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE
