PROSPECTUS
Filed pursuant to Rule 424(b)(3) of the Securities Act of 1933.
5,865,325 SHARES
VAALCO ENERGY, INC.
COMMON STOCK
The shares of common stock offered hereby (the "Offered Securities") are
shares of common stock, par value $.10 per share ("Common Stock"), of VAALCO
Energy, Inc., a Delaware corporation (the "Company"), owned by certain
stockholders of the Company. See "Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the Offered Securities hereby.
The Company's Common Stock trades on the OTC Bulletin Board under the
symbol "VEIX." On July 24, 1998, the average of the closing bid and asking price
of a share of the Common Stock on the OTC Bulletin Board was $2.13 per share.
The Offered Securities may be offered and sold from time to time by
Selling Stockholders through brokers or to dealers or directly to one or more
purchasers in negotiated transactions, at market prices prevailing at the time
of sale or at prices related to such market prices. The Offered Securities may
be sold from time to time in transactions on the OTC Bulletin Board at the
market price then prevailing although sales may also be made in negotiated
transactions or otherwise. The Selling Stockholders and brokers executing
selling orders on behalf of the Selling Stockholders and dealers to whom the
Selling Stockholders may sell may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended ("Securities Act"), in which
event commissions received by such brokers may be deemed to be underwriting
commissions under the Securities Act. Although each Selling Stockholder may sell
all or a portion of the shares of Common Stock offered hereby, no Selling
Stockholder is required to make any such sale. See "Plan of Distribution" for
further information concerning the plan of distribution of the Offered
Securities.
The expenses of registration incurred in connection with this offering,
estimated at $50,000, will be paid by the Company, but all selling and other
expenses incurred by Selling Stockholders will be borne by such Selling
Stockholders. See "Plan of Distribution."
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD
CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS,"
BEGINNING ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 30, 1998.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Comission (the
"Commission") in Washington, D.C., a Registration Statement on Form S-3
("Registration Statement") under the Securities Act with respect to the Common
Stock offered by this Prospectus. Certain portions of the Registration Statement
have not been included in this Prospectus. For further information, reference is
made to the Registration Statement and the Exhibits thereto. The Company is
subject to the information requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance therewith files reports,
proxy statements and other information with the Commission. The Registration
Statement (with exhibits), as well as such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at its principal offices at Judiciary Plaza, 450
Fifth Street, Room 1024, N.W., Washington, D.C. 20549, and its regional offices
at Citicorp Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission at
http://www.sec.gov.
The Company provides its security holders an annual report containing
audited financial statements for the fiscal year covered thereby. Such report
usually is provided within 120-days after the end of the Company's most recent
fiscal year.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's (i) annual report on Form 10-KSB for the fiscal year ended
December 31, 1997, filed on March 30, 1998, as supplemented by Form 10-KSB/A,
filed May 15, 1998, (ii) the Company's quarterly report on Form 10-QSB for the
fiscal quarter ended March 31, 1998, (iii) the description of the Company's
Common Stock contained in the Company's Registration Statement on Form 10 (Reg.
No. 0-20928) as amended by a Form 8 filed by the Company with the Commission on
January 7, 1993 and a Form 8 filed by the Company with the Commission on January
25, 1993, (iv) the Company's Definitive Proxy Statement filed on June 4, 1998
relating to the Annual Meeting of Stockholders on June 24, 1998, (v) the
Company's current report on Form 8-K dated March 4, 1998, and (vi) the Company's
current report on Form 8-K filed on May 6, 1998, as supplemented by Form 8-K/A
filed on May 29, 1998, are hereby incorporated herein by reference.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the offering covered hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in this Prospectus, in any supplement to
this Prospectus or in a document incorporated or deemed to be incorporated by
reference in this Prospectus shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference modifies or replaces such statement. Any
such statement shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference in this Prospectus,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates. All such requests should be directed to VAALCO Energy, Inc., 4600
Post Oak Place, Suite 309, Houston, Texas 77027, Attention: Investor Relations
Department, telephone number (713) 623-0801.
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THE COMPANY
VAALCO Energy, Inc., a Delaware corporation (the "Company" or "VAALCO"),
is engaged in the acquisition, exploration, development and production of oil
and gas properties. VAALCO owns producing properties and conducts exploration
activities internationally in the Philippines and domestically in the Texas Gulf
Coast area, and has recently begun international exploration activities in
Gabon, West Africa. VAALCO recently acquired a 7.5% interest in Hunt Overseas
Exploration Company, L.P., which has exploration prospects in a number of
international areas. The Company has also recently entered into a joint venture
agreement to engage in the exploration of oil and gas properties in the United
States, primarily in the onshore Gulf Coast area, including Alabama, Mississippi
and Louisiana.
The Company's executive offices are located at 4600 Post Oak Place,
Suite 309, Houston, Texas 77027, telephone number (713) 623-0801.
RECENT DEVELOPMENTS
GABON DISCOVERY. In June 1998, the Company successfully drilled its
first exploration well offshore southern Gabon, West Africa. The well, located
in the block covered by the Etame Marin Permit ("Permit"), tested at 3.5
MBbls/day (0.6 net to the Company), and is temporariliy shut-in pending
evaluation of the well results. The well is located just north of hydrocarbon
accumulations in Tehibala North and Tehibala South which were identified in the
1970s but deemed non-commercial at that time. The Company has identified several
other prospects in the block, and believes that this block has the potential to
add significantly to the Company's reserves if initial interpretations prove
correct.
The Company is the operator of the Permit and owns a 17.85% working
interest. Western Atlas Afrique Ltd. has a 65% working interest and three
additional partners collectively own the remaining 17.15% working interest.
Under the terms of the Permit, the Gabonese government has the option to
participate with up to a 7.5% working interest in the development of any
commercial discoveries on the block which, if exercised, would reduce
proportionately the interest of the other participants.
HUNT TRANSACTION/PRIVATE PLACEMENT. On April 21, 1998, the Company
completed the acquisition of 1818 Oil Corp. from The 1818 Fund II, L.P. ("Fund")
in exchange for 10,000 shares of the Company's preferred stock ("Preferred
Stock") convertible into 27.5 million shares of Common Stock. The general
partner of the Fund is Brown Brothers Harriman & Co. The principal assets of
1818 Oil Corp. are a limited partner interest in Hunt Overseas Exploration
Company, L.P. ("Hunt"), a partnership engaged in the exploration for oil
internationally, and $12.6 million in cash. The cash held by 1818 Oil Corp. will
be used to fund its obligations to make capital contributions to Hunt.
Simultaneously with the acquisition of 1818 Oil Corp., VAALCO completed
a private placement of 5.2 million shares of Common Stock for estimated net
proceeds of $9.5 million. Of such shares, 3,763,441 were acquired by the Fund as
part of the acquisition of the 1818 Oil Corp. and the balance was acquired by
institutional investors. Proceeds of the offering were allocated to fund
VAALCO's capital budget for 1998.
As a result of the acquisition of 1818 Oil Corp. and the private
placement, the Fund beneficially owns approximately 64% of the outstanding
shares of VAALCO, assuming conversion of the Preferred Stock. Pursuant to rights
granted in the Preferred Stock, the Fund has appointed T. Michael Long, Lawrence
Tucker and Walter Grist to VAALCO's Board of Directors. See "Risk
Factors-Control by Major Stockholder."
FORMATION OF JOINT VENTURE. In April 1998, VAALCO also completed the
formation of a joint venture with Paramount Petroleum Company ("Paramount") and
Robert Schneeflock, the owner of Paramount, to explore for oil and gas primarily
in the onshore Gulf Coast area.
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RISK FACTORS
PROSPECTIVE PURCHASERS OF THE OFFERED SECURITIES SHOULD CAREFULLY
CONSIDER, TOGETHER WITH OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS THAT MAY AFFECT THE COMPANY.
CONTROL BY MAJOR STOCKHOLDER
Currently, the Fund owns Common Stock and Preferred Stock which votes as
a class with the Common Stock on an as converted basis, and which, in the
aggregate, represents approximately 64% of the outstanding voting power of the
Company on an as converted basis (excluding options and warrants). In addition,
the terms of the Preferred Stock held by the Fund provide that while the
Preferred Stock is outstanding, the holders of Preferred Stock voting together
as a class will be entitled to elect three directors of the Company.
Accordingly, the Fund is able to control all matters submitted to a vote of the
stockholders of the Company, including the election of directors.
The Company's Bylaws contain provisions which require that at least a
majority of the directors constituting the entire Board of Directors, which
majority must include at least one of the directors elected by the holders of
Preferred Stock, approve each of the following transactions effected by either
the Company or, as applicable, any subsidiary of the Company: any issuance of or
agreement to issue any equity securities, including securities convertible into
or exchangeable for such equity securities (other than issuances pursuant to an
employee benefit plan); the declaration of any dividend; the incurrence,
assumption of or refinancing of indebtedness; the adoption of any employee stock
option or similar plan; entering into employment or consulting agreements with
annual compensation exceeding $100,000; any merger or consolidation; the sale,
conveyance, exchange or transfer of the voting stock or all or substantially all
of the assets; the sale or other disposition to another person, or purchase,
lease or other acquisition from another person, of any material assets, rights
or properties; certain expenditures in excess of $300,000; the formation of any
entity that is not wholly-owned by the Company; material changes in accounting
methods or policies; any amendment, modification or restatement of the
certificate of incorporation or bylaws; the settlement of any claim or other
action against the Company or subsidiary in an amount in excess of $50,000;
approval or amendment of the annual operating budget; any other action which is
not in the ordinary course of business; and the agreement to take any of the
foregoing actions. Accordingly, none of the foregoing actions can be taken by
the Company without the approval of at least one director designated by the
holders of the Preferred Stock.
VOLATILITY OF OIL AND GAS PRICES AND MARKETS
The Company's revenues, cash flow, profitability and future rate of
growth are substantially dependent upon prevailing prices for oil and gas. The
Company's ability to borrow funds and to obtain additional capital on attractive
terms is also substantially dependent on oil and gas prices. The Company's
production in the Philippines (representing substantially all of the Company's
oil production since 1994) is from mature offshore fields with high production
costs. The Company's margin on sales from these fields (the price received for
oil less the production costs for the oil) is lower than the margin on oil
production from many other areas. As a result, the profitability of the
Company's production in the Philippines is affected more by changes in prices
than production located in other areas. Historically, oil and gas prices and
markets have been volatile and are likely to continue to be volatile in the
future. Prices for oil and gas are subject to wide fluctuations in response to
relatively minor changes in supply of and demand for oil and gas, market
uncertainty and a variety of additional factors that are beyond the control of
the Company. These factors include international political conditions, the
domestic and foreign supply of oil and gas, the level of consumer demand,
weather conditions, domestic and foreign governmental regulations, the price and
availability of alternative fuels and overall economic conditions. In addition,
various factors, including the availability and capacity of gas gathering
systems and pipelines, the effect of federal, state and foreign regulation of
production and transportation, general economic conditions, changes in supply
due to drilling by other producers and changes in demand may adversely affect
the Company's ability to market its oil and gas production. Any significant
decline in the price of oil or gas would adversely affect the Company's
revenues, operating income, cash flows and borrowing capacity and may require a
reduction in the carrying value of the Company's oil and gas properties and its
planned level of capital expenditures.
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The recent downturn in certain of the economies in Asia has resulted in
a substantial oversupply of crude oil products in the area. The Company's
Philippine production competes as an energy source with crude oil products, so
the price received for the Company's production is being adversely affected by
market instability and the current oversupply of crude oil products in the area.
For example, average prices during the first quarter of 1998 were $7.50 per Bbl,
compared with $9.00 per Bbl in the first quarter of 1997. Although the Company
believes the oversupply of crude oil products will not be permanent, no
assurances can be given as to the amount of time that will be required to return
the supplies of crude oil products to normal.
REPLACEMENT OF RESERVES
The Company's future success depends upon its ability to find, develop
or acquire additional oil and gas reserves that are economically recoverable.
Except to the extent that the Company conducts successful exploration or
development activities or acquires properties containing proved reserves, the
estimated net proved reserves of the Company will generally decline as reserves
are produced. There can be no assurance that the Company's planned development
and exploration projects and acquisition activities will result in significant
additional reserves or that the Company will have continuing success drilling
productive wells at economic finding costs. The drilling of oil and gas wells
involves a high degree of risk, especially the risk of dry holes or of wells
that are not sufficiently productive to provide an economic return on the
capital expended to drill the wells. In addition, the Company's drilling
operations may be curtailed, delayed or canceled as a result of numerous
factors, including title problems, weather conditions, political instability,
economic/currency imbalances, compliance with governmental requirements and
shortages or delays in the delivery of equipment and availability of drilling
rigs. Certain of the Company's oil and gas properties are operated by third
parties or may be subject to operating committees controlled by national oil
companies and, as a result, the Company has limited control over the nature and
timing of exploration and development of such properties or the manner in which
operations are conducted on such properties.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the acquisition, exploitation, development, exploration and
production of oil and gas reserves. Historically, the Company has financed these
expenditures primarily with cash flow from operations, asset sales, private
sales of equity, bank borrowings and purchase money debt. The Company believes
that it will have sufficient capital to finance planned capital expenditures
through June 1999. If revenues decrease as a result of lower oil and gas prices,
operating difficulties or declines in reserves, the Company may have limited
ability to finance planned capital expenditures in the future. There can be no
assurances that additional equity financing or cash generated by operations or
borrowings will be available to meet these requirements.
The Company has committed to invest $3.0 million in the Paramount joint
venture, of which $0.7 million has already been funded. There can be no
assurance that the Company will realize a return on this investment or that the
Company's investment in the Paramount joint venture will be successful.
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HISTORY OF LOSSES
Without giving effect to the acquisition of 1818 Oil Corp., the Company
incurred net losses (after preferred dividends requirement) of $12.3 million,
$8.2 million, $7.2 million and $0.6 million for each of the years ended December
31, 1993, 1994, 1995 and 1996, respectively. In addition, 1818 Oil Corp. had net
losses of $0.2 million, $1.0 million and $16.0 million for each of the years
ended December 31, 1995, 1996 and 1997, respectively and $0.4 million for the
three months ended March 31, 1998 (unaudited). No assurance can be made that the
Company will operate profitably in the future. The likelihood of the Company's
future profitability must be considered in light of the financial, business and
operating risks, expenses, difficulties, and delays frequently encountered in
connection with the oil and gas acquisition, exploration, development and
production business in which the Company is engaged. The financial statements
incorporated by reference herein do not include any adjustments that may result
from these uncertainties.
DRILLING RISKS
Drilling activities are subject to many risks, including the risk that
no commercially productive reservoirs will be encountered. There can be no
assurance that new wells drilled by the Company will be productive or that the
Company will recover all or any portion of its investment. Drilling for oil and
natural gas may involve unprofitable efforts, not only from dry wells, but from
wells that are productive but do not produce sufficient net revenues to return a
profit after drilling, operating and other costs. The cost of drilling,
completing and operating wells is often uncertain and cost overruns are common.
The Company's drilling operations may be curtailed, delayed or canceled as a
result of numerous factors, many of which are beyond the Company's control,
including title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of equipment and services.
OPERATING HAZARDS AND UNINSURED RISKS
The oil and gas business involves a variety of operating risks,
including fire, explosions, blow-outs, pipe failure, casing collapse, abnormally
pressured formations and environmental hazards such as oil spills, gas leaks,
ruptures and discharges of toxic gases, the occurrence of any of which could
result in substantial losses to the Company due to injury and loss of life,
severe damage to and destruction of property, natural resources and equipment,
pollution and other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. The Company's
production facilities are also subject to hazards inherent in marine operations,
such as capsizing, sinking, grounding, collision and damage from severe weather
conditions. The relatively deep offshore drilling conducted by the Company
overseas involves increased drilling risks of high pressures and mechanical
difficulties, including stuck pipe, collapsed casing and separated cable. The
impact that any of these risks may have upon the Company is increased due to the
low number of producing properties owned by the Company. The Company and
operators of properties in which it has an interest maintain insurance against
some, but not all, potential risks; however, there can be no assurance that such
insurance will be adequate to cover any losses or exposure for liability. The
occurrence of a significant unfavorable event not fully covered by insurance
could have a material adverse effect on the Company's financial condition and
results of operations. Furthermore, the Company cannot predict whether insurance
will continue to be available at a reasonable cost or at all.
UNCERTAINTIES IN ESTIMATING RESERVES AND FUTURE NET CASH FLOWS
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves, including many factors beyond the control of the
Company. Reserve engineering is a subjective process of estimating the
underground accumulations of oil and gas that cannot be measured in an exact
manner.
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The estimates incorporated by reference in this Prospectus are based on
various assumptions required by the Commission, including unescalated prices and
costs and capital expenditures, and, therefore, are inherently imprecise
indications of future net revenues. Actual future production, revenues, taxes,
operating expenses, development expenditures and quantities of recoverable oil
and gas reserves may vary substantially from those assumed in the estimates. Any
significant variance in these assumptions could materially affect the estimated
quantity and value of reserves, In addition, the Company's reserves may be
subject to downward or upward revision based upon production history, results of
future development, availability of funds to acquire additional reserves,
prevailing oil and gas prices and other factors. Moreover, the calculation of
the estimated present value of the future net revenue using a 10% discount rate
as required by the Commission is not necessarily the most appropriate discount
factor based on interest rates in effect from time to time and risks associated
with the Company's reserves or the oil and gas industry in general.
It is also possible that reserve engineers may make different estimates
of reserves and future net revenues based on the same available data. In
calculating reserves on a BOE basis, gas was converted to oil at the ratio of
six Mcf of gas to one Bbl of oil. While this conversion ratio approximates the
energy equivalent of oil and gas on a Btu basis, it may not represent the
relative prices received by the Company on the sale of its oil and gas
production.
The estimated future net revenues attributable to the Company's net
proved reserves are prepared in accordance with Commission guidelines, and are
not intended to reflect the fair market value of the Company's reserves. In
accordance with the rules of the Commission, the Company's reserve estimates are
prepared using period end prices received for oil and gas. The estimated
quantities and present values of the Company's reserves at December 31, 1996
would have been lower if prices in effect on December 31, 1997 were used to
calculate such quantities and present values. Future reductions in prices below
those prevailing at year end 1997 would result in the estimated quantities and
present values of the Company's reserves being further reduced.
A substantial portion of the Company's proved reserves are or will be
subject to service contracts, production sharing contracts and other
arrangements. See "-Foreign Operations." The quantity of oil and gas the Company
will ultimately receive under these arrangements will differ based on numerous
factors, including the price of oil and gas, production rates, production costs,
cost recovery provisions and local tax and royalty regimes. Changes in many of
these factors do not affect estimates of U.S. reserves in the same way they
affect estimates of proved reserves in foreign jurisdictions, or will have a
different effect on reserves in foreign countries than in the United States. As
a result, proved reserves in foreign jurisdictions may not be comparable to
proved reserve estimates in the United States.
FOREIGN OPERATIONS
The Company's international assets and operations are subject to various
political, economic and other uncertainties, including, among other things, the
risks of war, expropriation, nationalization, renegotiation or nullification of
existing contracts, taxation policies, foreign exchange restrictions, changing
political conditions, international monetary fluctuations, currency controls and
foreign governmental regulations that favor or require the awarding of drilling
contracts to local contractors or require foreign contractors to employ citizens
of, or purchase supplies from, a particular jurisdiction. In addition, if a
dispute arises with foreign operations, the Company may be subject to the
exclusive jurisdiction of foreign courts or may not be successful in subjecting
foreign persons, especially foreign oil ministries and national oil companies,
to the jurisdiction of the United States.
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The Company's private ownership of oil and gas reserves under oil and
gas leases in the United States differs distinctly from its ownership of foreign
oil and gas properties. In the foreign countries in which the Company does
business, the state generally retains ownership of the minerals and consequently
retains control of (and in many cases, participates in) the exploration and
production of hydrocarbon reserves. Accordingly, operations outside the United
States may be materially affected by host governments through royalty payments,
export taxes and regulations, surcharges, value added taxes, production bonuses,
participation options and other charges.
Certain of the Company's producing properties are located offshore
Palawan Island in the Philippines, and, consequently, a portion of the Company's
assets is subject to regulation by the government of the Philippines. Although
there has been unrest and uncertainty in the Philippines, to date, the country's
Office of Energy Affairs has been largely unaffected by political changes. The
Company has operated in the Philippines since 1985 and believes that it has good
relations with the current Philippine government. However, there can be no
assurance that present or future governmental regulation in the Philippines will
not materially adversely affect the operations or cash flows of the Company.
All of the Company's current Philippine producing properties are located
in fields covered under Service Contract 14. To obtain favorable tax treatment,
at least 15% of Service Contract 14 must be owned by Philippine nationals.
Residents of the Philippines currently own in excess of 15% of Blocks A, B, C
and D of Service Contract 14, including 71% of Block C. The Company's ability to
export oil produced in the Philippines is restricted by the terms of Service
Contract 14. The Company currently sells its oil production within the
Philippines and therefore may be exposed to foreign currency risk.
INVESTMENT IN HUNT
The Company is a limited partner in Hunt. Generally, all decisions
concerning the operations of Hunt are made by the general partner without the
consent or input of the limited partners. Accordingly, the Company is not able
to influence decisions with respect to operations of Hunt, including decisions
regarding the purchase of concessions and other interests, exploration and
development operations (including the location, testing, completing or plugging
and abandoning of wells, as well as the gathering of seismic and other
geophysical data), farm out and other participation agreements, the acquisition
or sale of real and personal property, insurance coverage, bank and other
financings and other matters significant to the operations of Hunt.
The exploration activity of Hunt is ongoing. To date, Hunt's exploration
activities have not resulted in the discovery of any commercial oil or gas
reserves. No assurance can be given that Hunt's activities will ever result in
any commercial production or that the Company will realize a return on its
investment in Hunt. Hunt's operations are subject to risks applicable to the oil
and gas industry in general as well as to risks inherent in foreign operations,
and are subject to many of the risks disclosed herein under "Risk Factors"
including, without limitation, "-Foreign Operations," "-Volatility of Oil and
Gas Prices and Markets," "-Replacement of Reserves," "-Drilling Risks,"
"-Operating Hazards and Uninsured Risks," "-Uncertainties in Estimating Reserves
and Future Net Cash Flows," "-Environmental and Other Regulations" and
"Acquisition Risks."
ENVIRONMENTAL AND OTHER REGULATIONS
The Company's business is regulated by the laws and regulations of the
United States, Philippines and Gabon. In addition, Hunt does business in and is
subject to the laws and regulations of other foreign countries. These laws and
governmental regulations, which cover matters including drilling operations,
taxation and environmental protection, may be changed from time to time in
response to economic or political conditions. See "-Foreign Operations."
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The Company's domestic operations are subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. The Company's domestic
operations could result in liability for personal injuries, property damage, oil
spills, discharge of hazardous materials, remediation and clean-up costs and
other environmental damages. In addition, the Company could be liable for
environmental damages caused by previous property owners. As a result,
substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could have a material adverse effect on the
Company's financial condition, results of operations and liquidity. The Company
maintains insurance coverage for its operations, including limited coverage for
sudden environmental damages, but does not believe that insurance coverage for
environmental damages that occur over time is available at a reasonable cost.
Moreover, the Company does not believe that insurance coverage for the full
potential liability that could be caused by sudden environmental damages is
available at a reasonable cost. Accordingly, the Company may be subject to
liability or may lose substantial portions of its properties in the event of
certain environmental damages. The Company could incur substantial costs to
comply with environmental laws and regulations.
A substantial portion of the Company's producing properties are located
offshore. The costs to abandon offshore wells may be substantial. For financial
accounting purposes the Company accrues a per BOE charge over the life of a
field to cover such abandonment costs. No assurances can be given that such
reserves will be sufficient to pay such costs in the future as they are
incurred.
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on the Company.
The recent trend toward stricter standards in environmental legislation
and regulation in the U.S. is likely to continue. For instance, legislation has
been introduced in Congress that would reclassify certain exploration and
production wastes as "hazardous wastes" which would make the reclassified wastes
subject to much more stringent handling, disposal and clean-up requirements. If
such legislation were enacted, it could have a significant impact on the
operating costs of the Company, as well as the oil and gas industry in general.
Initiatives to further regulate the disposal of oil and gas wastes are also
pending in certain states, and these various initiatives could have a similar
impact on the Company.
In addition, while the Company believes that it is currently in
compliance with environmental laws and regulations applicable to the Company's
operations in the Philippines and Gabon, no assurances can be given that the
Company will be able to continue to comply with such environmental laws and
regulations without incurring substantial costs.
ACQUISITION RISKS
The Company intends to continue acquiring oil and gas properties.
Although the Company performs a review of the acquired properties that it
believes is consistent with industry practices, such reviews are inherently
incomplete. It generally is not feasible to review in depth every individual
property involved in each acquisition. Ordinarily, the Company will focus its
due diligence efforts on the higher valued properties and will sample the
remainder. However, even an in-depth review of all properties and records may
not necessarily reveal existing or potential problems nor will it permit a buyer
to become sufficiently familiar with the properties to assess fully their
deficiencies and capabilities. Inspections may not be performed on every well,
and structural or environmental problems, such as ground water contamination,
are not necessarily observable even when an inspection is undertaken. The
Company may be required to assume preclosing liabilities, including
environmental liabilities, and may acquire interests in properties on an "as is"
basis. There can be no assurance that the Company's acquisitions will be
successful.
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LIMITED TRADING MARKET
At the present time, the Common Stock is not quoted on the Nasdaq Stock
Market, Inc. ("NNM") or listed on any national stock exchange. Although the
Common Stock currently trades on the OTC Bulletin Board, the trading volume has
not been substantial and there can be no assurance as to the liquidity or
sustainability of the market for the Common Stock or the ability of stockholders
to sell Common Stock at any price. Future trading prices of the Common Stock
will depend on many factors including, among others, prevailing market
conditions and the Company's operating results. The Company does not currently
meet the requirements of the NNM. There can be no assurance that the Common
Stock will meet these listing requirements and that it will be accepted for
trading on the NNM or on any national stock exchange.
As of June 15, 1998, 27,500,000 shares of Common Stock were issuable to the Fund
upon conversion of the Preferred Stock, 1,445,325 shares of Common Stock were
issuable upon the exercise of certain outstanding warrants and 2,075,000 shares
of Common Stock were issuable upon the exercise of certain employee stock
options. All of such shares may be exercised or converted within sixty days of
the date of this Prospectus. In addition, the Fund has certain registration
rights with respect to the shares of Common Stock issuable upon conversion of
the Preferred Stock. The Common Stock being offered pursuant to this Prospectus
represents approximately 26% of the Company's total outstanding securities
(excluding options and outstanding Preferred Stock conversion rights). All of
these common shares, to the extent that they are eligible or appear to be
eligible for sale in the public market, could have a materially adverse effect
on the market price of the Common Stock and therefore make it more difficult to
sell equity securities. The Company may issue additional equity securities in
order to fund working capital requirements and for other purposes. To the extent
the Company does so, existing stockholders may experience substantial dilution,
particularly if the terms of such issuance include discounts to market prices or
the issuance of convertible securities.
RELIANCE ON KEY PERSONNEL
The Company is highly dependent upon its executive officers and key
employees, particularly Messrs. Gerry, Walston and Scheirman. Moreover, the
Company's investment in the Paramount joint venture is highly dependent upon
Robert Schneeflock. The unexpected loss of the services of any of these
individuals could have a detrimental effect on the Company. The Company has
entered into employment agreements with Messrs. Gerry and Scheirman which will
terminate in August 1998. The Company does not maintain key man life insurance
on any of its employees.
QUALIFICATION OF NET OPERATING LOSS CARRY FORWARD
As of December 31, 1996, the Company had a net operating loss carry
forward of $13.2 million for federal income tax purposes, and 1818 Oil Corp. had
a net operating loss carry forward of from $10 million to $12 million. As a
result of the acquisition of the capital stock of 1818 Oil Corp., the net
operating loss of the Company which may be used to offset future taxable income
will be limited to $1.6 million during any year. The net operating losses of
1818 Oil Corp. were not affected by the acquisition.
9
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including the documents incorporated by reference
herein and the exhibits hereto and thereto, includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934 ("Exchange Act"). All statements
other than statements of historical facts included or incorporated by reference
in this Prospectus, including without limitation, statements regarding the
Company's financial position, reserve quantities and net present values,
business strategy, plans and objectives of management of the Company for future
operations are forward-looking statements. Although the Company believes that
the assumptions upon which such forward-looking statements are based are
reasonable, it can give no assurance that such assumptions will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed above and elsewhere in this Prospectus as well as in periodic reports
filed by the Company under the Exchange Act. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
SELLING STOCKHOLDERS
The following table sets forth as to each Selling Stockholder: (i) such
Stockholder's name and relationship to the Company, (ii) the number of shares of
Common Stock beneficially owned as of June 30, 1998, (iii) the number of shares
of Common Stock to be sold pursuant to this Prospectus, and (iv) the number and
percent of shares of Common Stock beneficially owned after the offering,
assuming all of the Offered Shares are sold. The Selling Stockholders reserve
the right to reduce the number of shares of Common Stock offered for sale or to
otherwise decline to sell any or all of the Offered Securities registered
hereunder.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES TO SHARES PERCENT OF
OWNED BE SOLD OWNED CLASS
PRIOR TO IN THE AFTER AFTER
NAME OFFERING OFFERING OFFERING OFFERING
- ----- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Jacob D. Landry (1) 100,000 100,000 0 *
Emmett M. Murphy (1) 200,000 200,000 0 *
Centennial Energy
Partners, L.P. (2) 387,500 387,500 0 *
Tercentennial Energy
Partners, L.P. (3) 262,500 262,500 0 *
Quadrennial
Partners, L.P. (4) 75,000 75,000 0 *
Investment 11 L.L.C. (1) 25,000 25,000 0 *
L. Zachary Landry (1) 30,000 30,000 0 *
Avocet Capital Management (1) 300,000 300,000 0 *
Sands Partnership No. 1 (5) 1,020,000 1,020,000 0 *
Sandpiper & Co. (1) 1,500,000 1,500,000 0 *
David D. May (1) 50,000 50,000 0 *
Sanford B. Prater (1) 100,000 100,000 0 *
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES TO SHARES PERCENT OF
OWNED BE SOLD OWNED CLASS
PRIOR TO IN THE AFTER AFTER
NAME OFFERING OFFERING OFFERING OFFERING
- ----- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Philip J. Hempleman (1) 250,000 250,000 0 *
Boyd L. Jefferies
Sharon K. Jefferies JTWOS (1) 50,000 50,000 0 *
W.S. Farish & Company (6) 100,000 100,000 0 *
C. Daniel Walker (6) 50,000 50,000 0 *
James M. Harrison (6) 50,000 50,000 0 *
Ashok N. Vasvani and
Bansie Vasvani JTWROS (6) 50,000 50,000 0 *
Richard B. Coons (6) 50,000 50,000 0 *
Magowan Family Foundation (6) 75,000 75,000 0 *
Magowan Profit Sharing Plan (6) 25,000 25,000 0 *
Saroc Oil Company (6) 150,000 150,000 0 *
Meridian Fund, Ltd. (6) 200,000 200,000 0 *
Lee Global Energy Fund (6) 50,000 50,000 0 *
W.I. Lee (6) 50,000 50,000 0 *
George T. Graves III IRA (6) 20,000 20,000 0 *
Global Undervalued Securities
Fund L.P. (6) 100,000 100,000 0 *
Jefferies & Company, Inc. (7) 220,655 220,655 0 *
Joseph Francis Maly, Jr. (8) 2,788 2,788 0 *
L. Kevin Dann (8) 17,000 17,000 0 *
Shauvik Kundagrami and
Joya M. Kundagrami JTWROS (8) 2,788 2,788 0 *
John W. Sinders, Jr. and
Lisa P. Sinders JT TEN (8) 18,588 18,588 0 *
Andrew R. Whittaker and
Stephani Whittaker JTWROS (8) 6,506 6,506 0 *
Thomas W. Pritchard and
Haifleigh Pritchard JT TEN (8) 57,073 57,073 0 *
George Austin Miller (8) 2,504 2,504 0 *
John Sebastian (8) 11,388 11,388 0 *
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES TO SHARES PERCENT OF
OWNED BE SOLD OWNED CLASS
PRIOR TO IN THE AFTER AFTER
NAME OFFERING OFFERING OFFERING OFFERING
- ----- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Daniel Conwill, IV (8) 40,607 40,607 0 *
Chris M. Kanoff and
Mary Ellen Kanoff JTWROS (8) 40,608 40,608 0 *
Timothy V. F. Straus (8) 11,388 11,388 0 *
Robert W. Carington, Jr. (8) 12,432 12,432 0 *
Joan C. Moravick (8) 1,000 1,000 0 *
William E. Pritchard III (9) 1,000,000 100,000 900,000 4.14%(10)
---------- ---------- ---------- ---------
Total: 6,765,325 5,865,325 900,000 4.14%
</TABLE>
- ---------------------
* The percentage of shares of Common Stock owned by the Selling Stockholder
before and after the offering is less than 1%.
(1) The shares of Common Stock beneficially owned prior to the offering were
purchased in a private placement which was consummated in July 1997 ("1997
Placement"). The shares are included in the Registration Statement of which
this Prospectus is a part pursuant to a Registration Rights Agreement dated
July 28, 1997 by and among the Company, Jefferies & Company, Inc.
("Jefferies") and certain purchasers listed therein ("1997 Agreement").
(2) Of the 387,500 shares of Common Stock beneficially owned by Centennial
Energy Partners, L.P. prior to the offering, 250,000 were purchased in the
1997 Placement and are included herein pursuant to the 1997 Agreement and
137,500 were purchased in a private placement which was consummated in
April 1998 ("1998 Placement") and are included herein pursuant to a
Registration Rights Agreement dated April 21, 1998 by and among the
Company, Jefferies and certain purchasers listed therein ("1998
Agreement").
(3) Of the 262,500 shares of Common Stock beneficially owned by Tercentennial
Energy Partners, L.P. prior to the offering, 175,000 were purchased in the
1997 Placement and are included herein pursuant to the 1997 Agreement and
87,500 were purchased in the 1998 Placement and are included herein
pursuant to the 1998 Agreement.
(4) Of the 75,000 shares of Common Stock beneficially owned by Quadrennial
Partners, L.P. prior to the offering, 50,000 were purchased in the 1997
Placement and are included herein pursuant to the 1997 Agreement and 25,000
were purchased in the 1998 placement and are included herein pursuant to
the 1998 Agreement.
(5) Of the 1,020,000 shares of Common Stock beneficially owned by Sands
Partnership No. 1 prior to the offering, 920,000 were purchased in the 1997
Placement and are included herein pursuant to the 1997 Agreement and
100,000 were purchased in the 1998 Placement and are included herein
pursuant to the 1998 Agreement.
(6) The shares of Common Stock beneficially owned prior to the offering were
purchased in the 1998 Placement. The shares are included in the
Registration Statement of which this Prospectus is a part pursuant to the
1998 Agreement.
(7) The shares of Common Stock beneficially owned by Jefferies are issuable to
Jefferies upon the exercise of (i) a warrant to purchase 120,655 shares of
Common Stock at an exercise price of $1.00 per share granted to Jefferies
for services rendered as placement agent in connection with the 1997
Placement and (ii) a warrant to purchase 100,000 shares of Common Stock at
an exercise price of $2.00 per share granted to Jefferies for services
rendered as placement agent in connection with the 1998 Placement.
12
<PAGE>
(8) These shares of Common Stock beneficially owned are issuable upon the
exercise of a warrant to purchase shares of Common Stock at an exercise
price of $1.00 per share. The warrant was initially issued for 345,325
shares to Jefferies for services rendered as placement agent in connection
with the 1997 Placement. Jefferies subsequently transferred warrants for
224,670 shares to several of its employees or former employees who hold or
held executive positions.
(9) The shares of Common Stock beneficially owned by William E. Pritchard III,
a former officer of the Company, are issuable upon the exercise of warrants
that were granted to purchase shares of Common Stock in September 1996. The
warrants consist of the right to purchase 250,000 shares of Common Stock at
an exercise price of $0.50 per share, 250,000 shares of Common Stock at an
exercise price of $2.50 per share, 250,00 shares of Common Stock at an
exercise price of $5.00 per share, and 250,000 shares of Common Stock at an
exercise price of $7.50 per share. The warrants are completed vested. None
of the warrants had been exercised as of July 29, 1998.
(10) Based on the 20,749,964 shares issued and outstanding as of June 30, 1998
and the 1,000,000 shares issuable upon exercise of the warrants granted to
William E. Pritchard III in September 1996.
USE OF PROCEEDS
All proceeds from the sale of the Offered Securities will go to the
Selling Stockholders. The Company will not receive any consideration for the
sale of the Offered Securities registered hereunder.
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company's authorized Common Stock consists of 100,000,000 shares of
Common Stock, par value $.10 per share, ("Common Stock") of which as of June 30,
1998, 20,749,964 shares were issued and outstanding and 31,020,325 shares were
reserved for issuance upon exercise of outstanding options, warrants and
Preferred Stock conversion rights. Holders of Common Stock do not have
preemptive rights to subscribe for additional shares of Common Stock issued by
the Company.
Holders of the Common Stock are entitled to receive dividends as may be
declared by the Board of Directors out of funds legally available therefor,
subject to the rights of the holders of Preferred Stock. No dividend may be
declared or paid on the Common Stock, and no Common Stock may be purchased by
the Company, unless all accrued and unpaid dividends on the outstanding
Preferred Stock have been paid, except for a purchase of shares of the Common
Stock by the Company pursuant to Rule 13e 4(h)(5) of the Exchange Act. In the
event of liquidation, holders of the Common Stock are entitled to share pro rata
in any distribution of the Company's assets remaining after payment of
liabilities, subject to the preferences and rights of the holders of the
Preferred Stock. All of the outstanding shares of the Common Stock are fully
paid and non assessable. Holders of Common Stock are entitled to cast one vote
for each share held of record on all matters submitted to a vote of stockholders
and are not entitled to cumulate votes for the election of directors.
PREFERRED STOCK
The Restated Certificate of Incorporation (the "Certificate") of the
Company permits the Board to establish by resolution one or more series of
preferred stock having such number of shares, designation, relative voting
rights, dividend rates, liquidation and other rights, preferences, powers,
qualifications, restrictions and limitations as may be fixed by the Board
without any further stockholder approval. Such rights, preferences, powers,
qualifications, restrictions and limitations as may be established could have
the effect of impeding or discouraging the acquisition of control of the
Company.
13
<PAGE>
The Company's authorized preferred stock consists of 500,000 shares, par
value $25.00 per share. Currently, 10,000 shares of Convertible Preferred Stock,
Series A, par value $25.00 per share ("Preferred Stock") are issued and
outstanding. The Preferred Stock ranks prior to all other classes and series of
junior stock of the Company, including the Common Stock, with respect to rights
on liquidation, dissolution or winding up.
DIVIDENDS AND DISTRIBUTIONS. In the event that the Company declares a
cash dividend or makes any other distribution to holders of the Common Stock,
the holder of each share of Preferred Stock will be entitled to receive a
dividend or distribution in an amount equal to the amount of the dividend or
distribution received by a holder of the number of shares of Common Stock for
which such share of Preferred Stock is convertible.
VOTING RIGHTS. Each share of Preferred Stock entitles the owner thereof
to vote at all special and annual meetings of stockholders, or in connection
with any stockholder action taken in lieu of a meeting of stockholders, on all
matters voted on by holders of Common Stock, including the election of
directors, voting together as a single class with all other shares entitled to
vote thereon. Each holder of Preferred Stock is entitled to cast the number of
votes per share as is equal to the number of votes that such holder would be
entitled to cast if the holder had converted his shares of Preferred Stock into
Common Stock on the applicable record date. In addition, the affirmative vote of
the holders of at least 66-2/3% of the outstanding shares of Preferred Stock,
voting separately as a single class, is necessary to (i) authorize, adopt or
approve any amendment to the Certificate of Incorporation that would increase or
decrease the par value of the shares of Preferred Stock or alter or change the
powers, preferences or special rights of the shares of Preferred Stock; (ii)
amend, alter or repeal the Certificate of Incorporation so as to affect the
shares of Preferred Stock adversely; or (iii) authorize, increase the authorized
number of shares of, or issue any additional shares of Preferred Stock. Holders
of Preferred Stock have the exclusive right, voting separately as a single
class, to elect three directors of the Company, one of which director shall be
elected to each of the Company's three classes, until such time as the number of
outstanding shares of Preferred Stock represent on a fully-diluted basis less
than 5% of the total number of shares of Common Stock outstanding. The presence
in person or by proxy of the holders of record of one-third of the total number
of shares of Preferred Stock then outstanding and entitled to vote shall be
necessary and sufficient to constitute a quorum for all matters on which the
holders of Preferred Stock vote separately as a class.
REDEMPTION. The shares of Preferred Stock are not redeemable.
REACQUIRED SHARES. Any shares of Preferred Stock converted, exchanged or
otherwise acquired by the Company will be retired and canceled, and will become
authorized but unissued shares of preferred stock, par value $25.00 per share,
to be reissued upon the filing of an appropriate certificate of designation.
Such shares may not be reissued as shares of Preferred Stock or any other parity
stock unless all of the shares of Preferred Stock are already converted,
exchanged or otherwise reacquired.
LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any liquidation,
dissolution or winding up of the Company, no distribution will be made to the
holders of shares of Common Stock or any other class of stock of the Company
ranking junior to the Preferred Stock until the holders of the shares of
Preferred Stock shall have received a liquidating distribution in the amount of
$10.00 per share. Neither the consolidation or merger of the Company with
another person nor the sale or other distribution to another person of all or
substantially all of the assets, property or business of the Company will be
considered a liquidation, dissolution or winding up of the Company for these
purposes.
14
<PAGE>
CONVERSION. Each holder of any shares of Preferred Stock will have the
right, at the holder's option, at any time and from time to time, to convert any
or all of such shares into Common Stock into a number of shares of Common Stock
equal to the product of the number of shares of Preferred Stock being so
converted multiplied by the quotient of (i) $2,750 per share of Preferred Stock
divided by (ii) $1.00 (the "Conversion Price"). The Conversion Price may be
subject to adjustment in certain events including (a) dividends (and other
distributions) payable in any class of capital stock of the Company on shares of
Common Stock; (b) the issuance to all holders of Common Stock of rights or
warrants, entitling holders of such rights or warrants to subscribe for or
purchase Common Stock at less than the current market price; (c) subdivisions or
combinations of Common Stock; (d) the issuance of any shares of capital stock in
reclassification of the Common Stock; or (e) any other action taken by the
Company affecting the Common Stock similar to or having an effect similar to the
actions described in (a) through (d).
REGISTRATION RIGHTS
Approximately 38,128,766 shares of Common Stock (of which 28,945,325
shares are issuable upon exercise of certain outstanding warrants or conversion
of outstanding shares of Preferred Stock) and 10,000 shares of Preferred Stock
(collectively, the "Shares") are entitled to certain rights with respect to
their registration under the Securities Act. In the event that the Company
proposes to register any of its securities under the Securities Act other than
on Forms S-4 or S-8, the holders of the Shares shall be entitled to include
their shares in such registration (a "piggyback registration") subject to the
right of the underwriters of any such offering to limit the number of such
shares. Certain holders of the Shares that participate in a piggyback or demand
registration will be subject to a 90-day lockup period on securities of the
Company not included in any such registration. The Company has agreed to pay
certain expenses in connection with each registration statement prepared
pursuant to the Registration Agreement, other than underwriting discounts and
selling commissions, which shall be borne by the participating sellers in
proportion to the number of shares sold by each.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Certificate and Bylaws of the Company and Delaware law contain
several provisions that may make the acquisition of control by the Company by
means of a tender offer, open market purchases, a proxy fight, or otherwise more
difficult.
DELAWARE LAW
Section 203 of the Delaware General Corporation Law ("Section 203")
restricts certain transactions between a corporation organized under Delaware
law (or its majority-owned subsidiaries) and any person holding 15% or more of
the corporation's outstanding voting stock, together with the affiliates or
associates of such person (an "Interested Stockholder"). Section 203 prevents,
for a period of three years following the date that a person becomes an
Interested Stockholder, the following types of transactions between the
corporation and the Interested Stockholder (unless certain conditions, described
below, are met): (a) mergers or consolidations, (b) sales, leases, exchanges or
other transfers of 10% or more of the aggregate assets of the corporation, (c)
issuances or transfers by the corporation of any stock of the corporation which
would have the effect of increasing the Interested Stockholder's proportionate
share of the stock of any class or series of the corporation, (d) any other
transaction which has the effect of increasing the proportionate share of the
stock of any class or series of the corporation which is owned by the Interested
Stockholder, and (e) receipt by the Interested Stockholder of the benefit
(except proportionately as a stockholder) of loans, advances, guarantees,
pledges or other financial benefits provided by the corporation.
15
<PAGE>
The three-year ban does not apply if either the proposed transaction or
the transaction by which the Interested Stockholder became an Interested
Stockholder is approved by the board of directors of the corporation prior to
the date such stockholder becomes an Interested Stockholder. Additionally, an
Interested Stockholder may avoid the statutory restriction, if, upon the
consummation of the transaction whereby such stockholder becomes an Interested
Stockholder, the stockholder owns at least 85% of the outstanding voting stock
of the corporation without regard to those shares owned by the corporation's
officers and directors or certain employee stock plans. Business combinations
are also permitted within the three-year period if approved by the board of
directors and authorized at an annual or special meeting of stockholders, by the
holders of at least 662/3% of the outstanding voting stock not owned by the
Interested Stockholder. In addition, any transaction is exempt from the
statutory ban if it is proposed at a time when the corporation has proposed, and
a majority of certain continuing directors of the corporation have approved, a
transaction with a party who is not an Interested Stockholder of the corporation
(or who becomes such with board approval) if the proposed transaction involves
(a) certain mergers or consolidations involving the corporation, (b) a sale or
other transfer of over 50% of the aggregate assets of the corporation, or (c) a
tender or exchange offer for 50% of more of the outstanding voting stock of the
corporation.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that such bylaw or
charter amendment shall not become effective until 12 months after the date it
is adopted. The Company has not adopted such a charter or bylaw amendment.
BOARD OF DIRECTORS
CLASSIFIED BOARD OF DIRECTORS. The Certificate and Bylaws provide for
the Company's Board of Directors to be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one-third of the
Board of Directors is elected each year. The classification of directors will
have the effect of making it more difficult for stockholders of the Company to
change the composition of the Board of Directors in a relatively short period of
time. At least two annual meetings of stockholders, instead of one, will
generally be required to effect a change in a majority of the directors on the
Board. In addition, one director in each class is elected by the holders of
Preferred Stock, voting as a class.
NUMBER OF DIRECTORS. The Bylaws provide that the number of directors
shall be not less than three nor more than 15, the exact number to be fixed from
time to time by the Board of Directors. Vacancies in the Board or newly created
directorships resulting from an increase in the number of directors may be
filled by a majority of the remaining directors. Accordingly, the Board could
prevent any stockholder from obtaining majority representation on the Company's
Board by enlarging the size of the Board and filling the new directorships with
the Board's own nominees.
REMOVAL OF DIRECTORS. The Certificate and the Bylaws provide that a
director may be removed only for cause. "Cause" is defined to exist only if the
director has been (x) convicted of a felony, adjudicated to be liable for gross
negligence, recklessness or misconduct in the performance of his or her duty to
the Company in a manner of substantial importance to the Company or adjudicated
to be mentally incompetent, which mental incompetency directly affects his or
her ability as a director of the Company and (y) such conviction or adjudication
was made by a court of competent jurisdiction and is no longer subject to
appeal.
CERTAIN VOTING REQUIREMENTS IN THE CERTIFICATE AND BYLAWS
AMENDMENT OF CERTIFICATE. The affirmative vote of the holders of at
least 66 2/3% of the voting power of all outstanding voting shares of the
Company is required to alter, amend, adopt any provision inconsistent with, or
repeal the provisions of the Certificate of Incorporation relating to the
election, removal and classification of directors and amendment of the Bylaws.
16
<PAGE>
AMENDMENTS TO BYLAWS. The Certificate and Bylaws further provide that
the Board has the power to make, alter, amend and repeal the Bylaws (except so
far as bylaws adopted by the stockholders of the Company otherwise provide).
Notwithstanding the foregoing, the Bylaws may not be altered, amended or
repealed, and no provision inconsistent therewith may be adopted, by action of
the stockholders without the affirmative vote of at least 66 2/3% of the voting
power of all the outstanding shares of the Company.
SUPERMAJORITY VOTE FOR CERTAIN TRANSACTIONS. Under Delaware law, and
subject to certain exceptions, unless a greater vote is required in the
corporation's certificate of incorporation, a merger, consolidation or
dissolution of a corporation may be approved by a majority vote of the
outstanding stock of the corporation entitled to vote thereon. The Certificate
contains provisions that require the approval of holders of at least 80% of the
voting power of the then outstanding shares of capital stock of the Company
entitled to vote as a condition for any of the following actions: (i) a merger
or consolidation, (ii) a share exchange, (iii) the adoption of any plan or
proposal for liquidation, dissolution or reorganization and (iv) a sale, lease
or other disposition of all or substantially all of the Company's assets (on a
consolidated basis). The 80% voting requirement is not applicable if such action
is approved by a majority of the Continuing Directors of the Company prior to
the transaction. The term "Continuing Director" is defined to mean (i) any
member of the Board as of December 31, 1992, (ii) any new director who is
proposed to be a director of the Company by a majority of the Continuing
Directors then on the Board and (iii) any successor of a Continuing Director who
is recommended to succeed a continuing Director by a majority of the Continuing
Directors then on the Board. The affirmative vote of the holders of at least 80%
of the voting power of all outstanding voting shares of the Company is required
to amend, repeal, or adopt any provisions inconsistent with, the provisions of
the Certificate described in this paragraph.
APPROVAL OF CERTAIN TRANSACTIONS BY PREFERRED STOCK DIRECTOR. The Bylaws
require the approval of a majority of the entire Board of Directors, which
majority must include at least one director elected by a class vote of the
holders of Preferred Stock, to take, approve or otherwise ratify the following
actions: (i) the issuance of equity securities or options, warrants or other
subscription or purchase rights with respect to equity securities of the Company
or any of its subsidiaries, (ii) the declaration of any dividend, (iii) the
incurrence, assumption, and/or refinancing of any indebtedness of the Company or
any of its subsidiaries, (iv) the adoption of any employee stock option or
similar plan, (v) the entering into of an employment or consulting agreement
with an aggregate payment exceeding $100,000 per annum, (vi) (x) any merger or
consolidation of the Company or any of its subsidiaries with one or more Persons
or (y) the merger or consolidation of one or more persons into or with the
Company or any of its subsidiaries, (vii) any sale, conveyance, exchange or
transfer to another Person of (x) the voting stock of the Company or any of its
subsidiaries or (y) all or substantially all of the assets of the Company or any
of its subsidiaries, (viii) outside of the ordinary course of business, (x) any
sale, conveyance, exchange, transfer or lease or other disposition to another
Person of any material assets, rights or properties of the Company or any of its
subsidiaries or (y) any purchase, lease or other acquisition of any material
assets, rights or properties of another Person, (ix) subject to exceptions,
expenditures by the Company or any of its subsidiaries in excess of $300,000,
(x) the formation of any Company or entity, all of the shares or equity
interests of which are not owned by the Company, directly or indirectly, (xi)
any material changes in accounting methods or policies of the Company or any of
its subsidiaries, (xii) any amendment, modification or restatement of the
Restated Certificate of Incorporation and Bylaws of the Company, or the
certificate of incorporation of any subsidiary of the Company, (xiii) the
settlement of any claim, proceeding, arbitration or other action involving the
Company if the Company or any subsidiary thereof would be required to pay an
aggregate amount in excess of $50,000 in connection with such settlement, (xiv)
the approval or amendment of the annual operating budget of the Company, (xv)
taking any other action which is other than in the ordinary course of business,
and (xvi) agreeing to take any of the foregoing actions. For purposes of this
paragraph, "Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint stock company, trust,
unincorporated organization, governmental authority or other entity.
17
<PAGE>
PLAN OF DISTRIBUTION
All or part of the Common Stock offered hereby may be sold by the
Selling Stockholders from time to time in transactions on the OTC Bulletin
Board, in negotiated transactions or otherwise at market prices prevailing at
the time of sale or at prices related to such market prices, either directly or
through brokers or to dealers, to the extent that such prices are obtainable and
satisfactory to the Selling Stockholders. It is anticipated that any commissions
with respect to such sales will not exceed regular brokerage commissions. The
Selling Stockholders, and brokers executing selling orders on behalf of the
Selling Stockholders and dealers to whom the Selling Stockholders may sell, may
be deemed "underwriters" within the meaning of the Securities Act. Any profit
represented by the excess of the selling price over the cost of the shares sold
in the case of dealers, or any commission received in the case of brokers, may
be deemed to be underwriting discounts or commissions under the Securities Act.
In connection with the sales of Offered Securities, the Selling
Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, the broker-dealers may engage in short sales
of shares of Common Stock registered hereunder in the course of hedging the
positions they assume with the Selling Stockholders. The Selling Stockholders
may also sell shares of Common Stock short and redeliver the shares to close out
such short positions. The Selling Stockholders may also enter into option or
other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares of Common Stock registered hereunder, which the
broker-dealer may resell or otherwise transfer pursuant to this Prospectus.
The Company will inform the Selling Stockholders that the anti-
manipulation rules under Regulation M under the Exchange Act may apply to their
sales in the market and will furnish the Selling Stockholders upon request of a
copy of these rules. The Company will also inform the Selling Stockholders of
the need for delivery of copies of this Prospectus in connection with the sale
of any of the Offered Securities registered hereunder.
The expenses of registration incurred in connection with this offering,
estimated at $50,000, will be paid by the Company, but all selling and other
expenses incurred by Selling Stockholders will be borne by such Selling
Stockholders.
The Selling Stockholders may sell all or part of the Common Stock
offered hereby pursuant to Rule 144 under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for
the Company by Butler & Binion, L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the two years in the period ended December 31,
1997, incorporated in this prospectus by reference from the Company's annual
report on Form 10-KSB, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference
and have been so incorporated in reliance upon the report of such firm given
upon the authority of said firm as experts in auditing and accounting.
18
<PAGE>
The financial statements of 1818 Oil Corp. as of December 31, 1997 and
1996 and for each of the two years in the period ended December 31, 1997,
incorporated herein by reference to the Company's Report on Form 8-K/A, filed
May 29, 1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
said firm as experts in auditing and accounting.
Information incorporated by reference into this prospectus regarding the
estimated quantities of oil and gas reserves and the discounted present value of
future pre-tax cash flows therefrom is based upon estimates of such reserves and
present values prepared by or derived from estimates included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997, prepared by
Netherland Sewell and Associates, independent petroleum engineers, and
incorporated herein by reference. All of such information has been so included
herein in reliance upon the authority of such firm as experts in such matters.
No person is authorized to give any information or to make any representation
not contained in this Prospectus; any information or representation not
contained herein must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, as a solicitation
of an offer to buy any securities other than those to which it relates or an
offer to any person in any state where such offer would be unlawful. Neither the
delivery of this Prospectus nor any sale hereunder shall under any circumstances
create any implication that there has been no change in the facts set forth in
this Prospectus or the affairs of the Company since the date hereof.
19
<PAGE>
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NO PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS; ANY
INFORMATION OR REPRESENTATION NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, AS A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER
TO ANY PERSON IN ANY STATE WHERE SUCH
OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PAGE
------
Available Information ............ 1
Incorporation of Certain
Documents by Reference ........ 1
The Company ...................... 2
Recent Developments .............. 2
Risks Factors .................... 3
Selling Stockholders ............. 10
Use of Proceeds .................. 13
Description of Capital Stock ..... 13
Plan of Distribution ............. 18
Legal Matters .................... 18
Experts .......................... 18
5,865,325 SHARES
VAALCO ENERGY, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JULY 30, 1998
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